Friday, September 18, 2009

The High Cost of Government

In the Vancouver Sun today there was an article today from Veldhuis at the Fraser Institute. He notes that in BC the Finance Minister pointed out in a speech, "provincial health spending has risen by 45 per cent" since 2002. And that there was a 4.9-per-cent increase over last year's total spending of $38.3 billion.

What is the highest single expense of all BC government organizations?
Compensation costs. (Wages, benefits and pensions)

At most government organizations the compensation package is well in excess of 50% of total expenses. At hospitals in BC it is 75% of total costs and at University of British Columbia it is 60% and I could not find school boards but in Ontario it is usually 75%.

The increases last year in these packages were enough to drive the total increase in government spending. For example, the compensation costs at UBC increased 8%. Work out the total rise in spending if the largest expense at 60% (compensation) goes up 8% and everything else stays the same. What will be the total increase?

The annual compensation costs for The Fraser Health system rose 7.8% last year and 7.5% the year before.

In the most recent budget there is about $30.1Billion available for discretionary spending. BC Budget and Fiscal Plan PDF The three top spending areas from page 11 are:
Health Services -......... $14.1Billion - 46%
Education -................. $ 5.1B - 17%
Advanced Education ....$ 2.1B - 7%
Compensation increases are why spending goes up every year with no perceptible increase in services. If these compensation packages were bench-marked to the private sector they would actually fall substantially. The CFIB estimates compensation costs would fall 19% in education and almost 25% in healthcare.

Here is why the wheels are falling off.
Vancouver's CFO gets gold-plated pay package
A brief retirement in West Vancouver

PS - Whenever I need a good laugh I always go to the BC Pension website. There is a series of short videos about the BC defined Benefit Pensions plan. They are outrageous and funny at the same time. Like a bad late night Infomercial. BC Pension Videos

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