Public Values

Public services will face squeeze with economic crisis

Recession could could be used to justify privatization and cuts at a time when need is greatest.

Stephen Harper and finance minister Jim Flaherty are likely to say Canada needs more Ish Theilheimer

OTTAWA, Nov 7, 2008, — With a recession apparently underway, shrinking tax revenues and a strengthened Conservative minority government, Canada's public services are vulnerable to an onslaught of cuts and privatization.

That's the opinion of Toby Sanger, senior economist with the Canadian Union of Public Employees. He says federal deficits caused by a sharp drop in tax revenue from corporations hit by the recession and plummeting world oil prices will put public services in a tight squeeze.

"There will be much increased pressure on public services," Sanger told "There will both be pressure from above to cut funding and cut services, but also a lot pressure from below, from people in terms of more demand and need for these services."

The most direct pressure, he says, will likely be on employment insurance and social assistance, as direct income support for those who have lost their jobs.

"Unfortunately, the employment insurance program covers less than half those who are unemployed, while social and assistance and welfare rates have been cut to the bone in most provinces."

At the same time, he says, virtually all public services will come under more pressure from more demand. "Families will be looking to rely more on public services — such as other social services, health care, child care, libraries, community centres, and so on — both to cope with the impacts of an economic downturns and to save themselves money from more expensive private services."

Sanger says the public services most vulnerable to the pressure to cut will probably be those deemed less essential and less basic, such as cultural, environmental, and various social supports, an approach he calls "unfortunate, because it's penny-wise but pound-foolish." Salaries, wages and benefits for public sector workers will come under heavy pressure, he says. Services provided by lower-tier governments faced with lower tax revenue due to industrial closures will also face intense pressure.

"Cutting any public services, especially during a downturn, is bad economic and social policy," said Sanger. "Not only does it hurt those who are most vulnerable — those who rely on these services — but it also causes damage to the economy. Investments in public infrastructure generate twice as many jobs as income tax cuts. This helps local businesses to survive."

He says CUPE members are already experiencing pressures from employers due to the economy. "The financial crisis should not be separated from the economic crisis, which is the underlying cause of this financial crisis, and has been brewing for a long time," said Sanger. "CUPE members are already experiencing pressure at the bargaining table, very much in terms of the value of their pensions, and particularly in regions where the economy has been suffering for a long time, such as Windsor."

Many public sector workers, he says, have not yet recovered from cuts made during the recession of the 1990s. "Incomes have become much more inequitable in Canada, which has hurt CUPE members, most of whom are middle- or lower-middle income. They are suffering from the same pressures as other Canadians in terms of their savings, incomes and value of their houses."

As the effects spread, he says, people start cutting back on spending. "Unemployment hasn't increased much in Canada yet, but when this happens, it will further increase pressure on public services.

He worries the financial crisis will be used justify the Harper Conservatives' anti-government ideology. "There is no doubt that the financial and economic crisis will be used to try and privatize public services, to sell off more public assets. It is likely to even be used to try and deregulate business in many different ways."

He warns that privatization and incresaed reliance on public-private partnerships (P3s) will ultimately cost the public more. "They have become much more expensive and risky during the past year and especially the past few months. They are an even worse deal for the public now than ever. Despite this, there will be much more pressure from business (and from cash-strapped governments) to privatize and use P3s."

Sanger calls this thinking "crazy because it is precisely these policies of deregulation, privatization, tax cuts, cuts to public spending and infatuation with market solutions everywhere that caused this economic and financial crisis."

He says tax cuts and deregulation encouraged trillions of dollars to be "poured into speculative and very dodgy financial sector investments, taking these funds away from potentially productive investments in the real economy, or in public infrastructure and services. This generated vast profits and returns for the financial sector, but then turned out to be all built upon a financial house of cards."

Much stronger regulation, particularly of the financial sector, is needed, Sanger says, to restore confidence in the economy, "and to try and prevent the obscene pillaging of the real economy that has been allowed around the world.

"We actually do need much more public debt as well. Reasonable levels of public debt provide stability for the financial markets and provide secure investments for pensions, households and organizations to invest in."

The condition of the public service and public services has changed since the last recession in many ways, Sanger warns. "Funding for public services still hasn't recovered to what it was before the last recession. Total government spending by all levels of government, not including interest payments on the debt, as a share of the total economy were more than 10 percent lower last year than they were in 1990, before the last recession. There have been numerous cutbacks and efficiencies and many people in the public service, as with other workers, are under ever increasing pressure and working longer hours than before."

Posted: November 07, 2008

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