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The Fraser Institute

Public sector cuts are a net gain for BC's economy

Contact:

Jason Clemens, Director of Fiscal Studies
The Fraser Institute (604) 714-4544
Email jasonc@fraserinstitute.ca

For Release: 17 January 2002

VANCOUVER, BC— The Fraser Institute says reductions to BC's public sector, announced today, will be a net benefit to the province. The reductions will help restore fiscal balance in a province ravaged by poor economic performance over the last decade.

"This is one more step in the process of economic reform which began with tax cuts and must include spending cuts and deregulation," says Jason Clemens, the Institute's Director of Fiscal Studies. "The public sector employment reductions announced today will send a strong signal that the government is serious about balancing its books and securing a lower tax burden for all British Columbians."

It appears that the provincial government has made every attempt to make the cuts as painless as possible. Over 50 percent of the employment reductions are voluntary in the sense that they take the form of early retirement or attrition. The total number of layoffs was restricted to 4,800 which translates into 1,600 layoffs per year over three years.

The cuts announced today are not unique in Canada. Both Ontario and Alberta, British Columbia's principal competitors in Canada, drastically reduced the total size of their public sector in recent years. Between 1990 and 1999, Ontario cut its public sector by over 64,000 people, representing a reduction of 13.9 percent. Alberta's cuts were even deeper: over 34,000 people, representing 20.9 percent of the public sector. In contrast, British Columbia increased the public sector by over 20,000 or 11.8 percent during the same period (1990-99).

Another way of assessing the size of the public sector is by comparing it to total employment and/or total population. Ontario and Alberta maintain public sector employment representing 7.0 percent and 8.3 percent, respectively, of total employment.

In British Columbia, public sector employment accounts for 10.2 percent of total employment. As a percentage of the population, British Columbia again stands out relative to the other "have" provinces. Public sector employment compared to total population is 3.4 percent in Ontario and 4.4 percent in Alberta. British Columbia, on the other hand, has 4.8 percent of the population employed by the public sector.

"Clearly the size of the public sector in British Columbia was larger than in Alberta or Ontario, offering an opportunity for rationalisation. Hopefully this will create an impetus within the bureaucracy to find innovative solutions to problems, solutions which include the use of non-profit and for-profit partners in the delivery of goods and services," commented Clemens.

Another spurious argument is that the cuts will plunge BC into recession and significantly increase unemployment. The assumption underlying such statements is that those losing their jobs will not find gainful employment. The fact of the matter is that a non-voluntary cut of 4,800, implemented over three years, in an economy employing nearly 2 million people, will not negatively effect the economy's performance since it represents less than one percent of total employment.

It is also important to realise that the BC economy averaged annual employment gains of roughly 40,000 per year during the 1990s, a decidedly poor economic period for British Columbia. In fact, the annual non-voluntary cuts of 1,600 announced today are only 4.0 percent of total average annual employment growth.  "Even if the economy was under-performing as it did during the 1990s, it would still be able to offset the cuts announced this afternoon," says Clemens.

 


Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver with offices in Calgary and Toronto.