The federal budget, a tome of more than 700 pages, is about a lot of things, for a lot of people. New spending on everything from child care to the environment is tallied in the billions of dollars, and will be unfurled over the next half decade.
The biggest planned increase in spending, however, is one that received little attention: benefits for the elderly.
Old Age Security (which goes to most seniors) and the Guaranteed Income Supplement (for low-income seniors) will cost an estimated $81-billion in 2025. That figure is $22.2-billion more than the $58.8-billion spent last year – close to a 40-per-cent jolt higher in the span of just five years.
As of 2023, outlays on seniors’ benefits will be more than the Canada Health Transfer and equalization combined. By 2025, the added costs will be almost triple the annual price tag for new spending on the proposed national child-care program.
The era of balanced budgets is dead
The escalating cost of OAS and GIS is a basic fact of Canadian budget math. There are almost seven million Canadians over 65 who receive OAS. About one-third also get GIS. Each year, there are more people who turn 65, and they are living longer. The programs are fully indexed to inflation. There is nowhere to go but up. Way up.
Stephen Harper tried to slow the spiral in 2012 by delaying eligibility for OAS to age 67, starting in 2023.
The demarcation of age 65 for Old Age Security had been established in the mid-1960s, when GIS was also created. Poverty among seniors in that era was distressingly high. OAS and GIS were a big success, and poverty among seniors plummeted.
By the 1980s, seniors’ poverty matched the national rate, and kept falling. In 2019, the percentage of seniors struggling on a low income was 5.4 per cent. The rate for children under 18 was 9.7 per cent, and for people 18 to 64 it was 11.6 per cent.
In 2016, the newly elected Justin Trudeau spiked Mr. Harper’s unpopular raise in the eligibility age. That year, the Liberals also bolstered GIS spending for the lowest-income single seniors. It was a smart investment – $670-million a year – and made a difference. Poverty among seniors in 2016 was 7 per cent; it fell 1.6 percentage points within three years.
In last week’s behemoth budget, Mr. Trudeau made good on a campaign promise to bolster OAS spending. This investment makes less sense. The plan includes a one-time $500 payment this summer to people 75 and older, and a 10-per-cent increase for the same age group next year. Payouts of about $7,420 a year would rise $740, to $8,160, in July, 2022.
The money is not specifically aimed at low-income seniors who need it most, though they will certainly appreciate the gain. It’s a blanket increase. OAS payments are reduced only for seniors starting at an income of about $79,000. That level exceeds Canada’s average income by $30,000.
By 2025, the 10-per-cent bump will cost an extra $3-billion a year, coming on top of already soaring elderly benefits.
Those benefits are, and will remain, the federal government’s biggest transfer program. If the new money were focused on lower-income seniors, the argument would be clear. As of last year, almost 40 per cent of seniors over 75 received GIS. They would definitely benefit from a boost. But a considerable amount of the OAS bump will go to seniors who are already doing quite well.
The new money, $3-billion, is big, even if it’s only a fraction of total elderly benefits. The figure is the same as annual permanent transit funding planned to start in 2026, and it’s almost as much as the Liberals’ planned annual spending on the “green recovery.”
The benefits of OAS and GIS are not in question, especially for lower-income seniors.
But with a rapidly aging population, they present an ongoing budget challenge. Unlike the Canada Pension Plan, which is fully funded by previous and continuing contributions, funding for elderly benefits is paid by taxpayers. It’s an ever-heavier burden on working Canadians.
Five years ago, in Mr. Trudeau’s first budget, the increase to GIS for low-income seniors was the right move. It packed a punch and propelled the declining rate of poverty among seniors even lower.
But this budget’s $3-billion-a-year decision to increase OAS across the board for those over 75 makes less sense. Too much of the money will go to seniors who are not in need, and could be better invested elsewhere.
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