BUSINESS/ECONOMY

The inequities of restraint

Linda Diebel November 21 1983
BUSINESS/ECONOMY

The inequities of restraint

Linda Diebel November 21 1983

The inequities of restraint

BUSINESS/ECONOMY

Linda Diebel

It was presented by Ontario Treasurer Larry Grossman as a conciliatory gesture in the province’s war against inflation. In announcing a softened provincial restraint program last week, Grossman said that 72 of the province’s lowest-paid hospital workers at Sensenbrenner Hospital in Kapuskasing might now be able to avoid wage rollbacks varying from $750 to $1,000. Ontario’s Inflation Restraint Board had ordered the punitive action against the workers—who earn less than $18,000— because their October, 1982, wage increases failed to meet provincial guidelines imposed a month earlier. Board Chairman John Biddell, who earns $300 a day when the board sits, described the rollbacks as a case of “the chickens coming home to roost.”

But there was a catch to Grossman’s apparent generosity. His new bill lifted rigid wage controls on public sector employees but imposed a five-per-cent

limit on provincial transfer payments. That means that the 72 hospital employees will keep their raises only if other workers settle for less than five per cent this year—or if the Sensenbrenner Hospital can supply the funds from other cutbacks. But that dispute and Grossman’s overall retreat on restraint fuelled a nationwide controversy over whether any government restraint program has worked fairly or effectively. When former finance minister Allan MacEachen announced the federal Six-and-Five plan in June, 1982, to limit public service wage increases, he urged all levels of government to join the battle against a 12-per-cent inflation rate. Within a few months most provinces had heeded the call. But many economists now dispute the federal claim that Six-and-Five has played a major role in forcing inflation down to a 10-year low of 5.4 per cent. For his part, Thomas Maxwell, chief economist for the Conference Board of Canada, told Maclean's, “The effect of Six-and-Five

can be best described as neutral.” As well, its critics contend that the government administers it unfairly and has done little either to hold down top mandarin salaries or to curb escalating prices.

Predictably, labor unions have vehemently attacked both federal and provincial restraint programs. Labor officials argue that the programs have augmented an 11-per-cent unemployment rate by weakening consumer confidence and that they simply have made easier a massive transfer of money to corporate profits from working Canadians. McGill University economics Prof. Jack Weldon said that he is worried about permanent damage to the nation’s social fabric. “The Six-and-Five program has provided a means for Reaganite imitators to become respectable and it has led to ugly extremes,” said Weldon. “Unfortunately, the British Columbia labor crisis is the best example.” Indeed, Ted Roscoe, Canadian director of the Service Employees International Union, pointed out that, “Provincial politicians saw Six-and-Five as their handy chance to restrain wages. Inflation in Ontario is at an eight-year low, yet we have more controls.”

For their part, union leaders at first hailed Ontario’s legislation as a victory because it softened controls and returned collective bargaining rights to 683,000 public employees. Sean O’Flynn, president of the Ontario Public Service Employees Union, praised the government’s retreat from an earlier plan to extend rigid controls and attributed the turnaround to a recent Supreme Court of Ontario decision that the Charter of Rights and Freedoms guarantees collective bargaining rights. But union leader Roscoe argued that the five-percent ceiling on public wage spending and transfer payments, and tightened arbitration requirements—similar to legislation that the Conservative government of Alberta Premier Peter Lougheed passed—are regressive steps. In future, when unresolved wage demands are submitted to arbitration, the arbitrator must consider the “employer’s ability to pay in the light of existing provincial fiscal policy.” The unions argue that the action violates the independence of arbitrators and makes a mockery of the process.

In addition, critics point out that the Ontario government—like its counterparts in Ottawa and other provinces— has been more successful in holding down wages than prices. Ontario Hydro rates jumped 8.4 per cent in 1983, and GO-Transit fares rose by seven to 13 per cent in July. Ontario’s residential tenancy commission granted an average 14.2-per-cent rent increase to landlords who applied for exemption from the sixper-cent rent control guidelines, and

even the cost of a fourcylinder car licence sticker soared by 60 per cent. As Ontario Liberal Leader David Peterson pointed out, “Surely this sticks in the craw of every single person in the province who is restrained and destroys the credibility of the program.”

Still, the most controversial case of smokeand-mirrors restraint was the 12-per-cent increase in living expenses that Ontario politicians awarded themselves last week. The increases for MPPs from outside Metropolitan Toronto cover the costs of a second residence and are in addition to the $33,345-a-year salary and tax-free allowance of $11,130. Although Grossman asked for an internal review of the increases and the Inflation Restraint Board has requested a formal report, there is no indication that the government will roll back the sums—as in the case of the Sensenbrenner Hospital workers. Declared Peterson: “It does create a sense of lack of fair play.”

Under scrutiny, the federal government’s sense of fair play proves equally tenuous. On the one hand, public servants have found their pay raises curbed. And the Conference Board’s Maxwell forecasts that the average real wage growth in the industrial sector will be -0.1 per cent for the last quarter of 1983. But government restraints on prices have not always been what they seemed. For one thing, the government permitted the airlines and Via Rail to pass energy costs on top of Six-and-Five along to consumers. As well, the federal government allowed excise taxes on cigarettes and liquor to increase by as much as 15 per cent, and Finance Minister Marc Lalonde argued that restraint was not intended to apply to taxes. Oil prices and pipeline charges have also been exempt from the program.

Because of all that, critics of Six-and-Five were skeptical about the plan’s fairness when Lalonde said that a 40-percent increase in bank profits in the first half of I-

this year was not inflationary. At the same time, he criticized an 11-per-cent increase in a four-year contract between the Nova Scotia Construction Association Management Bureau and the Plumbers and Pipefitters Union. For his part, Canadian Pacific Enterprises Ltd. Chairman Ian Sinclair, head of a blue-chip committee of businessmen who support restraint, recently argued that the government should extend the program for another year and he urged the public to carry its share of the burden. Sinclair, who earned $556,985 in salary, supplementary allowances and pension payments in 1982, hinted last year that he might resign his chairmanship of the special committee to protest a government plan to give retired civil servants pension increases of 6.5 and 5.5 per cent. Noted McGill economist

Weldon: “I have always admired the chutzpah of people earning that kind of money and then complaining about the insatiable lust for money of people running elevators.”

When opponents of the federal program cite inequities, they point out k that average managers ment salaries at seven 5 federal agencies rose by -1 s as much as 18.6 per cent

in 1982. And the raises are similarly generous for 1983. Members of the National Energy Board earn an average of $72,668 in fiscal year 1983, up 10.8 per cent from last year. In 1982 they received an average 18.6-per-cent raise. The Northern Pipeline Agency gave its managers an 11.6-per-cent increase, to $71,915, following a 15-per-cent increment last year.

Still, Lalonde is pressing for the government to hold down wage increases in order to prevent a return to double-digit inflation. Clearly, Six-and-Five provided feasible wage targets for private sector executives involved in labor negotiations. But Maxwell questions even that accomplishment because private sector wage increases were already plummeting when the government imposed controls. Declared NDP finance critic Nelson Riis: “Six-and-Five had nothing to do with the drop in inflation. That is a reflection of the deep recession-people are simply not buying goods and services.”

As provincial restraint programs end, politicians will have to decide whether to follow Ontario’s lead in easing legislation or face the threat of labor unrest. Ottawa will make its decision whether to impose another restraint package next June when controls end. But whichever way respective governments slice the economic pie, they will have to convince skeptical Canadians that it is a fair cut for everyone.

Linda Bailey