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When Government Says Teacher Wage Demands Are 'Unaffordable,' Are They?

Not at all, says economist Iglika Ivanova, especially compared to GDP growth projections.

By Andrew MacLeod 12 Sep 2014 | TheTyee.ca

Andrew MacLeod is The Tyee's Legislative bureau chief in Victoria. Find him on Twitter or reach him here.

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CCPA economist Iglika Ivanova: 'The discussion we need to be having is how do we ensure that regular workers are benefiting from economic growth?'

Representatives of the British Columbia government have repeatedly said that it is "unaffordable" to close the gap between what they're willing to pay and what the B.C. Teachers' Federation wants, but observers say the government has many options for how to come up with the money.

Premier Christy Clark and Education Minister Peter Fassbender have said the BCTF needs to come into an "affordability zone" that's closer to the small wage increases other public sector unions have accepted.

Finance Minister Mike de Jong picked up a similar theme Sept. 9, saying "The money is there for admittedly modest wage increases," but not for the BCTF's wage demand, nor "the cascading effect that could well have for other negotiations that are yet to come or that have already taken place."

The BCTF, which saw no wage increases in 2012 and 2013 while other union members received raises of up to two per cent each year, is seeking eight per cent over five years. The government is offering seven per cent over six years.

When benefits and measures to address class size and composition are included, both sides agree, they are apart by about $300 million a year.

Determining what de Jong considers a large amount of money depends on context. He argued that on a $42-billion budget, the $266-million projected surplus is "razor thin," essentially a rounding error. In contrast, however, he said the $300 million to settle the teacher's dispute is too big.

Defining 'affordable'

"Both numbers relative to the budget are small, and we should be able to afford what the teachers have been asking for," said Iglika Ivanova, an economist in the B.C. office of the Canadian Centre for Policy Alternatives. "When [de Jong] is saying $300 million is too large for the teachers, he's wrong. Three hundred million is not large in the scheme of things."

The amount works out to about 0.7 per cent of the provincial operating budget of $44.8 billion.

But Ivanova has a larger point that provincial budgets have failed to keep pace with the province's economic growth, and that projected increases to education spending do not keep pace with the expected GDP growth.

"My argument is that affordability depends on our ability to pay," she said, adding that ability depends on both the size of the economy and the tax rates the government decides to set.

The government's own figures, which are more conservative than those provided by private sector forecasters, say that GDP should grow by 19.4 per cent between 2013 and 2017, she said. Referring to an earlier BCTF bargaining position, she said, "If the economy is going to grow by 19.4 per cent and teachers are asking for 14.5 per cent, it seems to me they're in an affordable range."

Other agreements have set the bar low, said Ivanova. "If average union collective agreements are for 5.5 per cent over five years, those numbers are less than inflation," she said.* "They're actually accepting wage cuts. At the same time the economy is growing... I can't fault them, I'm just observing as an economist that in the negotiation process there are winners and losers, and we're looking at wage cuts."

The BCTF proposal basically matches the expectations for inflation, she said, noting that if they get what they're asking for teachers' purchasing power will still be less in 2018 than it was in 2010.

GDP growing faster than revenue, spending

Figures contained in the government's 2014 Financial and Economic Review, released in July, also show that education spending and government revenues have failed to keep up with economic growth. Between 2002 and 2013, education spending went down by an average of 0.6 per cent per year when expressed as a percentage of nominal GDP. By that measure, the only area of government that saw an increase was health, at 0.2 per cent per year.

Similarly, government revenues declined on average by 0.2 per cent per year as a portion of the provincial GDP. Put another way, fewer of the dollars that are circulating in the economy are finding their way through the government's accounts than did a decade ago. The BC Liberal government has generally sold that as a good thing, and won elections campaigning on it, but it does mean our capacity to do things together is shrinking.

The government has many options for raising revenues, said Ivanova. For example, there has been a temporary two-year tax on incomes over $150,000 that expires in 2015. The tax raises $205 million a year that the government will soon lose.

The tax could be made permanent, said Ivanova. "I think there are more choices than the government would like people to think. They just don't feel like taking them, I guess."

She later sent in an email: "The fundamental question for me is: should the benefits of economic growth be shared with workers? What about teachers or other public sector workers?

"People have legitimate anger and frustration with our economic system because it's not working, it's not distributing the benefits of prosperity broadly," she said. "Median incomes for full-time, full-year workers are stagnating. Workplace benefits are being eroded. Many people's wages are not keeping up with costs of living. But trying to channel this anger towards teachers isn't going to fix that."

She added, "The discussion we need to be having is how do we ensure that regular workers are benefiting from economic growth?"

It's about priorities: NDP

Other provinces set significantly higher income tax rates than B.C. does. According to KPMG, PEI charges 16.7 per cent on income over $63,970, Manitoba charges 17.4 per cent on income over $67,001, New Brunswick charges 17.84 per cent on anything over $127,803, Nova Scotia charges 21 per cent on income over $150,001 and Quebec charges 25.75 per cent on income over $100,000.

After Dec. 31, 2015, B.C.'s top marginal rate will be 14.7 per cent on income over $104,859, though it's worth noting we also fund government through taxes that are not linked to income, including MSP premiums, BC Hydro charges, ICBC and the carbon tax.

Ivanova said a CCPA report found that if B.C.'s income tax rates were set at the Canadian average, the government would have $2.4 billion more to spend each year. Going back to 2000 rates would raise $3.5 billion more than we do today.*

"It comes down to priorities," said Carole James, the NDP's finance critic. "When the Liberals decide something is affordable, they find the money."

There's been money for raises for political staff and a new roof for BC Place, she said. "They find that's something worth putting money in. When education is up, they're not finding anything."

Money for education is an investment in a well-trained work force, healthy citizens and healthy communities, she said. "This government has under-invested in education over the years," she said. "We're at this crisis point because of under-investment from this government. They have to accept responsibility for that."

It should be possible to find the money for an agreement with teachers in the existing budget, said James. There needs to be a bigger conversation about taxes, revenue to government and how to grow the economy, she said, noting the NDP platform in the 2013 election included raising taxes on income over $200,000 per year.

Meanwhile, there's already room to do what's needed to get students back into school, she said. "I think what we're seeing right now from the government is continued rhetoric and continued poking at the teachers."

Jim Sinclair, the president of the B.C. Federation of Labour, said there's no doubt the government could come up with the money if they wanted. "The problem is they don't want a settlement," he said, suggesting another goal is in play. "The objective is to crush the union."

*Paragraph corrected Sept. 15.  [Tyee]

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