Thursday, 13 December 2012

Taxpayer funded Unions

As a long-time advocate of fiscal restraint in the public sector, it is very comforting to see the sobering report by Kevin Page the Parliamentary Budget Officer. His latest report states that the federal public sector compensation is approximately $114.000 per employee. This figure which comprises wages and benefits outpaces inflation and of course the average compensation in the private sector.

What we must remember is that the reported figure is for federal employees. We must also look at compensation for provincial and local government employees to see how much of the taxpayers money is spent on public sector employees; given that in some cases the wages, salaries and benefits of public sector employees account for over 60% of operating costs.

In the past years there has been a movement towards the right-to-work (RTW) in the United States. Last fall Wisconsin saw a very acrimonious battle between Unions and the State Government. A recall of the Governor by Unions was soundly defeated at the ballot box.
On December 11, 2012 Michigan became the 24th State to pass a right-to-work legislation. What is significant is that Michigan is the bastion of the union movement, the birth place of the Auto Workers Union, one of the most powerful unions, which also has a foothold in Canada.

Statistics show that unemployment is lower in most of the states that have adopted RTW policy. Union membership is dwindling in the United States where the huge settlements made through collective agreements in the public sector are the main cause of bankruptcies at the local and state levels. Governments can no longer sustain the costs of promised pensions in a changing economy.

In Canada, The Rand Formula (1946) which makes trade union dues mandatory regardless of the worker’s union status has legal force in certain province. While unions have contributed to the wellbeing of workers in the past, in the 21st century their role has changed and the results of collective bargaining, especially in the public sector has clearly become a burden on the taxpayer.

In addition unions in many cases have not represented their membership very well. For example the Alberta Teachers Association did not support Lyndon Dorval in the ‘no zero’ policy. Unions oppose immigration of foreign workers in an environment of high levels of vacancies and change in  demography . They oppose any privatization of public sector services, and always maintain that any collective bargaining is ‘not about money’ and yet refuse to open their books.

Despite the fact that Brent Rathgeber Conservative MP opposes a bill that will force unions to publicly disclose how they spend the dues collected from members, it is important for this bill to pass and this is why: Unions derived the majority of their revenues from dues paid by their members. Under the Rand Formula workers are forced to pay union dues deducted from their wages. Once collected there are very few limitations as to how this money is spent by the unions. In many cases they fund political parties or agendas. In the public sector all wages are paid from taxes collected from Canadians, it therefore seems that the tax payer is the main provider of funds to Unions. Should we not have more disclosure on how our money is being spent?

Canada should follow the United States in the sea change in laws governing unions. At the very least we should amend the Rand Formula to give workers the right to choose where their dues are being spent, or as in some cases designate where the money collected should go ( e.g. to charities of their choice). The right-to- work, without joining a union should be encased into the Canadian Charter; alternatively those who want to join a union can do so freely.

Unions have a role to play in the private sector, but no longer in the public sector, where as a result of their size have become too powerful and less conciliatory. The cost of their existence has become too expensive and they have become a deterrent to change required to make the public sector more efficient. It is time for Canadian taxpayers to demand that their money is better spent on services and not Unions.

Marcel Latouche

Tuesday, 11 December 2012

The Wireless industry- an unfortunate oligopoly

Canadians are divided over the regulations to allow foreign owned companies to buy Canadian companies in the energy industry. However there is no outraged about regulations and operations of Canadian owned companies in the wireless and communication industry.

 The Canadian Radio-television and Telecommunications Commission ( CRTC ) seems to be blind to the way that companies in the wireless and cable industry operate. Increasingly politicians and consumers are getting restless about the contract terms and roaming fees. As for cable TV, the CRTC refused to allow the acquisition of Astral Media by BCE Inc., but will still consider the takeover if the bid is amended. If allowed this takeover will further shrink the number of companies. This $19.1 billion industry is an oligopoly tolerated by the government and the CRTC.

