Prairie province still not out of the woods

Blaise Boehmer
October 26, 2013
Nobody in Conservative circles can say enough for Brad Wall and his formidable green Sask Party machine but Blaise Bohemer suggests some next steps for the province’s public policy rehabilitation. They’re not there yet.

Prairie province still not out of the woods

Blaise Boehmer
October 26, 2013
Nobody in Conservative circles can say enough for Brad Wall and his formidable green Sask Party machine but Blaise Bohemer suggests some next steps for the province’s public policy rehabilitation. They’re not there yet.
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If one Googles the two terms “Brad Wall” and “still more work to do,” one will receive thousands of hits. Whenever the Premier of Saskatchewan acknowledges the successes of his government (of which there are many), he is quick to point out that there is “still more work to do” in his province. And he is right. The people of Saskatchewan endured a stretch of bad leadership, including former premier Allan Blakeney, who successfully nationalized entire industries, and former premier Grant Devine, whose caucus made a mockery of the democratic institution it inhabited. The former emboldened Saskatchewan’s socialists, while the latter spooked conservatism out of Saskatchewan’s political consciousness. Regrettably, from 1991 onward, conservatism became associated with the 14 Progressive Conservative caucus members convicted of fraud and breach of trust. This allowed for a brief resurgence of the Liberal party, and for the NDP to govern, virtually unchallenged, for 16 years. With the history of the past few decades, along with the longer history of socialism and the subsequent deification of former premier Tommy Douglas, Wall has a lot of work ahead of him.

During those 16 years, the NDP did admirable work dealing with the financial crisis of the early 1990s, simplifying the tax system, dropping tax rates and paying down debt. However, in style, they subscribed to a governing theory that mediocrity makes success easier to achieve (for a tearful laugh at this uninspiring period, read John Gormley’s Left Out: Saskatchewan’s NDP & the Relentless Pursuit of Mediocrity). Here is a quick breakdown of key moments from the NDP’s tenure: They shut down over 50 hospitals, engaged in a prolonged labour dispute with the nurses’ union, refused to liberalize liquor retailing, attempted to establish a vertically integrated government potato business called SPUDCO and charged campers a fee to roast their wieners. Quite a few residents voted with their feet and moved to Alberta, while those who stayed were hesitant to replace the functionally dysfunctional NDP with an untested opposition party. The opposition Saskatchewan Party came close to forming the government in 2003, but a late-in-the-campaign slight misstep by then leader Elwin Hermanson spooked voters again, securing another four years of NDP rule.

In 2007, Saskatchewan finally opted for change. Wall’s Saskatchewan Party cruised to electoral victory, having won all rural seats and having penetrated the NDP fortresses of Regina and Saskatoon. The 2007 platform was modest for a conservative government in waiting (take note, Ontario PCs), but it managed to convince enough voters that a change was needed. Wall’s party promised to balance the books, offer tuition rebates for graduates, make money available for more nurses and police officers, give a myriad of tax breaks to middle-class families and increase general spending in health and education. During his first term in government, Wall delivered the very policies he campaigned on, which did well to earn him the trust of voters. When the next election rolled around in 2011, Wall proved the NDP fear-mongering machine wrong, again. He trounced the NDP, reducing it to just nine of the 58 seats, even knocking NDP leader, Dwain Lingenfelter, out of the long-time NDP seat in urban Regina.

Yes, the Wall government is a truly impressive phenomenon, but is it offering a new brand of conservatism to disillusioned adherents? Wall is, arguably, this country’s greatest parliamentarian, which is why conservatives should expect much of him. His brand of conservatism has fundamentally improved the province. However, the Premier could further use his surplus of political capital to achieve some simple, yet transformative, reforms such as greater fiscal transparency, eliminating obstructive minimum wage laws, completing the NDP’s tax simplification, removing the insidious 2007 Planning and Development Act and privatizing retail liquor. These would propel his province ahead of all the others. Yes, there is still more positive work to do in the province of Saskatchewan.

Thanks to the short-sighted fiscal and accounting policies pursued by the baby boomer generation, the rest of us are facing a brisk and near-ruinous fiscal headwind. Few to almost no politicians have the stomach or courage to confront the problem posed by unfunded pension liabilities. The fundamental difficulty with the existing pension system in Canada (and throughout the Western world) is that these programs were set up when males were the primary earners, and their average life expectancy was around 65 to 70 years of age. The assumption was that the many who paid into it would subsidize the defined benefits of the few who lived beyond the age of 65. Now, the situation is vastly different. Both men and women pay into pensions, and many public sector workers opt for early retirement. The average life expectancy for males is approximately 79 years of age, and for females, it is approximately 83 years of age.

