Ottawa has moved on to its next looming demographic challenge after health care: covering the cost of an Old Age Security program that is on track to cost Ottawa more than $100-billion a year.
As the federal government tries to erase the deficit over the next four years, Finance Minister Jim Flaherty will need to accommodate multibillion-dollar hikes in the cost of OAS as Canada’s baby boomers retire.
Internal documents obtained by The Globe and Mail show Mr. Flaherty was briefed earlier this year on the extent of the increase to the federal retirement benefit. The documents show the cost of providing OAS to Canadians 65 and over is on track to climb from $36.5-billion in 2010 to $48-billion in 2015 – an increase of 32 per cent – before rising further still.
The briefings by Mr. Flaherty’s deputy minister point to data in an actuarial report that was quietly tabled in July and received little public attention. One note outlines how the cost to Ottawa of providing a basic OAS pension will grow dramatically due to the population aging.
“By 2030, the number of beneficiaries of the basic OAS pension is expected to double with expenditures projected to reach $108-billion,” states the June, 2011, briefing note, marketed “secret” and obtained under access to information legislation. The number of Canadians receiving OAS – a program that pays a monthly pension of up to $527 to virtually all seniors in Canada – is expected to climb from 4.7 million in 2010 to 9.3 million by 2030, before falling back.
Senior officials in Ottawa have been seized with the matter of long-term demographics for months. The government’s surprise announcement this week to lay out health and social transfer spending through to the year 2024 shows Ottawa is prepared to act quickly.
A spokeswoman for Prime Minister Stephen Harper, Sara McIntyre, responded cryptically when asked whether the government is planning policy changes to the OAS to limit its cost.
“All seniors will continue receiving their benefits. Our country faces demographic challenges,” she wrote in an e-mail. “We will ensure our retirement security system remains strong and sustainable for generations to come.”
Parliamentary Budget Officer Kevin Page says that by announcing this week that it will no longer increase health transfers by 6 per cent a year after 2016-17, Ottawa should have the cash it needs to pay for OAS.
“This will transfer the fiscal burden to the provinces,” said Mr. Page, who is working to update his long-term projections for Ottawa’s finances in light of the transfer announcement. He said the government is not providing enough analysis as to why it is making these long-term spending decisions.
“It’s acting as if it has a structural deficit, even though it tells everybody it does not,” he said.
The Globe obtained a draft report earlier this year that was circulated at a meeting of federal deputy ministers convened by Wayne Wouters, the Clerk of the Privy Council. That report – called Canada’s Changing Demographics: The Impacts of Population Aging – said the “federal government is well-positioned to address some existing issues,” such as “considering options to reduce disincentives to work for older workers.”
A report Wednesday in the National Post, citing anonymous Conservative sources, said there is some debate about increasing the age of eligibility for OAS from 65 to 67 in the 2012 budget.
The Prime Minister’s Office neither confirmed nor denied the report. “This is speculation,” Ms. McIntyre said.
Unlike the Canada Pension Plan – in which contributions are kept and managed in a standalone account – there is no pool of money set aside to pay for OAS benefits. The expenses are simply paid from general revenues.
Susan Eng, vice-president of the seniors advocacy group CARP, said her organization’s polling shows that limiting OAS benefits would be hugely controversial.
“I think it would be political suicide,” she said.