Public Servants Series

What will Canada look like if tens of thousands of public sector jobs are lost by the end of this year? That is the question plaguing economists, unions and political analysts alike. These potential job losses follow the federal Conservative government’s announcement to freeze wages and deliver $8 billion in cuts over the next five years. The goal? Rid Canada of its $56 billion deficit over the same time period. Last year’s announcement prompted a collective gasp of horror. Not since Paul Martin’s 1995-96 austerity Budget has Canada seen anything close to such numbers. That was the year Ottawa cut program spending by 8.8 per cent and reduced public sector employment by 14 per cent. Cuts of that magnitude loom again. Treasury Board President Tony Clement told the Empire Club of Toronto in January the cuts could be as deep as ten per cent, which equates to spending “of anywhere between $4 billion and $8 billion.” Without question, Canada will feel the reductions. Big time.

And while Martin’s shrinking trick saved Canada from becoming, as the Wall Street Journal put it “an honorary member of the Third World” this time around there are poignant differences.  The Conservative’s $4 billion program spending cuts amounted to less than 2 per cent of total federal spending. (This would the Treasury Board maintains, return the federal government to a balanced budget in 2015/2016.) The Chrétien-Martin cuts amount to spending cuts of more than 2.7 per cent of GDP. What really makes the impact different this time around is the nature of the cuts. Martin’s 1995-1996 Budget spread the pain – payments to individuals, transfers to other levels of government and direct program spending. The current Conservative government’s focus is on direct program spending which means highly concentrated layoffs of the public-sector employees that deliver them. And it is this aspect that has the public sector unions worried – very worried.

Without question, Canada will feel the reductions. Big time.

The Professional Institute of the Public Service of Canada (PIPSC) that represents 57,000 government scientists and professionals maintains Canadians will lose all round. The cuts will imperil the economy and leave Canadians bereft of crucial public services. (An economic analysis by the Canadian Association of Professional Employees (CAPE) released in February projects the loss of up to 116,000 jobs in Canada’s public and private sectors. CAPE argues this will topple Canada into recession.) How can a country with a gutted public sector provide sufficient public services? Gary Corbett, PIPSC President remains dedicated to doing just that. “We are committed to defending the public good due to the erosion of public services and the related economic and social impact of job losses on communities across the country.”

The type of public services slated for cuts also concerns Corbett. “Our members are professionals whose jobs can be summed up as protecting Canadians. Any time thousands of their positions are on the line, public safety demands a full and transparent accounting of the impact,” says Corbett. Earlier this year, the government announced the layoffs of food and safety inspectors and scientists that monitor water quality and pollution levels – that is, public servants crucial to the functioning of a first-world country. Read more about PIPSC on page 54 of Ottawa Life Magazine March/April Edition.

An analysis by economic think tank the Canadian Centre for Policy Alternatives (CCPA), “The Cuts Behind the Curtain: How federal cutbacks will slash services and increase unemployment,” validates Corbett’s concerns. The CCPA estimates federal government employee job losses of between 60,100 and 68,300. The City of Ottawa would be especially hard hit. Our city’s unemployment rate would soar from 6.2 per cent to 9.2 per cent.

The CCPA also looked at programs that would be cut.  Some of the most vulnerable are hit hard. Support for low-income families, seniors, the unemployed, environmental programs, programs for Aboriginal on-reserve housing, training and primary health care and workplace and food safety inspectors would all be cut. Canada, the CCPA report maintains could lose up to 1,500 food and safety inspectors in the Canadian Inspection System – all within 12 months. “This” the report added, “despite Canada’s still-vivid memory of the 2008 listeriosis outbreak.” (This refers to the Maple Leaf Foods tainted cold cuts incident that killed 23 Canadians.) And if that wasn’t enough, Canada’s international profile would be hurt. Cuts to Canada’s international development program would also be affected.

Proposed by the Tories is $1 billion in cuts over the next fiscal year, $2 billion for 2013-14 and $4 billion (which could go as high as $8 billion) by 2014-15. Under the microscope are 70 government departments and agencies which are required to submit scenarios for a five and ten per cent cut to their budgets. This, the Tories say, will help eliminate a $31 billion deficit by 2015-16.

Proposed by the Tories is $1 billion in cuts over the next fiscal year.