In the wireless industry, most if not all contracts demand that a consumer signs a three year contract. In the meantime as technology changes rapidly the consumer is boxed in and continuously pays more for the services. ‘Canadians look at consumers and services in other countries and are getting tired and frustrated with bigger bills, poorer service and limited choices. Data produced by the Organization for Economic Co-operation and Development shows that Canadians still pay higher prices than subscribers in the United States and Europe, While it may be a strategic move in his leadership campaign for the Liberal party, Marc Garneau, a former astronaut, has taken a stance regarding the wireless industry dominance, he said: , “I am doing what I think is important for Canada, important for the economy,” which he said was the “No. 1 priority” of his campaign
While The Hon. Marc Garneau advocates a more competitive industry by allowing multinationals to enter the Canadian market, it is unfortunate that a takeover by a foreign giant company is unlikely at this stage. The existing Canadian operators all own television distribution businesses. They are not only licensed by the CRTC but are also protected because of restrictions by foreign-investment laws under the Broadcasting Act.

The three year term contract is not the only complaints as almost 90 per cent of consumers want their wireless carriers to halt their data use abroad when they’ve spent a maximum of $50 on international data roaming fees. A recent survey found about 90 per cent of consumers had received a bill that was much higher than expected for international data roaming. , The Public Interest Advocacy Centre said that Canadians face cellphone bill shock while using their phones outside of Canada.

As for TV, Canadians are given very little choice. Often the same companies which provide them with their TV are also their internet and cellphone providers. The bundling of channels is full of programs which are duplicated and with several repeats during the day. Consumers are forced to buy certain channels as part of a bundle, yet these channels must carry a level of Canadian content. For example if you get BBC Canada, you now get a plethora of Canadian programs such as ‘Holmes this or that’ which has nothing to do with the BBC.  Mr. Holmes the construction guru already appears on other channels which are already offered through other bundles.  

While most American channels are offered as part of the mainstream, it is ironic that news channels are offered under different rules. For example CNN is widely accessible, yet Fox News must be bought as an additional channel not readily accessible by the masses. Therefore Canadian perception of U.S politics may be indirectly shaped, and influenced.

 The CRTC has a number of issues to look at in the new year; starting with the opening of the communication industry to foreign investors, followed by a revision of channel bundling by providers and the percentage of required Canadian content. They could include the limitation of long term contract and how customers are notified of international roaming rates in its new wireless code of conduct, .

The regulation of the industry is not and should not be one drawn on political ideology.   Rather the CRTC should look at how it can change this oligopoly into a more competitive industry to better serve the Canadian consumer.
Marcel Latouche

Wednesday, 28 November 2012

The real elephant in the room

Recently, during the by-election in Calgary Centre, mayor Nenshi injected himself into the campaign. Under the guise of holding a forum to discuss municipal issues, he cleverly engineered an attack on the Conservative candidate who did not attend the meeting.

While the merits of candidates attending forums may be deliberated, the mayor surrounded by candidates from the left, berated Joan Crockatt for being the ‘elephant not in the room”. He proceeded to use the meeting to tout the idea that cities should get more money from the federal government, an issue that he had been discussing with his municipal counterparts in Ottawa.

Government funding and transfers from higher to lower governments is a perennial debate in Canada, but the real issue of how services should be delivered is never put forward. Mayor Nenshi has adopted his predecessor’s mantra of seeking more funds for infrastructure while taxing Calgarians, but has refused to use alternative ways of providing services to Calgarians, through systemic privatization or managed competition.

During his mayoral campaign he portrayed himself as a fiscal expert. Once elected he discarded ‘zero base budgeting’ for a concoction called ‘zero base reviews’ and accepted a fabricated ‘city inflation’ rate when the true inflation rate is below 2%. Last year Calgarians had a 10% tax increase. This year Council proposes a 5.7% increase. Calgary continues to push the idea that our taxes are lower than most cities in Canada. However rates and fees are increasing at a faster rate. For example the seniors’ transit fee will see a massive increase from $55 to $95. Water and Sewer and garbage bins rates will also increase. The Aldermanic budgets will see increases of $383,000 for communication and education purposes. In fact Calgarians are being nickelled and dimed to death.

