Canada's Prime Minister Justin Trudeau speaks during an announcement at the offices of telecommunications firm Ericsson Canada in Kanata, Ont., on April 17.LARS HAGBERG/Reuters
As devotees of Looney Tunes are well aware, there always comes a moment when Wile E. Coyote, suspended in mid-air above a yawning canyon, finally looks down and realizes his predicament. Gravity does its thing, and a long and nasty fall ensues.
In the immediate aftermath of the pandemic, the Liberals positively gushed about the wonders of low interest rates that allowed the government to spend without a care for the resulting debt burden. But fiscal gravity is catching up to this government, in the form of ludicrously high wage demands from public service unions and a threatened general strike that could commence as soon as midnight on Tuesday.
Inflation is at the heart of the dispute, with unions pushing to (at a minimum) shield their members from the post-pandemic surge in the cost of living. Government negotiators, quite sensibly, are aiming for much more modest raises, which would counter some but not all of the impact of inflation since 2020.
External factors, including crimped global supply chains and Russia’s invasion of Ukraine, have helped fuel price increases. But there can be no doubt that the Liberals’ spending spree, which continued even after the economic emergency of the pandemic dissipated, added fuel to the fire.
Inflation would have been – and would now be – lower if the government had exercised even modest prudence and reined in its spending once the economic crisis had passed. But as Canadians know all too well, the government’s fiscal response to inflation has been to spend even more.
It’s not terribly surprising that public sector unions would want to prevent their members’ paycheques from shrinking. Even so, the size of the demands are eye-popping: the workers at the Canada Revenue Agency are pushing for wage increases of nearly 33 per cent over three years. The rest of the civil service has less astronomical demands, but those proposals would still increase pay significantly even before non-wage factors were costed in.
It would be an enormous mistake for the government to acquiesce.
For one thing, an outsized wage settlement for the federal civil service will serve as a benchmark for other negotiations, most obviously for provincial public sector unions. Private sector unions, too, will look to the contracts Ottawa’s signs as a lodestone.
If other unions attempt to keep pace with a generous federal settlement, inflationary pressures could be rekindled and keep interest rates higher for longer.
Of course, for most Canadians, a 33-per-cent raise is simply a fantasy. That’s another important reason that Ottawa needs to stick to its position for below-inflation wage increases: it would be a symbol of solidarity with Canadian families struggling to balance their budgets.
Speaking of budgets, a capitulation to union wage demands would blow a hole in Ottawa’s. Even without such added costs, the Liberals are already projecting deficits for the next five years, with tens of billions of dollars in added spending just this year.
In last fall’s economic update, the government forecast cumulative deficits of $69.4-billion for the current fiscal year and the next four, through to fiscal 2028. But in last month’s budget, those cumulative deficits nearly doubled, to $131.7-billion. The Liberals had forecast a surplus of $4.5-billion in fiscal 2028; now they forecast a $14-billion deficit.
Even that depends on the government holding its operating expenses flat for the next four years, through to fiscal 2028. The Liberals’ devotion to that goal is tenuous: If contract negotiations result in costs above the budget’s assumptions, those extra dollars will just be added to the deficit.
That insouciance does not inspire confidence, nor much hope that the Liberals will choose this moment to finally summon the spine for real spending restraint.
Public sector unions could be forgiven for thinking that the Liberals will remain invertebrate. After all, this government increased the size of the core federal bureaucracy by a third, and then hired even more bodies when massive snafus emerged for passports and other critical services.
In any case, the Trudeau government can no longer simply look away from the reality that its irresponsible fiscal choices are pushing Canada’s finances onto increasingly precarious footing. As Wile E. Coyote knows, it’s a long, painful fall once gravity takes hold.