A way of assessing the potential impact of the cuts is to compare and contrast the Tory slash plan with the size and shape of the 1995-96 budget cuts.  At the time of the 1995-1996 cuts, the world had written off Canada as an economic basket case.  Ottawa cut deep and Canada rebounded. The GDP grew an average of 3.3 per cent a year. Canada then proceeded to outpace other G-7 economies, investment grew 5.4 per cent a year and employment expanded by 2.1 per cent. The number of welfare recipients halved and the national debt fell to 29 per cent in 2008-2009 from 68 per cent in 1995-96. The federal Conservatives believe the 2012 cuts might set Canada on track again. But the tone, the vein and intent feel different this time around.  Many argue the Tories are targeting many of the programs and public services that are defining features of the Canadian fabric, what makes our country unique.

Might there be another solution to Canada’s deficit conundrum than across-the-board cuts to government departments?

Lieutenant-General Andrew Leslie, who commanded the Canadian army during the Afghanistan mission thinks so. So do economists and social think tanks like the Canadian Centre for Policy Alternatives, the C.D. Howe Institute and even the Conservative Fraser Institute.

Leslie proposes a nuanced approach. Instead of axing across the board, cuts should be targeted. Ironically, he says the Department of National Defence should be cut. In Report on Transformation 2011, Leslie proposes a wholesale deflation of the national headquarters of Department of Defence. Among the 43 recommen-dations is the redeployment and elimination of 3,500 regular forces personnel and 3,500 civil servants in the department, cutting 30 per cent from the $2.7 billion spent each year on private contractors, consultants and services and the consolidation of departments that overlap and dupli-cate each other.

Niels Veldhuis, Vice-President of Canadian Policy Research at the Fraser Institute.

Niels Veldhuis, Vice-President of Canadian Policy Research at the Fraser Institute, advocates a Martin-era redux. “What they did was to put every single government department under a series of six tests. This is something the current government should do today.” The final results might, Veldhuis suggests, result in some departments being unaffected by cuts, some being disbanded altogether with others falling mid-way. The Martin tests included assessing departments on affordability, ability to serve the public interest, scope for private/public sector partnerships and the necessity of government involvement. Reductions at the spending level are another solution to Canada’s deficit woes. Veldhuis suggests the removal of the 100-odd “special treatments” such as credits and allowances offered by the government to the ordinary taxpayer through to corporations.

David Macdonald, Senior Economist at the CCPA, the Fraser Institute’s ideological counterpoint, offers  another solution Canada’s deficit woes – eat the rich. Solutions include a new tax income bracket for Canadians who earn $250,000 a year or more, closing high end tax loopholes for Canada’s ultra wealthy, getting rid of the capital gains tax and capping Registered Retirement Savings Plan (RRSP) contributions to $15,000 instead of the current $22,000. Only wealthy Canadians can contribute $22,000 a year, turning RRSPs into a tax shelter for the rich.

Alexandre Laurin from the C.D Howe Institute offers other revenue raising solutions – user fees for services offered by Crown Corporations, the full or partial privatization of government services and switching the tax mix from corporate taxed to consumption taxes. Easing the corporate tax burden would Laurin says “create more economic growth.”

But no matter the solution to Canada’s deficit woes, the effects of the government’s plans on the country remain a dark horse.  As the government unveils its budget, things will likely become a bit clearer.  But it has been a situation that, Corbett, as the head of Canada’s largest professional public sector employee union, finds unacceptable. “For us it is about working smarter, not cutting the public sector wholesale, it’s about better planning and identifying where you want to take the public service.” Time will tell where Canada’s public service will end up and where Canadians are going to feel the pinch.

SIDEBAR: Finance Minister Jim Flaherty disagrees with conclusions in report by CAPE

Finance Minister Jim Flaherty

While public sector service unions are heeding CAPE’s findings, Canada’s Finance Minister Jim Flaherty dismisses them.  In February, Flaherty told CBC’s Evan Solomon that CAPE’s projected $8 billion cuts are “way outside the realm of possibility.” As for the prospect of 116,000 job losses, Flaherty stated the government has “a very complicated process for work adjustment in the federal government. Nothing happens quickly in terms of work adjustment changes: it takes a year or two, even perhaps three in some cases, so moderation in all things, and we have a fair amount of attrition.” However, when Solomon probed Flaherty on the scope of the estimated between 5-10 per cent  cuts Flaherty remained tight-lipped. “We’re working on it, reviewing all the work of the Deficit Reduction Committee and we’re not at final figures and I’m not being coy about that,” Flaherty said. With the 2012 Budget being tabled in the House of Commons on March 29, only time will tell.

It is said that there is no honour among thieves. After watching the reaction from both the White House and the Democratic National Committee (DNC) to recent comments made by one Hilary Rosen concerning Ann Romney, wife of the Republican Party’s likely presidential nominee, we could safely expand this old adage to read that there is no loyalty among politicians and their advisors in an election year.