The problem is that the budget process is staged and has become a sham. We appropriate savings and increase spending, instead of reducing taxes. Any money from the province is quickly appropriated and used for needless expenditures. At the same time Council continues to say there is not enough money. Calgarians on the other hand have taken a disengaged attitude as they continue to support the mayor in his quest for another term.

In a recent poll the Mayor received an 88% approval. The question is why? This mayor has done nothing to alleviate the tax burden of Calgarians. He proposes an alternative budget and yet there is more new spending instead of necessary cuts which could have been made through zero base budgeting. True there have been less acrimonious debates at City hall but the result has not produced savings or efficiencies. Savings and transfers from the province, if any, have not been translated in any tax reduction. Instead we are taking money out of reserves to balance the books.

Calgarians should really take a good look at the performance of Council under Mayor Nenshi’s leadership. Nothing has changed in the financial affairs of the city. We have seen more expenditures and discussions such as ‘shark fin’ soup and capital expenditure for Crowchild Trail, while existing problems are put on the back burner. We continue to blame  suburban development for the city’s ills. Yet we do not recognize that growth is not the problem, but that city hall’s ‘rob Peter to pay Paul’ policies to manage growth are the real problem.
There is nothing wrong to be ambitious or a liberal for that matter, but to pretend to be looking after Calgarians’ interest while discretely campaigning for a candidate is not. While the Mayor did not campaign directly for Harvey Locke the Liberal candidate, many of his supporters during the mayoral elections did.  he certainly took the opportunity to rub shoulders with all the visiting Liberals seeking the leadership of their party.

 Conservatives beware; the real elephant in the room is the Mayor, who is planning his next steps to reach higher office.  A disguised liberal, who discusses the concerns of Calgarians, without delivering any improvements, is yet another strategy from this very clever politician.

Marcel Latouche

Thursday, 22 November 2012

Abuse of Public Funds

It seems that the public’s cynicism where politicians are concerned is well justified. In recent past the number of reported abuse of financial entitlements by politicians of every ideology has increased.

IPSA has already commented on the abuse of former Conservative Minister Bev Oda, and Minister of Defence Peter MacKay. One has resigned while the other is still in cabinet. Furthermore we have been informed of possible abuse by Senator Patrick Brazeau and of course the investigation of former Liberal Minister Joe Fontana.

In the case of Mr. Fontana who is currently the Mayor of London, he has been charged by the RCMP with breach of trust. The investigation which includes the possible use of his office expense account to pay for his son’s wedding reception held in 2005. While not proven these charges remain serious and disturbing

As for  Conservative Senator Brazeau, it is reported that he may have abused his position as senator to claim a $20,000 housing allowance. While it may be legitimate because his primary residence is his father’s home in Maniwaki, Quebec, it still leaves a bitter taste in the taxpayer’s mouth.

In Quebec, Montreal Mayor Gerald Tremblay has resigned amid allegations of corruption. In Laval Mayor Gilles Villancourt has also resigned as a result of similar allegations.  Civil servants in those municipalities are also under investigation for similar infractions. 

In Alberta we have an investigation into political donations to the Progressive Conservatives and also the continuing audit into the expenses of former executives at the Alberta Health Services. These investigations have now uncovered the use of taxpayer dollars to expense tickets to Progressive Conservative fundraisers. This case, however, hits close to the Premier's home as the allegations involve Lynn Redford, the sister of Alberta’s Premier.

While some of these allegations are still under investigation, they show a pattern of complete disregard by politicians or those close to them for taxpayers’ dollars. It seems that once in office they believe that the public purse is theirs rather than the public’s. Rules and regulations are either designed or ignored to allow excesses by people in public office.

