The Public Sector Impact on Ontario’s Debt Woes

ONTARIO 1984 license plate YOURS TO DISCOVER baseplate(Originally appearing at LvMIC.)

The motto of the province of Ontario is Ut Incepit Fidelis Sic Permanet which, translated from the original Latin, means: “Loyal she began, loyal she remains.” This is an homage to the province’s historical affiliation with the monarchy of Britain. However, in the year since the release of the Drummond Commission report, a more apt motto might be: “Indebted she began, indebted she remains.”

Consider a recent publication of the Fraser Institute, which contrasted Ontario’s finances with those of much-maligned California. It concluded that:

On every measure of indebtedness, Ontario is markedly worse than California. Ontario’s debt is almost two-thirds larger than California’s bonded debt even though California is a much larger jurisdiction in terms of both the size of its economy and its population. Specifically, California’s bonded debt is $143.9 billion as of 2011 while Ontario’s is $236.6 billion, two-thirds larger than California.

As a share of the economy, Ontario’s debt (38.6 per cent) is more than five times larger than California’s debt (7.7 per cent). Ontario’s per capita debt ($17,922) is over four-and-a-half times that of California ($3,833). Think about that – Ontarians are handing their children a debt load between four-and-a-half and five times that of Californians.

Making matters worse, the province’s balance sheet continues to deteriorate. According to the Ontario Financing Authority and Ministry of Finance, projected net debt (consisting of the difference between total liabilities and total financial assets) is expected to surpass $255 billion in fiscal year 2012-13. This would cost the government of Ontario approximately $10.5 billion in annual interest payments on the existing debt. Stated differently, the per capita annual interest cost on the provincial debt is over $800 and growing.

In light of this predicament, new research by the Fraser Institute suggests that public (versus private) sector employment is contributing to Ontario’s financial woes.

In the study, direct wages and non-wage benefits were compared between public sector employees (from all levels of government) and private sector workers in Ontario using data from the April 2011 Statistics Canada Labour Force Survey. After controlling for confounding variables such as gender, age, marital status, level of education, tenure, size of establishment, type of job, and industry, it was concluded that government employees earned on average 13.9% more than their private sector counterparts.

Not to mention, non-wage benefits also appeared greater for public sector employees. For example, the study found that three-quarters of public sector employees received a registered pension versus only one-quarter in the private sector in 2011. Of these, 97.3% of public sector employees had a defined benefit pension versus only 53.5% of workers in the private sector. Also, between 2007 and 2011, public sector employees retired on average 1.3 years earlier. Finally, job security appeared greater in the public sector, with government employees accounting for 0.7% of annual job losses versus 3.9% for private sector workers in 2011.

Such disparities occur because private firms and governments are, in the words of Hans-Hermann Hoppe, “engaged in categorically different types of operations.” On one hand, the costs incurred by private firms are constrained by consumer demand as well as competition. Simply put, the profit motive ensures that costs are minimized as private firms attempt to satisfy the most urgent consumer wants in the most efficient ways.

On the other hand, these cost limitations do not apply to government. For one, because government obtains its revenues by taxation, which is by nature a coercive exchange, it cannot be said that government services are demanded by consumers. Also, governments customarily operate in a monopoly environment. This removes the cost-restraining effect of rigorous competition. It also increases the susceptibility of government to strikes by unionized employees demanding higher pay. In a monopoly environment, there is less concern that consumers will seek out alternative suppliers. As a result, profligate spending and prolific debts ensue. Sound familiar?

Instead of market forces, the size and cost of government is limited by public opinion. As Étienne de La Boétie remarked:

Resolve to serve no more, and you are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.

This brings us to a possible two-fold Austrian solution to Ontario’s debt woes. Step one: repudiate the government debt. Step two: privatize everything. Ontario, the possibilities are yours to discover.

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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