Ottawa’s budget plans have moved on from the COVID-19 pandemic, but its finances are still nursing the hangover. The biggest source of that headache over the next several years will be the bloated size of the federal civil service.
The new budget, tabled last week, mostly talks about the pandemic in the past tense, and mostly in self-congratulatory terms. The government is proud of the country’s impressive economic recovery from the global health crisis, which has been due in no small part to the massive federal supports that kept workers and businesses afloat. Those support programs have ridden into the sunset, and budget deficits have shrunk dramatically; the government can now direct its attention, and financial resources, to other priorities.
Except the government’s biggest operating cost has not turned around and headed back toward pre-COVID-19 norms. Federal public service payrolls – which account for a little over half of Ottawa’s annual operating expenses – have risen dramatically since the pandemic began. If the government is going to chart a path “to bring the pace and scale of the growth of government spending back to a prepandemic path,” as the budget pledges, this oversized public service looms large in that path.
A report this week from the Office of the Parliamentary Budget Officer (PBO) highlighted that federal “personnel expenditures” – including compensation, pensions and other costs – jumped 32 per cent over two years from the start of the pandemic (2020-21 and 2021-22). While a large slice of that involved one-time expenses related to pension adjustments, the PBO said that even excluding these one-time costs, personnel expenses were up 7.4 per cent annually – nearly two-and-a-half times the average rate during the decade before the pandemic.
In those two years, the size of the federal public service swelled by 31,000 full-time-equivalent jobs, or more than 8 per cent. In the decade prior to the pandemic, the average annual growth rate was 1 per cent.
“Departmental result reports indicate that much of this expansion was prompted by the pandemic,” the PBO said.
But the pandemic is, for budget purposes, basically over. Why do we still have thousands of public service jobs that were created to serve the government’s pandemic needs?
The big increase in head count has been exacerbated by higher-than-normal wage growth. Public servants – like everyone else – are pushing for bigger raises, to help offset the damage that inflation has inflicted on their incomes. Their government employers – like everyone else – are dealing with labour shortages by relying more on overtime.
This is what’s in the background when we hear the government talk boldly about reining in spending, while its own expense forecasts paint a reality that doesn’t live up to the rhetoric.
It’s notable that five years from now, in the 2027-28 budget year, the government expects its program spending to be equivalent to 15.4 per cent of gross domestic product – little changed from the current ratio. Before the pandemic, program-spending-to-GDP was about 14 per cent; in the years before Prime Minister Justin Trudeau’s Liberals took power, it was below 13 per cent.
Unfortunately, the budget itself does not actually break out the government’s forecasts for personnel expenses over its five-year horizon. (It’s one of the more frustrating things about government budgets. They typically run in the hundreds of pages, and yet they gloss over the nuts and bolts of budgeting – like, say, how many people do we employ, and how will we pay them?)
Still, as the majority line item in the government’s operating costs, any serious efforts to contain spending will have to face the postpandemic bloat in the public service. When the budget talks about finding $7-billion in savings over the next five years by “reducing eligible spending by government departments and agencies,” it’s hard to see that happening without containing, even reducing, payroll costs.
It’s not something the government is in any hurry to talk about, at least publicly. The budget makes one brief mention of “wages of federal employees” as a driver of higher operating expenses in the later years of the five-year projections. It provides no details of how Ottawa intends to achieve the promised departmental savings.
Meanwhile, there’s no sign that the government has toned down its appetite for hiring. Statistics Canada data show that federal public administration employment was up 6 per cent in January (the latest figures available) compared with a year earlier.
The PBO warns that the pressures from all those jobs and salaries could easily get worse.
The budget’s projections for operating expenses are similar to those the PBO issued last month; the PBO’s forecast assumed that personnel costs would rise 2.5 per cent annually, slightly above the prepandemic norm. But with 26 of 28 federal public service bargaining groups in negotiations with the government this year, and with workers looking to recoup the hit they have suffered from inflation, unions are poised to push for considerably more than the PBO and budget forecasts have baked into their numbers. The PBO pointed out that one of the largest unions, the Public Service Alliance of Canada, is seeking a 4.5-per-cent annual increase.
It all suggests that labour expenses are going to lean hard against the government’s cost-containment efforts for years to come. Unless Ottawa gets serious about winding back its staff levels, its talk of resetting the spending clock back to prepandemic time will be just that – talk.