It seems that our political leaders no longer take any responsibility for their use of public funds. This type of abuse is getting so common that it has infected the non-profit sector. Executives at the Salvation Army are now under investigation for millions of dollars which have disappeared in the last two years.  Can the pubic have any trust left in the system?

We should not rely on the CBC  to be the watchdog of the public purse. It is important that safeguards are put into place to audit, on a regular basis, the expenses of elected and appointed officials. While FOIP legislation may provide access to information, it should be the governments’ responsibility to make their expenses public without any request. 

Transparency is the only path to accountability. Better still, limited terms for elected officials would be a better solution.

Marcel Latouche

Thursday, 15 November 2012

The Government debt connundrum

The debate about government debt is getting louder as the United States rapidly approaches the so-called ‘fiscal cliff”. Burdened by deficits and a large debt of $16 trillion, the U.S has created a legal mechanism that will trim the 2013 deficit by automatically creating spending cuts and increase taxes. The repercussions of such a policy, if a political deal is not arrived at, are great for not only the U.S but world economies, including Canada.

In Canada the Finance Minister just announced that his government will now wipe out the deficit a year later than expected. In Alberta the government is proposing to increase its debt level. All of this under the cloud of more problems from Europe which has been in the economic doldrums for quite some time. It is too bad that we don’t seem to learn anything from failed socialist policies which have caused massive spending and large deficit which now overburden many economies

Debt is a financial tool. It makes sense to use long debt to finance long term assets. But too often governments have used debt to finance deficits caused by political expenditures motivated by the desire to give the electorate wants instead of needs.  Political parties who are not in power automatically oppose debt, until they get in government and then perpetuate the trend of paying for promises through deficits, and debt.

Those who do not trust policymakers with deficit spending propose a balance budget policy because in their view policymakers do not worry about the costs of their policies as the burden falls on future taxpayers.  However, talks of a balanced budget are cheap when not in power; but too often economic realities are ignored when doing so. Most economists oppose a strict balanced budget rule, as it would hinder the use of fiscal policy to stabilize output, smooth taxes, or redistribute the tax burden across generations. As Harvard Professor N. Gregory Mankiw correctly points out: “Fiscal policy is not made by angels…” And politicians are certainly no angels when it comes to managing other peoples’ money.

So what is the answer to managing debt?  In my view capital debt may be justified when it is used to provide needs. Spreading the burden of capital expenditure instead of using cash passes the burden on future generations who would benefit from long term assets. Using cash to finance capital expenditure will unduly penalize current taxpayers through increased taxes.

This means that responsible governments should cut their desire of financing ‘wants’ and also cutting operating costs. More specifically labour costs which cause enormous deficits.  The burden of financing public sector wages and benefits is growing rapidly and the growing unfunded pension liability is an additional burden. Governments, who legitimately increase their levels of debt for long term assets, should put in place policies which have caveats and sunset clauses. Debt should not exceed 20%-30% of GDP, and any tax increase used to pay for the debt should immediately be removed when the debt is fully paid for.

Instead of calling for expensive ‘referenda’ to survey the taxpayer, politicians should take a good look at their policies. They should sign an agreement with the public that they will not make promises that necessitate increasing the debt level. We should have a dialogue that clearly explains that the government cannot provide everything that the public wants without explaining the costs. Too often politicians pander to special interest groups who pass the burden of their desires to the taxpayer. Organizations who support better fiscal management with fewer taxes should also actively explain the public about the consequences of answering surveys which result in further government expenditure

As the levels of debt by governments and individuals become chronic, governments should lead by example and cut their debts. Politicians should also explain to the public that not all services should be provided by the government and stop politicizing privatization.  In the 21st century there is virtually no service that cannot be put to tender and provided by the private sector or through managed competition.

Debt is not a four letter word that should be ostracized. The management of debt requires prudence, restraint, transparency, and accountability. It should not become a tool to finance  ‘wants’ and entitlements.

Marcel Latouche