Prime Minister Jean Chrétien speaking at a dinner in Toronto on Feb. 22, 1996. While Chrétien's government prepared better for the boomer bulge than any previous or succeeding administration, its own budgets show it knowingly left the job unfinished.Randy Velocci /The Globe and Mail
I don’t like cleaning up other people’s messes, especially when they could have been prevented.
That’s why I sympathize with incumbent governments. The NDP in B.C., Progressive Conservatives in Ontario and Liberals in Ottawa all struggle to balance their budgets today because governments failed decades ago to plan adequately for boomers’ retirement.
Budgets tabled in 1995 through 1998 by prime minister Jean Chrétien’s government make this failure clear. While it prepared better for the boomer bulge than any previous or succeeding administration, its own budgets show it knowingly left the job unfinished.
By reviewing that government’s mixed record, we can better empathize with contemporary politicians of all party stripes. They’ve inherited fiscal messes that their predecessors knew about, but didn’t prevent.
Consistent with data I’ve shared in previous columns, the 1995 federal budget stated: “The percentage of persons over age 65 will nearly double over the next 40 years.” That would mean senior citizens would go from 12 per cent of the population today to about 23 per cent by the year 2030.
The budget further said Canada would have only three workers in the next century to support every retired person, compared with five at that time, and seven when boomers started in the work force. Meanwhile, expenditures on Old Age Security (OAS) and the Canada and Quebec Pension Plans would increase as a share of the economy over 40 years – from 5.3 per cent in 1993 to more than 8 per cent in 2030.
Mr. Chrétien responded by launching a “federal-provincial review of the CPP” and promised to release a paper the next year on changes needed to ensure OAS sustainability.
The 1996 budget followed through. “Unless changes are made to the CPP, today’s younger Canadians and future generations will be asked to pay almost three times more than people are paying now for the same CPP pensions,” it stated. “Steps should be taken now to ensure that future generations are not faced with unreasonable burdens, and to assure young Canadians that the CPP will be there for them when they retire.”
The same budget announced that OAS would be replaced by “a new Seniors Benefit,” starting in 2001. It would deliver more money to less-affluent retirees, preserve benefits for those with incomes up to $70,000 (today’s dollars), and reduce benefits for those with incomes above this threshold. Eligibility for OAS would be determined based on household, not individual, income. Funds spent through existing age and pension income credits would be repurposed to help offset OAS increases.
By 1997, the government began increasing CPP premiums by 68 per cent over the next six years, and reported progress on the new seniors benefit in the 1997 and 1998 budgets.
Thereafter, something changed. The new seniors benefit received no mention in the 1999 budget, nor did any alternative to adapt the OAS.
While I’m still hunting down the backstory for the OAS reversal, several insights emerge from this history lesson.
First, governments predicted the fiscal challenges posed by population aging decades ago. Since Ottawa engaged provinces to review CPP pressures, premiers had every reason to anticipate the same demographic changes would affect provincial fiscal plans, because population aging drives medical expenditures.
Second, the Chrétien government deserves kudos. Inviting boomers to pay higher CPP premiums while still active in the labour market is among the most significant policy decisions in Canada’s history to promote intergenerational fairness. It protected the program for younger and future generations without leaving unpaid bills.
By comparison, the failure to revise OAS is a mark against us. Governments knew that the OAS was generationally unfair, and would shackle the finances of contemporary administrations unless revenue was increased or benefits reduced.
Eventually, prime minister Stephen Harper proposed to raise eligibility for OAS from the age of 65 to 67. But even had his plan not been cancelled by the government of Justin Trudeau, Mr. Harper’s changes would only have taken effect in 2023. So he too kicked the can down the road several election cycles after his announcement.
“Better late than never” is the moral of this trip down memory lane. Former plans to update the retirement-income system remain relevant.
As a starting point, following through on the plan to repurpose funding from the age and pension income-tax credits could save $6-billion annually. By making this change in the next fall economic statement, Ottawa would buy some time to perform the harder work of evaluating other options to revise OAS benefits, or ask affluent boomers to pay more in taxes to cover their cost.
Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze, Canada’s leading voice for generational fairness. He offers policy advice to governments of all party stripes, including the current federal cabinet. You can follow Gen Squeeze on Twitter, Facebook and subscribe to Paul’s Hard Truths podcast.