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Public-sector packages simply unaffordable

In 2006, Canada Post delivered roughly five billion pieces of domestic letter mail, which has dropped to four billion in 2012.

Sean Kilpatrick/THE CANADIAN PRESS

Canada Post Corp.'s recent disclosure of a $6.5-billion pension fund shortfall left the federal government with no practical choice but to support the Crown corporation's plan to provide less service at higher rates. Pouring in public money to bail out a gold-plated pension plan that is beyond the dreams of most taxpayers would have been political poison.

Canada Post's inflation-indexed, defined-benefit plan guarantees a worker up to 70 per cent of employment earnings starting as early as age 55, but it isn't the only rich government pension plan. And although Canada Post's unfunded pension liability is huge, it pales in comparison to the combined unfunded liabilities faced by federal, provincial and municipal governments across the country.

The Canadian Federation of Independent Business estimates that "the unfunded shortfall for public pension plans across the country likely exceeds $300-billion … or $9,000 for every man, woman and child in this country." Despite their staggering size, these taxpayer liabilities rarely make headlines. That's why the CFIB calls them "Canada's hidden unfunded public sector pension liabilities."

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But these pension problems won't go unnoticed much longer. As increasing numbers of civil servants retire, billions of dollars must be added to government budgets to pay for their pensions. And lower birth rates combined with baby boomers leaving the work force mean that those pension costs will fall upon the shoulders of a decreasing number of working Canadians. Most of those saddled with that $300-billion public-service pension liability are private-sector workers, two-thirds of whom don't have any kind employer pension plan.

The fact that civil servants enjoy vastly more generous retirement benefits than the taxpayers who pay for them is already fomenting rising resentment. Such pension provisions are a legacy of monopolistic public-sector unions extracting ever-more extravagant benefits from strike-fearing governments.

Meanwhile, private-sector workers who do have pensions are seeing their defined-benefit plans converted to "defined contribution," whereby the size of payouts depends upon the accumulated value of invested funds. Competitive pressures, combined with a substantial drop in the returns available to invested funds, has made conversion to this "pay-as-you-go" system an economic reality for most private-sector businesses. And given the $300-billion legacy the current structure is leaving for the next generation of Canadian workers, it is also the route that government pensions must follow.

But even if all government plans were converted tomorrow to defined contribution, so long as the defined-benefit entitlements of existing beneficiaries remain intact, it would take decades for the conversion to make a difference. And it certainly won't happen any time soon. Even changes affecting only future employees have been fiercely resisted by public-sector unions.

The status quo is no longer an option, as escalating pension costs divert more and more money from programs such as health care and education. Governments must be prepared to defy union resistance to pension-plan changes by all available means, including back-to-work legislation and imposed contracts that reflect fiscal realities. And the strongest tool available is the reduction of union monopoly power through private-sector contracting of public services.

Such actions have the support of an increasing number of Canadians who are fed up with seeing their tax dollars spent on extravagant public-sector benefits. Union leaders will protest loudly, but the reality is that they have used strike threats to overreach what taxpayers can, or will, pay for. Given the public mood, such threats might well increase voter support for dramatic change.

Democracy is the best of all governance systems. But its major flaw is that long-term thinking tends to equal the length of time until the next election. This has led to excessive concessions to public-service unions and a "kick the can down the road" attitude about pension liabilities. Like any problem, it gets worse the longer it is ignored. And ignoring this problem will soon be the least-viable political option.

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About the Author
Gwyn Morgan

Gwyn Morgan rose from his modest roots on an Alberta farm to become one of Canada’s foremost business leaders and ardent champion of the importance of Canadian-headquartered international enterprises. Gwyn has served on the board of directors of five global corporations. More

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