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Drummond report on government spending falls short

Don Drummond's report on Ontario Government spending is too technocatic and not bold enough to effect a lasting solution.

Economist Don Drummond (Photo: Chris Young/CP)

Economist Don Drummond has released a 532-page report offering 362 recommendations for reforming public services provided by the Ontario Government. They are mostly technocratic in nature, exhorting politicians and public servants to be more rational and scientific in finding cost savings and efficiencies. Problem is, stronger medicine is needed.

Politicians and public servants don’t have the incentives to take the tough actions to control costs because they don’t personally own the funds they are managing, nor do they have the profit motive to energize them. They just want to be liked. The spending taps might be turned down a bit at times, but they are usually left on—until the bond markets riot.

The lack of discipline within the public sector is evident in many ways. One of the more regrettable is the inability to adhere to legislated limits on borrowing. As we saw in the United States last year, when legal debt limits are approached, politicians invariably vote to raise them.

A lasting solution to government overspending requires dramatic solutions—ones that come from outside the public service in the form of market forces. Let’s illustrate with the case of the Ontario education system.

Backgrounder

Government spending in the Ontario educational sector continues to rise.

Over the past 10 years, the hiring of teachers and non-teaching staff has continued unabated even though student enrollment has declined. This explains, in part, the 56% jump in per-pupil funding, from $7,201 to $11,207.

In addition, the last two labour agreements between teacher unions and school boards provided for cumulative salary increases between 20% and 25% over the past 8 years. A high school teacher in Ottawa with 10-years of experience now earns $94,650.

Moreover, labour agreements have maintained, or enhanced, fringe benefits. Two examples of the perks are: i) allowing retiring teachers to cash out up to half a year’s salary in unused sick leave and ii) permitting just-retired teachers to “double-dip” by allowing them to log up to 95 days of supply teaching without clawbacks to their pensions.

Then there is the Ontario Teachers’ Pension Plan (OTPP). The average teacher retires at 59 after working for 26 years, and collects a pension for 30 years. Their inflation-indexed pension income is set at about 70% of the retiring wage, including the Canada Pension Plan (CPP).

The OTPP revealed an unfunded liability in 2005. This led to an increase in the Ontario Government’s matching contribution from 8.9% to 12% of income above maximum pensionable earnings under the CPP. The underfunding problem continues to this day: a temporary increase to 13.1% in the government’s contribution was approved in 2011.

Lasting solution requires bolder moves

While we may recognize the value of subsidizing education for its contribution to prosperity and global competitiveness, among other things, there is no compelling reason that the provider of education must be a chain of government-run schools. “If present public expenditures on schooling were made available to parents [through a voucher] regardless of where they send their children, a wide variety of schools would spring up to meet the demand,” writes Milton Friedman in Capitalism and Freedom. “Here, as in other fields, competitive enterprise is likely to be far more efficient than nationalized enterprises.”

Giving parents the freedom to choose a school for their children “would permit competition to develop. The development and improvement of all schools would be stimulated…. Not least of its benefits would be to make the salaries of school teachers responsive to market forces.”

Aside from collecting taxes and providing subsidies, the “role of government would be limited to insuring that the schools met certain minimum standards…,” Freidman adds.

In Breaking Down Monopolies: Expanding Choice and Competition in Education, Yvan Guillemette echoes Milton Friedman’s concerns about the lack of choice in schooling. If a parent wants to send their child to a private or alternative school, they should receive a voucher, or otherwise a rebate of their education taxes, as long as the selected school adheres to minimum standards set out by the government.

Other countries (notably Sweden) and Canadian provinces (Alberta and other western provinces) allow variants of the voucher system to operate. Guillemette says a survey of six dozen empirical studies comparing parent-chosen private schools to government-run education systems showed that 70 of the 78 findings favoured private provision to government provision.