This article was published by the Toronto Star on February 20th 2012. To see this article and other related articles on the Toronto Star website, please click here.
OTTAWA—Next month’s federal budget should give Canadians answers to the questions many have been asking since Prime Minister Stephen Harper revealed in faraway Switzerland that the Conservatives want to cut old-age benefits.
Harper’s government has so far refused to say exactly how the cuts would be achieved and who would pay the price, depending on when the changes to the key Old Age Security program are phased in.
But the Prime Minister’s surprise move to reform OAS, most likely by raising the eligibility age two years to 67, has touched off a fierce backlash.
CARP, the seniors’ advocacy group, has dug up a video from the 2005 election of a smiling Harper promising no cuts to pensions and is featuring it on its website. And even though the government has promised OAS changes will not hit current retirees or those nearing retirement, a recent poll found 63 per cent of CARP members oppose the plan.
“That’s the biggest negative reaction ever in our polls,” said Susan Eng, the organization’s vice-president, advocacy. And CARP’s members are “beside themselves” with frustration because Harper did not mention cuts to retirement benefits on the election trail, she added.
Harper has stuck to his explanation that OAS in its current form is not sustainable over the long term because of changes in Canada’s demographics.
But Human Resources Minister Diane Finley has been more open about the Conservatives’ determination to compel Canadians to save more for their own retirement rather than looking to government for support.
“What we’re going to do is make sure that people (like you and me) have time to still prepare for our own retirement,” Finley told a CBC-TV interviewer in a candid exchange. “We’re going to make sure that Canadians all have the time to adjust their retirement savings programs, their personal ones, to any changes that come about.”
With the government trying to trim a $31 billion deficit, OAS is an obvious target. Unlike the Canada Pension Plan, which is funded by employer and employee contributions, OAS is the principal old-age benefit program financed by Ottawa.
Designed to provide a minimum income for seniors, OAS currently goes to more than 4.5 million Canadians. It is a flat-rate benefit payable to all individuals at age 65 who meet residency requirements. The maximum payment is $540.12 a month for recipients with less than $69,562 in annual net income. For those with higher incomes, payments are gradually clawed back, with the benefit eliminated at an income of $112,772. Current cost for the program is $29 billion out of a federal budget of $274 billion.
Low-income seniors who qualify for OAS may also receive additional support through the Guaranteed Income Supplement. The maximum GIS payment for a single individual is $732.36 a month. This costs the government $8.4 billion a year.
The Conservatives’ say OAS will become unaffordable in the long run as baby boomers retire and leave fewer working Canadians to carry the cost of federal programs. By 2030, OAS recipients are forecast to hit 9.3 million, with Ottawa’s bill for OAS and GIS rising to $108 billion.
But various critics and experts say these figures are misleading and evidence shows there is no looming crisis.
Parliamentary budget watchdog Kevin Page said the Harper government’s decision in December to cap future health-care transfers to the provinces has changed the picture. “With the growth in the federal (health transfers) beyond 2016-17 limited to nominal GDP growth, the Parliamentary Budget Office estimates that the federal fiscal structure now has sufficient room to absorb the cost pressures arising from the impact of population aging on the federal elderly benefits program,” Page concludes.
While the predicted bill for OAS in 20 years looks daunting because of inflation, the cost as a percentage of Canada’s economic output only increases slightly, from 2.2 per cent of Gross Domestic Product in 2010 to 3.2 per cent in 2036, according to Page. After that, the cost of OAS as a share of GDP gradually declines.
Conservative ministers have suggested Canada could end up like near-bankrupt Greece if OAS is not pared back. But critics point out that Canadian social expenses on seniors (at 3.8 per cent of GDP) are already significantly less generous than most OECD countries, including Greece (10 per cent), France (11 per cent), Britain (5.8 per cent) and the U.S. (5.3 per cent).
And a report by OECD pension expert Edward Whitehouse several years ago for the federal finance department said that, although Ottawa will see increased pension costs, Canada “does not face major challenges of financial sustainability with its public pension schemes.”
Opponents of Harper’s pension plan also say raising the eligibility age for OAS would hurt the most vulnerable seniors. OAS and GIS combined make up between two-thirds and three-quarters of low-income seniors’ income, says Toronto pension expert Monica Townson. And because receiving GIS is dependent on being eligible for OAS, low-income seniors would have to wait an extra two years before receiving GIS. The result would be to offload seniors’ social assistance costs to the provinces, critics say.
Overall, Harper’s plan could lead to a reversal of the progress that Canada has made in reducing seniors’ poverty, Townson said. “If you are in poor health or there are other reasons why you can’t go on working until age 67, then you are really going to be hit by this,” she said in an interview.
Opposition MPs complain that seniors will be shortchanged to pay for billions of dollars worth of new prisons, military aircraft and corporate income tax cuts planned by the Harper government.
“The Prime Minister forgets the OAS is the only income many seniors, particularly women and the disabled, will have after they are no longer able to work,” Liberal MP Judy Sgro said in the Commons. “If they can find billions of dollars for Cadillac jets and American-style jails, can they not find a couple of bucks, just a few, (for) sick and low-income” seniors?
Despite the criticism, the Conservatives are sticking with Harper’s OAS proposal. Asked about it in the Commons Thursday, he said, “The government has been very clear that it is not contemplating any changes for those who are retired or those nearing retirement. At the same time, we have also been clear that we are concerned about the long-term sustainability of Old Age Security, and we are looking to take action to ensure that for future generations.”