Human Resources Minister Diane Finley is firing back at her critics over the sustainability of Canada’s Old Age Security program, arguing everything would be sustainable were taxes “massively” increased.
But Ms. Finley says her government doesn’t want to pass on higher taxes and bigger debt loads to the next generation, meaning decisions are needed now to curb the long-term costs of government spending.
In a speech to a Toronto business audience Tuesday, Ms. Finley said demographic change require Ottawa to review government programs so that they are affordable, but also to prepare Canada for “unprecedented” labour and skill shortages over the coming years.
“Our population is aging, demographics are shifting. And it’s very, very real,” Ms. Finley said.
“Now, there have also been many debates on the notion of sustainability... Let me put that in a new context today. Everything is sustainable – if we selfishly choose not to think beyond our own generation. Everything is sustainable – if we pretend that other programs won't be affected by a greying Canada. Everything is sustainable – if we decide to ignore a shrinking tax base to pay for our programs. And everything is sustainable – if you believe that the solution is to massively increase taxes and incur huge structural deficits.
“... I don’t think I need to continue. I think that point is pretty clear.”
But while Ms. Finley argues the point is clear, the opinions of many academics and economists suggest otherwise.
When asked after her speech what evidence exists to support her claim that a massive tax increase would be required to sustain the current system, Ms Finley said “the math is quite simple if you take a look at it. ... If you do simple arithmetic, proportionally we're going to have half as many people supporting the senior population.”
Kevin Milligan, a UBC economist who has written on retirement issues for the C.D. Howe and Finance Canada, has rejected claims the OAS program faces a sustainability crisis, but has also said there may be other reasons to change the program. Conversely, former Bank of Canada governor David Dodge – also a former deputy minister of Finance – argues a higher eligibility age for OAS is long overdue.
One of the Conservative government’s most heated arguments on sustainability of the OAS is with Parliamentary Budget Officer Kevin Page. He recently produced a report suggesting Ottawa can not only afford OAS in its current form, but could also afford new spending and/or tax cuts. Conservatives shot back by pointing out that just a year ago, Mr. Page was arguing the opposite.
Mr. Page responded with a letter explaining that the difference between then and now is that Ottawa has moved to cut billions from its long term projected costs for health-care transfers by tying the increases to economic growth, rather than annual six per cent increases. Mr. Page also noted that the government has yet to fulfill a pledge from page 155 of the 2007 budget to produce a “comprehensive fiscal sustainability and intergenerational report” that would “provide a broad analysis of current and future demographic changes and the implication of these changes for Canada’s long-run economic and fiscal outlook.”
In her speech, Ms. Finley did not provide any new details of what OAS changes the government has in mind. She said those details will come in the budget. She has previously said the government is looking at gradually raising the eligibility age from 65 to 67. Finance Minister Jim Flaherty had hinted that this phase-in would take place between 2020 and 2025, but an official later stressed that Mr. Flaherty was only speaking generally.
Some experts have suggested the government could reduce costs by lowering the income levels at which OAS benefits begin to be clawed back. The clawback of OAS benefits starts with a net income of $67,668 and is completely eliminated for Canadians with incomes of $109,764. The government has not hinted one way or the other whether it is considering changes to the clawback rules.
Ms. Finley pointed out in her speech that Ottawa made changes to the Canada Pension Plan in the 1990s that ensured the program was sustainable for the long term. Yet the federal government has never acted in a similar way to prepare the OAS program for the demographic shifts of a retiring baby boom population.
“As a result, the total cost of benefits will be increasingly unsustainable for tomorrow’s workers and taxpayers,” she said. “And it’s the next generations of Canadians who will have to shoulder the burden. The next generations who will have their own families to raise, their own mortgages to pay, their own student and household debt to manage. ... Inaction is simply not an option. Something must be done.”
Toronto Dominion bank chief economist Craig Alexander, who attended the speech, said he came away wondering what the minister meant when she said seniors “close to retirement” will not be affected by any changes.
“I don't know what the definition of close to retirement is,” he said. “ Is it two years, five years or 10 years.”
It is crucial that people know what the period of adjustment is, Mr. Alexander said, and he hoped that detail will be included in the upcoming budget.
Mr. Alexander also noted that there has been little discussion of changes that would affect the Guaranteed income Supplement that is paid to low income seniors.
“It is the combination of GIS and OAS together which has led Canada to have one of the lowest rates of senior poverty in the industrialized world.”
Original Article
Source: Globe
Author: bill curry AND richard blackwell
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