“Fairness for every generation” – that’s what the federal government has promised in all its prebudget announcements. To which I say, “Hallelujah,” because it’s high time Ottawa addressed how hard work isn’t paying off for younger Canadians today compared with previous generations.
Finance Minister Chrystia Freeland rightly emphasizes that generational fairness doesn’t just demand new spending to reduce the major challenges facing younger Canadians, things such as housing affordability, child care and climate change. It also means making sure we don’t leave them “with an irresponsible fiscal position,” she told CBC Radio. In other words, our legacy can’t be large deficits when the economy is not in a recession.
Meeting this goal will require Ottawa to address the massive revenue shortfall created by decades of governments failing to plan adequately for the cost of healthy retirements for baby boomers. It will be nearly impossible for politicians to reverse the fiscal damage caused by this lack of foresight if too many of us believe the path to balanced budgets is as easy as eliminating spending on things we love to hate. Here’s why.
Restoring balanced budgets must start with finding $40-billion a year to cover new spending for Old Age Security (OAS) and the Canada Health Transfer (CHT), the two-line items in the federal budget that are growing faster than all others.
According to the last Fall Economic Statement, spending on OAS will increase by $32-billion a year by 2028. The CHT will rise by $17-billion, half of which will go to the 20 per cent of Canadians over age 64. This $40-billion increase in spending on retirees is double the combined increase for employment insurance, the Canada child benefit, child care and the Canada social transfer, which delivers funds to provinces for social assistance, education and more.
With spending on retirees increasing faster than other budget lines, I’ve encouraged affluent boomers to be open to paying more taxes to cover the rapid acceleration in spending on their generation. Some readers reminded me they don’t like taxes and instead suggested cuts to programs they deem wasteful. To estimate how much their ideas could save, I consulted Finance Canada.
Let’s start with the CBC – a lightning rod for many. If we eliminated it entirely, we’d save $1.4-billion. That’s 4 per cent of the planned increases for OAS and retirees’ medical care.
Some propose cutting the entire budget for Environment and Climate Change Canada, given the anger about the carbon price. That could save $2.76-billion, equal to 7 per cent of the increase in spending on retirees.
Others would eliminate federal investments in electric-vehicle battery production. They cost $4-billion per year, 10 per cent of the revenue shortfall.
Let’s not forget ArriveCan, which disgracefully wasted $60-million. Then let’s imagine, as many do, there are a dozen similar scandals the government is hiding. Were they all eliminated, they might contribute 2 per cent of the planned increase in spending on retirees.
Adding all these potential savings together, we might save 23 per cent of the revenue shortfall.
Where else might we find the remaining $31-billion?
Many critique the 40-per-cent increase in the size of the federal civil service under Prime Minister Justin Trudeau. For the moment, let’s set aside that some of this increase may have been necessary to support the 86-per-cent increase in OAS or the 76-per-cent increase in medical care over the same period. Or new national strategies for housing and child care. Or a pandemic response requiring historic levels of procurement for medical supplies, loans and subsidies to businesses and emergency support for households.
Instead, let’s presume that half of the growth in the bureaucracy totally wastes taxpayer money and send pink slips to 20 per cent of the civil service.
Even that would only save about $25-billion annually – not enough to fill the revenue hole.
Here’s the bottom line: Decades ago, governments foresaw the dramatic increase in public spending that would accompany boomers’ retirement but did little to prepare for this looming reality because it was politically convenient to kick the can down the road. Now we are down that road and have a big fiscal problem.
Politicians will be slower to solve the problem if many voters mistakenly imply that restoring balanced budgets should be as easy as cutting hated expenditures.
It would be historic if the Finance Minister were to acknowledge as much in next week’s budget. Because the first step in solving any problem is admitting we have one.
Dr. Paul Kershaw is a policy professor at UBC and founder of Generation Squeeze, Canada’s leading voice for generational fairness. You can follow Gen Squeeze on X, Facebook, Instagram, and subscribe to Paul’s Hard Truths podcast.
Paul Kershaw