The Fraser Institute

The Fraser Institute

November 15, 2007 06:00 ET

The Fraser Institute: Number of Canadians Depending on Government for Income Has Fallen; Ottawa Must Avoid Urge to Increase Spending and Expand Bureaucracy

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 15, 2007) - The total number of Canadians receiving all or part of their income from some level of government has declined since 1992 when governments were forced to reign in spending and cut costs, according to a new study released today by independent research organization The Fraser Institute.

"It took a fiscal crisis for governments to finally understand that having huge numbers of people relying on government for income was not sustainable and would eventually lead to financial ruin for the country," said Herbert Grubel, senior fellow with the Fraser Institute and author of Government Lovers: Paid by Canadian Governments and Taxpayers.

But Grubel warns that Canadians should heed the mistakes of the past lest the country head back the path of reckless spending and government dependency.

"Rapid economic growth stimulated by a global boom in commodity markets has resulted in large fiscal surpluses for the federal government that have allowed the expansion of government spending without politicians having to face the cost of explicit tax increases," Grubel said.

"Recent budgets of both Liberal and Conservative governments in Ottawa included many new spending and regulatory initiatives that are almost certain to lead to more public sector employment and are worth watching."

Government Lovers: Paid by Canadian Governments and Taxpayers examines data from a variety of government sources to calculate the number of Canadians who received income from some level of government between 1982 and 2005. It focuses on two main groups: people who work for government and provide services such as education, health care, security and other government services; and people who receive payments through social programs such as welfare, old age security and employment insurance.

The study found that the number of people receiving income from the government increased during the recession of the early 1990s before decreasing as governments began to cut spending in the mid-1990s.

In 1992, for every 100 people employed by the private sector, 103 Canadians were on government payrolls. By 2005 (the last year for which data was available), that had fallen to approximately 76 Canadians being paid by government for every 100 Canadians working in the private sector.

"The dramatic growth in the number of people paid by Canadian governments coincided with the development of large deficits in the late 1980s and early 1990s, when such deficits were politically acceptable," Grubel said.

"But when the size of the deficit and debt reached critical levels, government spending was curtailed and the number of people receiving government pay as a per cent of private employment fell sharply until 2000. Since then it has leveled off."

Among Canadians directly employed by government, Grubel found:

- The number of Canadians employed by local government rose for 10 years after 1982, dropped substantially after the fiscal crisis in 1993 and recovered only slightly after 2002;

- The percentage of Canadians employed by provincial governments was on a steady and significant decline during the entire period, from a high of 1.5 per cent to lows of about 1.05 per cent in recent years.

- The percentage of Canadians employed by the federal government declined steadily between 1982 and 1998, when they rose nearly one tenth of a percentage point up to 2003 and remained virtually unchanged in the following two years.

Among Canadians collecting social benefits, Grubel found:

- The number of Canada Pension Plan recipients was the largest of any group, rising steadily throughout the period, mainly as a result of an increase in the number of Canadians of retirement age.

- The number of welfare recipients rose sharply from 1989 through 1995, exceeding the number of public sector employees. It then fell steadily from its peak by nearly one half between 1995 and 2005, due partly to the recovery from the earlier recession and due partly to the enactment of welfare reforms in several provinces.

- The employment insurance numbers show a profile similar to the number of welfare recipients, rising during 1989-1993 then falling steadily until a small rise was recorded during the short-lived economic slowdown of 2001-2002. The difference in the 1994 and 2004 levels is 28 per cent, a reduction due to general economic prosperity as well as some tightening of rules for eligibility for beneficiaries.

While the number of Canadians relying on the government for all or part of their income has generally declined in the past decade, Grubel notes that we should not underestimate the relationship between government employees and politicians.

"The number of Canadians who receive money from governments is worth watching and recording, since politicians will cater to voters by promising programs that increase the number of people paid by government and the money paid, or at the very least, promise not to reduce their numbers and pay. This tendency imparts an upward bias in the level of government employment and spending on social benefits."

The Fraser Institute is an independent research and educational organization with offices in Calgary, Montreal, Tampa, Toronto, and Vancouver. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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