The problems are obvious, but this issue does present conservative governments with a great opportunity. Instead of perpetuating the practices of past governments (including those that created the problems in the first place) of burying the extent of unfunded pension liabilities in convoluted budgetary documents, governments should highlight the problem for their citizens. Governments should explain the extent of the financial mess that is our pension sector and start making the cuts needed to repair it.

Canadian premiers might look south of the border for inspiration. In 2010, Governor Chris Christie of New Jersey was facing a budgetary mess, as public sector pension plans were bankrupting the state. Christie confronted the issue and shifted the pension liability from taxpayers to the public sector pensioners. His willingness to speak to tough political issues earned him praise throughout the country for confronting, rather than deferring, budgetary challenges. As with other states and provinces, Saskatchewan faces a similar threat, yet few people discuss the matter. For example, the Saskatchewan Judges of the Provincial Court Superannuation Plan has only $24-million in assets, yet has a pension obligation of $159-million. Provincial judges are only required to contribute 5 per cent of their annual income toward their pension plan, which, according to the Canadian Taxpayer’s Federation, amounts to just under $12,000 per year. The kicker is that this is a defined benefits plan rather than a defined contributions plan, which means that retired judges are guaranteed just over $111,000 per year in retirement benefits. So, for those keeping score at home, Saskatchewan’s judges contribute just under $12,000 per year to their pensions but will receive more than $111,000 per year during retirement. As a result, the Saskatchewan government is responsible for the remaining pension obligation of more than 100 civil servants.

However, the insolvency of the provincial judge’s pension plan is minor compared with the Saskatchewan Teachers’ Superannuation Plan. According to the Saskatchewan Teachers’ Superannuation Commission, which oversees management of the teachers’ pension fund, “the unfunded liability in the Teachers’ Superannuation Plan is estimated to be $5.171 billion.” This significant dollar figure works out to almost half of the province’s annual operating budget of $11-billion. And make no mistake, the “unfunded liability” actually means “taxpayer liability,” because the people of Saskatchewan will be the only ones left to pay that bill once it is due.

The government of Saskatchewan should engage its constituents in an open conversation about the province’s pension liabilities. Adopting the provincial auditor’s recommendation to provide summary financial statements as a means of communicating its financial picture would be a solid step. Currently, the government of Saskatchewan uses two sets of books to announce its budget: summary financial statements and the General Revenue Fund (GRF). The GRF is what we hear about in the media around budget time, while the summary financial statements include the unfunded pension liabilities such as the above-mentioned pension plans for teachers and judges. The Provincial Auditor reports that other provinces have moved “to using [summary] financial statements as the primary public reporting tool in communicating [their] fiscal results to [their] citizens.”

Governor Christie’s example shows us that voters respect leaders who are open about these unfunded liabilities and who can clearly articulate a road map toward long-term balanced budgets. Wall has the rare talent and communication skills to lead Canadian provinces on this critical front.

The proverbial U.S. laboratories of democracy provide more examples of bold conservative policy in play. In the winter of 2011, Madison, Wisconsin, became the site for special interest groups affected by a set of bills designed to repair the state’s fiscal standing and to repeal legislation that distorted its labour market. Unions and student activists throughout the state converged on the Capitol building to protest the Governor’s “Wisconsin budget repair bill.” (This union-funded temper tantrum over the state’s finances reached a new level of ridiculousness when the Democratic State Senate Minority Leader and his caucus fled the state to prevent the quorum required to vote on the bill). Progressive forces with no stake in Wisconsin suddenly became experts on state finances, while pronouncing the Governor, Scott Walker, a modern-day Adolf Hitler for the crime of engaging in the democratic process. The left lost the battle and the war; the budget repair bill passed, and the effort to recall Scott Walker in 2012 failed. The Wisconsin protests of 2011 tell us that sound labour policy will defeat the hysterics of organized labour.

Recently, Saskatchewan rewrote its labour legislation, effectively condensing 12 different pieces of labour legislation into a single, comprehensive act. One change, the indexation of minimum wage, could pose long-term challenges for the province. First, minimum wage laws artificially increase the price of the province’s unskilled labour. This increase disproportionately affects minorities who cannot find work (and the experience that will serve them well in the future) because their unskilled labour has now become more expensive. Second, the small-business owners, particularly in the service industry, now expect regular increases in their operating costs. Business owners are not likely to absorb these costs, and, like clockwork, they will pass them on to the consumer, leading to local inflation. And finally, this indexation will only exacerbate the challenges of addressing the disproportionate number of unemployed Aboriginals in the province. In fact, pre-eminent economist Thomas Sowell wrote that too few people are “aware of what a major social disaster the minimum wage law has been for the young, the poor, and especially for young and poor [minorities].”

