Bloc leader Yves-Francois Blanchet speaks with reporters outside caucus, on Sept. 25, in Ottawa.Adrian Wyld/The Canadian Press
Colin Busby is director of policy engagement at the C.D. Howe Institute.
The Bloc Québécois is threatening to push for an early election should the minority Liberal government not support a private members’ bill, Bill C-319, which aims to increase the basic amount of the Old Age Security (OAS) benefit by 10 per cent from the current maximum of $718 a month.
The government should not back the bill. And, even if it does, a majority of MPs from across parties should later vote against this bill.
There is political rationale for these responses. Minority governments can be filled with bluster and threats, much of which are empty. And in such governments, strange coalitions may form to pass legislation or to kill certain bills.
Politics aside, here is the policy rationale: We need to avoid worsening intergenerational frictions in Canada and to conserve needed fiscal room for spending on other priority areas.
Supporters say seniors need the increase owing to affordability challenges, as well as the fact that those aged 75 and up already receive a more generous OAS than younger seniors (a maximum of $790 a month). Yet, the public pillars of our current retirement income system provide robust income supports.
The first pillar – the OAS/GIS (Guaranteed Income Supplement) that forms the basis of retirement income with the OAS providing near-universal benefits and GIS going to low-income seniors – is largely responsible for bringing most Canadian seniors out of poverty.
In most Organisation for Economic Co-operation and Development (OECD) countries, the poverty rate is lower among those of traditional working ages (18 to 64) and higher among children (under 18) and seniors (ages 65 and up). But in Canada, the opposite is true: High poverty rates affect those aged 18 to 64. In 2022, the poverty rate, using Ottawa’s market basket measure, among those aged 18 to 64 was 11.1 per cent compared with 6 per cent for those aged 65 and up. In the same year, the poverty rate was even higher among non-elderly single persons, spiking to 31 per cent for this group.
More broadly, intergenerational inequity is causing tremendous frictions between young and older Canadians. Policy makers have been slow to grapple with the housing challenges faced by younger Canadians. Youth also find it challenging to enter the job market, with the unemployment rate for youth (ages 15 to 24) rising to 14.5 per cent in August, the highest since 2012, excluding the pandemic. And, last but not least, the fiscal cost of health care will rise considerably as baby boomers age and require more care in long-term care homes and in the community – much of which younger taxpayers will finance.
At the same time, Canadian governments face rising interest costs on their debt, which squeezes out room to spend on other pressing issues. This includes potential reforms to tax and competition policies as Canada grapples with the need to enlarge the economic pie. We can no longer ignore our commitments to increase defence spending. Further, we face a potentially expensive set of carbon reduction and mitigation challenges.
Increasing the OAS by 10 per cent for those aged 65 to 74 would cost more than $3-billion a year (on a net basis) and increase over time – enough money to squeeze other, more pressing policy challenges that require funding.
True, in 2022, the federal government boosted OAS by 10 per cent for those aged 75 and up. Although the stated rationale for that was like the one put forward here – to help with affordability – there is a secondary rationale that defenders of this change can argue. Canadians live longer than ever before and risk outliving their savings. A coinciding risk is that they may underestimate how long they will live when they make key retirement income decisions, with average life expectancy of 83 years for those who reach age 65. This is especially true for the age at which they claim their OAS/GIS and Canada Pension Plan or Quebec Pension Plan benefits because claiming these too early leaves a lot of cash on the table.
Hence, boosting the OAS at age 75 acts as a modest form of longevity insurance for Canadians who live that long, hedging against the likelihood of outliving their savings. A more effective approach to reforming OAS along these lines would see the benefit amount increase at ages 80, 85, and so on. And the government should pursue this in a more cost-neutral manner.
We should beware of simple solutions to affordability challenges. Although increased individual benefits may add a short-term salve, they contribute to increased prices in the medium term. As poverty indicators show, if governments must use funds to reduce hardship from cost-of-living challenges, younger Canadians – particularly single, working-age individuals – need it more than most other groups.
Furthermore, any increases to OAS benefits are nearly impossible to reverse: Benefit cuts for seniors are political kryptonite, according to most party strategists.