The Energy Sector in the Canadian Economy masks the High Cost of their Public Sector

Posted by PITHOCRATES - July 7th, 2012

Week in Review

The economic numbers in Canada are pretty good.  Even better than America.  And there is one reason for that.  Canada embraces the energy sector.  And they are bringing to market what all modern economies need.  Fuel.  And the economic growth in this one sector makes up for a lot of bad policy elsewhere (see Unions out of sync with economy by DANIEL FONTAINE posted 7/7/2012 on Vancouver 24 Hours).

If it were not for the extraction of natural resources such as oil, coal and natural gas, would Canada really be an economic powerhouse? Many leading economists remain skeptical.

Strip out raw material exports and Canada suddenly becomes just a middle-of-the-pack nation struggling with a serious productivity problem. That’s why this is not the time for any level of government to open up the wallet book and undertake a massive spending spree.

Unfortunately, the need to keep costs in check appears to be lost on a growing number of public sector unions in the Western world. That includes right here at home in British Columbia.

For example, unionized liquor store employees belonging to the B.C. Government and Service Employees’ Union are on strike this week demanding even higher wages and better benefits. This is despite the fact union officials openly admit unskilled employees in government liquor stores make starting wages and benefits well above similar jobs in the private sector.

The BCGEU argues that liquor stores are making Victoria lots of money; hence they deserve a bigger slice of the pie. But what they fail to acknowledge is that government makes profits off the taxes they charge on alcohol, not on who actually sells the product. Having public versus private sector employees sell liquor actually cuts into government’s bottom line.

FDR, liberal icon and America’s 32nd president, opposed government workers unionizing.  He was a fan of unions in the private sector.  But not the public sector.  Because there was a lot of political capital in attacking industrial fat-cats oppressing their workers to make a buck.  But the government pays their workers with taxes.  Meaning the greedy fat-cats oppressing these workers are the taxpayers.  And when you’re trying to grow the size of government it doesn’t help to attack the people paying those taxes.  Especially when you’re trying to raise their tax rates to pay those higher wages and better benefits.  For it just doesn’t sound right calling someone greedy when they refuse to enjoy their lives less so others can enjoy their lives more.

And it just can’t continue.  Forever granting higher wage and benefit packages.  Paid for with ever higher tax rates.  Because to generate tax revenue you need two things.  You need a tax rate.  And economic activity.  Higher taxes, though, reduce economic activity.  Which reduces tax revenue.  Keep doing this and you end up like the social democracies in Europe in the throes of a sovereign debt crisis.  Unless you are blessed with vast energy resources for export.  And your government embraces the energy sector to bring those resources to market.  Like they have in Canada.  The one truly bright spot in their economic picture.

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