Last week, when appearing on a three-way discussion panel on CNN’s Anderson Cooper 360, Democratic political consultant and White House advisor Hilary Rosen attempted to frame Republican presidential candidate Mitt Romney as being out of touch with today’s female American voters. She claimed that Romney’s wife, Ann, could not be seen as a true spokeswoman for the problems, concerns and fears that many working (and out of work) women are grappling with because she was wealthy. More specifically, Rosen stated that, “Guess what? His [Mitt Romney’s] wife has never actually worked a day in her life. She’s never really dealt with the kinds of economic issues that a majority of the women in this country are facing, in terms of how do we feed our kids, how do we send them to school, and why do we worry about their future.”

Hilary Rosen

Rosen’s remarks did not go unnoticed. Shortly after the panel discussion was over, Ann Romney responded to Hilary Rosen on FOX news, driving home the fact that she has worked for decades raising a family and has indeed faced many challenges in so doing, challenges which are like those of many American women regardless of their socio-economic status. In essence, Ann Romney rebutted Hilary Rosen’s comments by insisting that raising a family is as valid a form of work as is working a nine-to-five job outside the home. In the immediate aftermath of Rosen’s remarks and Romney’s response, President Barack Obama, his administration and the Democratic Party machine have proactively engaged in damage control in an effort to distance the President from the likely fallout that Rosen’s “class and gender warfare-based” gaffe would have on the Democratic Party in general and on President Obama in particular.

Knowing that the stakes were too high in November’s presidential election to risk any association with anything or anyone that could hamper the President’s re-election campaign, senior White House officials immediately began excommunicating Hilary Rosen from the Democratic Party. During a press conference, White House Press Secretary Jay Carney said that Hilary Rosen did not work for the President as an Obama re-election advisor and stated that he did not even know who she was. On CNN, David Axelrod, who is serving as the chief campaign strategist for President Obama’s re-election bid, unequivocally stated that Hilary Rosen’s comments were her own opinions and that she was not associated with the White House as an advisor to the President — despite the fact that Rosen had visited the White House for business purposes more than thirty times in the recent past according to Secret Service records.

Ann Romney

Gaffes like Hilary Rosen’s are nothing new in politics. However, what is new is the immediate dog-eat-dog reaction that Rosen’s comments have precipitated, a reaction which has so far resulted in her being shut out or, to put it more bluntly, thrown under the wheels of the bus by her own political party in near record time. When politicians make a gaffe — and all do no matter on which side of the aisle they may sit — there is more room for forgiveness than there is with political operatives, consultants and media commentators. For instance, when outgoing President Ronald Reagan referred to Michael Dukakis, the Democratic Governor of Massachusetts who would challenge Republican George H.W. Bush in the 1988 presidential election as an “invalid” at a White House press conference, or when, on the 2008 campaign trail, then Democratic Senator and now Vice President Joe Biden told a wheelchair-bound Missouri State Senator to “stand up,” people let it pass. However, when a political consultant or advisor makes a gaffe, the situation is markedly different. Immediate dismissal and no delay in distancing the politician from the offending individual is often the first line of defense in the battle to avoid damaging reaction in the court of public opinion. The reason, of course, is that the comment, if left unaddressed, could very well translate into a loss of votes at the next election. Such is the case with Hilary Rosen.

Rather than admitting that Rosen was indeed a White House advisor who erred in making a comment that was accusatory and inappropriate (a common enough human failing), the Obama administration has spared no effort in distancing itself from her. As a result, there is little doubt that her career as a Washington-based political operative and Democratic political consultant is likely over. Politics at the national level has always been a zero sum game; yet it would seem that the consequences are especially swift for advisors and consultants who find themselves at the wrong end of a comment which could prove damaging to a re-election campaign. The reaction to Rosen’s comments should serve as a warning to all political operatives and workers that loyalty is not absolute and that, in an election year, everyone is expendable. This lesson is equally as pertinent here in Ottawa as it is in Washington.

In 1930, as the United States of America and much of the Western world slipped further into what would later be called the Great Depression, the American Congress and Republican President Herbert Hoover were convinced that the best way to stop the hemorrhaging economy was to pursue a path of ardent protectionism through the implementation of “beggar thy neighbor” policies. The best known of these policies was the Smoot-Hawley Tariff Act which was signed into law in June of that same year amidst much support from a broad cross-section of the American populace. Although the Act was originally intended to spur investment and create employment in America’s declining agricultural industry by placing extremely high tariffs on foreign agricultural products, by the time that congressmen and senators from both parties were through, the law had raised tariffs to unsustainable levels in virtually all segments of the American economy.

