Premium Compensation: The Ballooning Cost of Federal Government Employees
Social Science Research Network
The federal government has been spending freely lately. While it has advertised rapid increases in spending as positive, various fiscal pressures -growing debt and interest payments, pressure to get tax rates down, and the greater need of provinces and territories for revenue -will eventually require Ottawa to rein it in. That task will require tackling the cost of federal employees, which has been rising rapidly. Total compensation per employee jumped by nearly 5 percent per year Fiscal
... es will eventually require the federal government to tackle the cost of its employees, whose compensation accounts for about 60 percent of the government's operating expenses. In particular, non-payroll expenses related to future benefits are mounting rapidly. The annual costs of deferred compensation, such as disability plans, future health and dental care, provisions for severance and sick-leave accumulation, and the value of accrued pension and other future benefits, have risen at doubledigit rates over the past decade. Worse, because the federal government does not fully recognize the impact of declining rates of return on the cost of funding future payments, it understates the cost of these promises. Ottawa should report the full value of its employees' deferred benefits, and ensure that the total value of its compensation is competitive with, but not vastly above, employees' outside alternatives. Freezing departmental operating budgets can help, but longer term, Ottawa should transition to target-benefit pensions for its employees, so that taxpayers do not continue to bear all the risks related to federal pension plans. We thank Malcolm Hamilton, the Office of the Parliamentary Budget Officer and several members of the C.D. Howe Institute's Fiscal and Tax Competitiveness Council for comments on an earlier draft. Responsibility for the conclusions and any remaining errors is ours.