The majority of Saskatchewan’s population is expected to be Aboriginal by mid century. This demographic will be significantly younger and, assuming current trends continue, less educated than the rest of the population. Study after study has shown that minimum wage laws always hurt younger and less-educated segments of the population. Saskatchewan should take the necessary steps to address the demographic challenges on the horizon. Eliminating restrictive minimum wage laws would ensure greater First Nations participation in Saskatchewan’s work force, as many people are choosing to move from the reserves to urban centres. Removing the minimum wage should be seen primarily in light of its greatest benefit: giving work opportunities and experience to the people who need them most. Once again, Wall’s skill could make this unprecedented change possible.

There are few things as annoying and humiliating as buying booze from the government. As such, liquor privatization is a no-brainer for governments that believe in personal freedom, choice and responsibility. Alberta got this right 20 years ago when then premier Ralph Klein announced that all retail liquor would be privatized. The policy is now so widely accepted that it is completely off the radar for the provincial Liberals and NDP, the third and fourth parties in Alberta.

So, why does Saskatchewan continue to insist on state liquor retailing throughout the province when its neighbour to the west continues to demonstrate the success of privatization? Albertans are able to choose from more than 19,000 liquor products, while Saskatchewanians have only 2,100 to choose from. In addition, consumers pay considerably less for the same product in Alberta than they do in Saskatchewan.

One good reason not to transform the antiquated liquor system is Saskatchewan’s organized labour movement, which stands to lose the most from privatization. It is fierce, uncompromising and completely willing to put public safety at risk (the Saskatchewan Government Employees Union, which represents the retail liquor employees, once ordered snowplow workers off the job during a particularly brutal winter storm). To be fair, Saskatchewan has made a few minor attempts toward a freer market, but the state monopoly remains. For example, in 2009, the Saskatchewan government issued a request for proposals and allowed one private liquor store in Regina and one in Saskatoon. Saskatoon’s store was called Cava Wines, and by 2012, it had its bank accounts frozen and its liquor license revoked for bootlegging and failing to pay taxes. Regina’s private liquor store is called Willow Park (based out of Alberta), and, while it is a completely respectable business, its lack of competition results in high prices and old inventory. Neither experiment offers an optimal choice for consumers, so why continue pursuing this model? Again, a motivating factor could be not wanting to incite public sector union wrath. Yet, Alberta is a perfect example of how to get liquor privatization right: Move quickly and deliberately, and avoid compromises. Twenty years later, no one in Alberta yearns for the days of government liquor stores.

Saskatchewan’s previous NDP government significantly improved the tax system, reducing company taxes, removing surtaxes on income and generally simplifying the system. To date, the policy of the current government has been to make small steps in the opposite direction. When the basic personal exemption was raised by $4,000, it was hailed as the largest-ever tax cut. However, for a given level of expenditure, larger personal exemptions simply lead to higher than would otherwise be required at the top of the income scale. Indeed, the government could send a major signal about the province’s values by emulating Alberta’s Ralph Klein and charging a single-rate tax on income.

Finally, the province could address one of Canada’s urgent problems by tackling a time bomb that the previous government installed in its final year. The Planning and Development Act (2007) not only permits municipalities to engage in long-term comprehensive land-use planning but also requires them to do so. In the Canadian tradition of subsidiarity, it might be expected that municipalities would make differing choices about the level of regulation they impose on land use.

Since the enactment of this legislation, both Regina and Saskatoon have embarked on planning exercises that have catchy names (Design Regina and Saskatoon Speaks) and will inevitably lead to greater constraints upon land use. Out in the hinterland, councilors from tiny rural municipalities report bullying by zealous planning consultants emboldened with the knowledge that provincial legislation makes the use of their services mandatory. As urban property rights, land-use legislation and housing affordability become larger issues across Canada, Saskatchewan could choose to be the first province to turn back the land-use regulation juggernaut.

Saskatchewan is fertile ground for enacting truly conservative policies. With the most popular premier in Canada, a booming economy, an electorate hungry for change and clearly too much government, the recipe for transformation exists. The Wall government has achieved some reforms in less than two terms and, most importantly, restored the integrity of conservatism to the province. His next challenge is to lead the province into a golden age, an era of economic growth unencumbered by government debt and monopoly, to the benefit of all Saskatchewanians. Few leaders have the ability and mettle to achieve such goals, yet Saskatchewan’s Premier is the perfect candidate.

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Blaise Boehmer is a strategic partner with New West Public Affairs. He is the former Director of Research & Operations with Government of Saskatchewan Caucus Office, and worked in the war room of the Saskatchewan Party’s 2011 General Election campaign.

 

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