The Conservative government will ask millions of Canadians to push back their retirement as part of a landmark budget that stresses bold action now to position Canada’s economy in the face of major demographic changes to come.
Ottawa will unveil plans Thursday to delay Old Age Security benefits until age 67, The Globe has learned, confirming Prime Minister Stephen Harper's long-telegraphed blueprint for retirement reform. The OAS changes will be phased in over a number of years, creating a generational divide between Canadians who will receive the benefit – worth more than $6,000 a year – at age 65 and other Canadians who will have to wait longer.
Tackling unemployment in the face of growing skills shortages will also be a dominant theme. The Globe has learned that the budget will renew a small-business-tax credit of up to $1,000 to offset the costs of Employment Insurance premiums for new hires. The temporary measure is expected to cost Ottawa about $200-million.
Other employment insurance and immigration changes will be aimed at ensuring there are trained workers available to replace the growing number of workers entering retirement. The budget is also expected to signal changes to the temporary foreign workers program, allowing short-term workers to address looming skills shortages in the resource sector.
Conservatives are hoping the focus on jobs and long-term policy issues like innovation, immigration and resource sector expansion will overshadow the budget’s cuts, which are expected to be slightly deeper than what Finance Minister Jim Flaherty originally laid out in last year’s budget.
As part of those cuts, thousands of public servants – as well as MPs and Senators – will all have to contribute more toward their work-place retirement plans. Those plans are often criticized for being far more generous than similar programs in the private sector.
Thursday’s budget will reveal the overall results of an ambitious spending- reduction plan in which all departments were asked to submit two proposals for cuts: one at 5 per cent and one at 10 per cent. The final cuts are expected to be in the middle of that range overall, with some departments receiving deeper cuts than others. The total annual savings are expected to fall in the $4-billion to $6-billion range.
While public servants are expected to bear the brunt of the cost-savings, MPs and Senators are attempting to show they will do their part.
Members of Parliament will be giving up their first-class tickets on short-haul flights like the popular Ottawa-Toronto leg. Now only flights over two hours will qualify for first-class privileges at taxpayers’ expense. The frequent flyers will also be forced to look for bargains. Except for long flights to their ridings, MPs will only be allowed to purchase flights at Air Canada’s “Tango Plus” fare class, which is the second cheapest of five available options.
Overall, the budget for the House of Commons will be cut by 6.9 per cent – or $30.8-million – by 2014-15. That decision is the result of behind-the-scenes work of the all-party Board of Internal Economy, led by Conservative MP and House of Commons Speaker Andrew Scheer.
“What we’re asking individuals, families, businesses to do, we would have to do the same as parliamentarians,” said Conservative MP James Rajotte.
As he bought his customary new pair of shoes Wednesday at a downtown Ottawa mall, Mr. Flaherty stressed that federal budget cuts will largely focus on “back office stuff.”
While the cuts are aimed at avoiding a direct impact on Canadians, changes to OAS are likely to be hotly debated given that many Canadians are already failing to save enough for retirement.
Pension expert Jack Mintz, a member of an economic panel that advises the Finance Minister, said incentives to work longer are needed in an age when Canadians are living much longer than before.
“We do have a major issue down the road dealing with demographic pressures,” he said, comparing this budget’s changes to OAS with federal moves on public debt and the Canada Pension Plan in the mid-1990s. “Hats off to Canada. We worry about this, as opposed to the United States, which has unfunded liabilities coming through their ears. So I think it’s going to be good that the government’s willing to address these issues.”
The government’s innovation agenda will figure prominently in the budget. Among the key changes coming: making the National Research Council’s labs more responsive to the needs of business, offloading part of the NRC’s $700-million budget on the private sector and reforming Ottawa signature $3.5 billion-a-year R&D tax credit.
With reports from Shawn McCarthy and Barrie McKenna