Naturally, nations outside of the United States quickly retaliated by tabling their own protectionist laws with the aim of increasing tariffs on American products and services. Some countries even went so far as to ban the purchase of American products and services in the attempt to make their own economies competitive despite Washington’s protectionist response to the economic crisis. The Smoot-Hawley Tariff Act backfired on Herbert Hoover and the Republican Party by strongly exacerbating the Depression and by contributing to the election of America’s only four-term president, Democrat Franklin Delano Roosevelt, two years later in 1932. The end result of the Smoot-Hawley Tariff Act and the retaliatory “beggar thy neighbor” protectionist policies that it spawned was arguably the first global trade war in history.

A Boeing 707 lifting off.

Today, despite the Western world’s efforts over the decades to encourage freer trade and thus avoid repeating history in terms of the Smoot-Hawley Tariff Act, it would seem that the protectionist urge still lives on. One need look no further than the European Union’s (EU) ongoing attempt to require all airlines flying into EU airspace to participate in its Emission Trading Scheme (ETS). In an act of bureaucratic arm-twisting, that scheme would force the international airline industry to become more fuel efficient and pay reparation to the EU for the amount of carbon dioxide emitted by commercial airplanes flying into the EU. As of this past January, all airlines flying into the EU are legally obligated to purchase carbon credits which are to be used to offset the emissions created by burning jet fuel in the turbine engines that power virtually all commercial airplanes. Although payment for such permits does not become mandatory until the spring of 2013, airlines in countries operating outside of the EU are already beginning to implement their own retaliatory measures.

Not surprisingly, the United States, Canada, Russia, China, India and also the majority of the other nations that maintain large commercial fleets beyond the borders of the EU strongly object to the EU’s unilateral, punitive program. They are seeking the most effective way to implement retaliatory measures against the EU’s overreaching bureaucracy if a diplomatic solution cannot be found. The retaliatory response to the ETS being considered by many nations consists of a mix of both legislative and economic action.

China has officially prohibited its national airline from participating in the ETS.

On the legislative front, China has officially prohibited its national airline from participating in the ETS. India has taken a similar stance by advocating a boycott of the program, while the United States of America and many other Western countries have considered the possibility of altering existing flight paths so as to bypass the geographical regions included in the ETS. That move would translate into the loss of countless millions, if not billions, of dollars of revenue generated by tourism and its supporting industries which have taken the easy access to countless travellers from beyond the EU for granted in their current business models. A refusal to fly into EU airspace by many popular airlines would require travellers to land in countries outside the EU and then to find their own alternative form of transportation into the EU, a move which would make travelling to EU countries more difficult and also more expensive. Given such a scenario, if countries within the EU wanted to maintain the steady stream of travellers required to sustain their existing business models, they would likely have to assume the extra costs associated with facilitating access to the EU. In a nutshell, travellers would face a much more complicated two-step process to enter the EU. Furthermore, within the international aviation community, there is talk of imposing a surcharge upon all European flights, something that could be even more costly than the consequences from the ETS.

Within the international aviation community, there is talk of imposing a surcharge upon all European flights.

To make matters worse for the proponents of the Brussels-based program, China is in the process of cancelling an order from France’s aircraft manufacturer Airbus, a deal said to be worth over $14 billion. That move will represent a substantial economic loss of revenue for the French manufacturer in particular and for the European aeronautic industry in general. It would seem that “beggar thy neighbor” policies are back and that the ETS could more appropriately be labeled the “Smoot-Hawley of the Sky.”

The only real difference between the controversial piece of American legislation from the 1930s and the current ETS is that the motivation for the protectionist legislation has changed substantially. In the 1930s, the motivation for the Smoot-Hawley Tariff Act was based on creating a way to allow American businesses to better exploit America’s natural resources for economic gain. Today, some eighty-two years later, the European Union is unilaterally implementing a punitive tariff program under the guise of protecting the planet from industry-specific growth in carbon dioxide emissions and reducing the exploitation of global natural resources — in this instance, the fossil fuels from which jet fuel is made. The more things change, the more they stay the same.

While the threat of the world’s first global trade war in the sky looms on the horizon, there may yet be a silver lining should the EU refuse to soften its hard-line approach on the objections to the ETS. If the nations that refuse to participate in the ETS follow China’s lead and vote with their feet by cancelling the purchase orders of EU-made commercial aircrafts, North American aircraft manufacturers such as America’s Boeing and Canada’s Bombardier could gain the billions of dollars in revenue from future fleet purchases that would have gone to European manufacturers like Airbus had the ETS program not been enforced.