There is an untold story underpinning Canada’s plans to ramp up annual immigration targets from about 250,000 to half a million by 2025.
Yes, wars, famine, discrimination, poverty and climate change offer many humanitarian reasons to welcome more people to Canada. So too do the many job vacancies in our country that need filling.
But more immigration also allows provincial and federal politicians to dodge a hard conversation with baby boomers about taxes. By dodging it, we risk harming newcomers and boomers’ kids and grandchildren. To reduce this risk, we badly need our governments to revisit changes made to taxation for the Canada Pension Plan in the mid-1990s that were not applied to medical care and Old Age Security (OAS).
Here’s the challenge: When boomers started out as young adults, there were 6.9 working-age Canadians for every person over the age of 65. Now there are 3.3.
This wouldn’t pose a problem if medical care and OAS had been built on a tax system that required Canadians to pay during their working years for health and income supports in retirement. But that isn’t how our policy works – with the exception of CPP.
By the mid-1990s, the federal government recognized that a shrinking ratio of workers to retirees required changes to CPP. To keep the program solvent for future generations, CPP shifted to a prepay system. The payments individuals contribute over their working lives are closer to the average cost of CPP benefits they are expected to use in the future. The change increased annual CPP contribution rates by 65 per cent but ensured the long-term viability of the program.
Unfortunately, Canadian governments didn’t similarly adapt revenue collection for OAS and medical care, which remain “pay as the country goes” systems. Governments collect revenue in each year to correspond (more or less) with the cost of benefits paid in that same year to whomever is using the programs.
This lack of foresight means government budgets are now in a precarious position. Boomers dutifully paid taxes according to the rules of the day. But those rules asked them to pay for the smaller percentage of retirees who came before them – not for the full cost of the medical care and income support they would actually use. As a result, those rules risk leaving unpaid bills for their offspring or insufficient public funding for the medical care and OAS on which boomers will increasingly rely.
Given this historical legacy, larger immigration targets are attractive to governments.
Rather than talk about whether boomers paid enough in taxes to fully cover the cost of their medical care and OAS, Canada plans to attract more workers to increase the total number of people available to pay taxes.
This might have been a fine solution, but our invitation to come to Canada isn’t what it used to be.
It now takes 17 years to save a down payment on an average home in Canada, compared with five to seven years in the 1970s through the 1990s. Whereas in decades past it was possible for newcomers to believe in the Canadian dream that a good home was within reach for a hard-working family, that dream has become increasingly elusive, especially in British Columbia and Ontario.
A sad reality is that the children of immigrants who arrived in the 1970s to the 1990s often struggle with housing affordability more than their parents did. They struggle even though they may have acquired better educations and found better-paying jobs than their parents did upon arriving in Canada decades earlier.
Here we uncover a hard truth. The much larger numbers of newcomers our governments aim to attract will join younger Canadians in the search for affordable housing – and will struggle to find it. Through no fault of their own, a rising number of newcomers will amplify demand for housing, driving up home prices. Rising prices increase housing wealth for long-time homeowners, often boomers – and this additional housing wealth is largely sheltered from taxation.
The irony should not be lost on anyone. The very solution that enables governments to avoid asking boomers to pay more in taxes for their medical care and OAS contributes to many boomer homeowners gaining tax-sheltered wealth. All the while, that strategy erodes housing affordability for their kids and grandchildren, along with the newcomers we welcome to our country.
It’s no surprise that politicians want to avoid talking to boomers about taxes, because that’s a risky business come election time. But we have to find a way to overcome this reticence by returning to the question: Why did we change taxation for CPP decades ago but not for OAS and medical care? And what can be done now to raise additional revenue for medical care and OAS from (affluent) boomers to compensate for the lack of adaptation decades ago?
If we don’t engage with these questions, we will remain en route to securing the well-being of many boomer Canadians at the expense of undermining the financial security of those who follow in their footsteps, including their offspring and millions of hard-working immigrants.
Paul Kershaw is a policy professor at UBC and the founder of Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on Twitter and Facebook and subscribe to Dr. Kershaw’s Hard Truths podcast.
