Ontario’s Public-Sector Pay Freeze

This summer, the Ontario government has been attempting to implement its proposed public-sector compensation freeze. The provincial Finance Minister has essentially promised that he can convince organized labour to comply. But as recent news reports confirm, unions have not been volunteering for a pay freeze, especially since the government apparently has enough spare cash to implement multi-billion-dollar corporate tax cuts.

Astute blog readers may remember that my union took a clear position on the compensation freeze when it was initially proposed in Ontario’s last budget. In particular, our press release contrasted the freeze with provincial corporate tax breaks.

Ontario’s Ministry of Finance has outlined its freeze policy through a series of FAQs. I liked that format so much that I wrote some FAQs for United Steelworkers employed at provincially-funded institutions.

The following backgrounder is for University of Toronto staff. More material on the compensation freeze is available on the union’s website.

Is Your Compensation Frozen?

The last provincial budget (March 25, 2010) proposed a two-year compensation freeze for Ontario’s broader public sector. This policy is not limited to employees of the provincial government. The broader public sector also encompasses institutions that receive provincial funding, including the University of Toronto.

However, the legislation (Bill 16) enacted by the Ontario government freezes compensation only for employees outside of bargaining units. Employees with collective representation are exempt from this legislation.

Because you are a member of the United Steelworkers union (USW), your compensation was not frozen. Indeed, your wages increased by 3% on July 1, 2010, as negotiated in our collective agreement with the U of T.

What Does the Government Want?

While the Ontario government has not legislated a compensation freeze for unionized workers, it is asking unions in the broader public sector to voluntarily negotiate two-year freezes as existing collective agreements expire. Since USW’s collective agreement with the U of T expires on June 30, 2011, a two-year freeze would prevent monetary improvements until July 1, 2013.

Despite some initial confusion, the government has clarified that it is not trying to freeze normal progression through existing pay grids. Under the government’s proposal, U of T staff would continue to receive step increases until they reach the top of the grid. USW is still trying to clarify the government’s position on pay increases arising from job evaluation.

With the exception of step increases and perhaps job evaluation, the proposed freeze would apply to wages, the pension plan, other benefits and paid time off. Under this framework, the union could negotiate a wage increase only by sacrificing benefits or vacation of an equivalent value. The union could improve benefits or vacation only by reducing wages.

Can the Government Enforce a Freeze?

University employees do not bargain with the provincial government, but with university administrators. To pressure administrators to negotiate a freeze, the government has threatened to not provide funding for any compensation increases beyond existing collective agreements.

However, it is unclear how this threat could be carried out. Provincial transfers to universities are not based on compensation costs. U of T receives a block grant based on the number of students enrolled plus some additional funding for specific research and capital projects. There is no envelope of provincial money for U of T staff compensation that could be frozen.

Can the U of T Afford Improvements?

In any case, the U of T administration expects provincial operating grants to be flat over the next few years. However, these grants account for only 40 percent of its operating budget. The other 60 percent comes from revenue sources that are growing: tuition fees, investment income, endowment funds, etc.

The proposed 2010-2011 U of T budget projects that, despite flat provincial transfers, the university’s total operating revenue will grow by 5 percent in each of the next two years. Clearly, the U of T can afford to improve staff compensation.

Pay Freeze or Pay Cut?

The government is proposing a compensation freeze while it and the U of T administration are also suggesting higher employee contributions to the pension plan. If wages remain constant but pension contributions rise, your take-home pay would fall. The Ontario Ministry of Finance states, “It is not appropriate to increase compensation to offset an increase in the rate of employee contributions to the cost of pension or group benefits.”

With the HST being charged on more consumer purchases, Ontario’s annual inflation rate rose to 2.9% in July 2010. Your 3% annual wage increase was just enough to keep pace with rising prices.

Frozen wages would mean a pay cut, relative to inflation. Reducing the purchasing power of public-sector workers and their families would have a negative effect on Ontario’s economy.

Are You Already Overpaid?

The Ontario government argues that public-sector workers should accept a freeze because they have previously enjoyed excessive pay increases. In fact, since the last recession in the early 1990s, wages in Ontario’s public sector have lagged behind both private-sector wages and inflation.

In recent years, public employees began to catch up. The government focuses on these last few years to claim that wages are rising faster in the public sector than in the private sector.

Public-sector pay increases did not cause the current recession or the provincial deficit. On the contrary, over the past three decades, wages and salaries in Ontario’s broader public sector have steadily decreased from over 50 percent to below 40 percent of total provincial spending.

Where is the Money Going?

The government is slashing the provincial corporate income tax rate from 14 to 10 percent. Ontario’s Ministry of Finance projects that this cut will reduce annual revenues by $2.4 billion.

The government also recently gave up $1.6 billion per year by eliminating the provincial corporate capital tax and will give businesses $4.5 billion per year of input tax credits through the HST. By comparison, total provincial operating grants to the U of T are just $0.6 billion per year.

A compensation freeze in conjunction with deep corporate tax cuts will not address the budget deficit or support public services. The money taken away from public-sector workers will be given to profitable corporations.

In fact, discretionary corporate tax breaks will reduce provincial revenues by far more than a compensation freeze could conceivably reduce provincial expenditures. Cancelling some of these tax breaks would remove the supposed financial need for the freeze.

What is Your Union Doing?

USW will propose compensation improvements and conduct normal collective bargaining with the U of T when our current agreement expires next year. We will not agree to a compensation freeze in advance, as the Ontario government has requested.

However, the union is always willing to engage with the government. In particular, we would welcome the opportunity to propose fiscal alternatives that would save more money than a compensation freeze.

The government began consulting with some unions about the proposed compensation freeze on August 9 and scheduled consultations with us starting on August 30. Recently, the government delayed our consultations until September 20.

USW will continue working with other unions through the Ontario Federation of Labour as well as with faculty and student associations through the Ontario University Coalition. These alliances are helping to keep us informed about the government’s consultation process and coordinate responses to the government’s position.