When it comes to pension reform, David Dodge has seen this movie before – twice – but he hopes it ends differently this time.
Prime Minister Stephen Harper has refused to answer repeated questions in the House as to whether he is planning to raise the eligibility age for Old Age Security to 67 from 65, leading opposition parties to howl that he is refusing to come clean.
However, Mr. Dodge – the former governor of the Bank of Canada who was deputy minister at the Finance Department during the deficit-slashing mid-1990s – hopes the government does just that. Moreover, in an interview Friday, Mr. Dodge suggested Mr. Harper should take advantage of his majority government and even raise the age for the Canada Pension Plan, something other governments have shied away from, and which the current Conservatives say is not on the table and not necessary.
“At least since the mid-1980s we’ve known we were going to have to do something,” he said. “We knew that back in ‘97 when we did the revisions of the CPP. At the time the decision was we were doing so much to fix that adding one more layer – i.e. the gradual increasing of the age – was probably too much to bear. So, we didn’t do it, although we certainly talked about it, and the finance minister and officials at the time talked about it and realized we really should do it. But we didn’t because we were doing so much else.”
“So, quite frankly,” he continued, “we’re at least 15 years late in getting started in raising that age of entitlement for CPP, OAS and the normal expectation as to how long people would work in the private sector with private-sector pension plans. That’s absolutely clear, and because labour participation rates will start to fall later this decade, we’re up against the wall. It would have been a lot better if we’d done things in 97, it would have been even better if we had done things in 85 when we first looked at this under the Mulroney government, because you need a long phase-in.”
Leaving the CPP aside, the cost of the OAS program is poised to soar as the baby boom generation retires, which is starting now. Other governments saw this coming, but ultimately backed down from plans to tackle the problem. In particular, when Tory Prime Minister Brian Mulroney partially de-indexed the program from inflation in his 1985 budget, he was famously accosted by then-63-year-old protestor Solange Denis, who fumed “You lied to us.” A week later, Mr. Mulroney reversed the decision, which he called “a mistake.”
Twelve years later, then-Liberal Finance Minister Paul Martin won over Ms. Denis – even to the point of dancing together for the cameras – for his proposed revamp of the OAS in 1996. Mr. Martin planned to replace the OAS and the Guaranteed Income Supplement for low-income seniors with a Seniors Benefit based on family, rather than individual, income. The fury came from others however, and Mr. Martin also backtracked.
Mr. Dodge is warning the Harper government against wasting another opportunity to start the clock on addressing a fiscal problem that everyone has known about for decades.
“There’s nothing, absolutely nothing new here, other than the fact the prime minister spouted off when he was standing among the great and the good over in Davos,” Mr. Dodge said, referring to Mr. Harper’s speech at the World Economic Forum in Switzerland last week, when he indicated he intends to tackle some of these issues.
“This has been in the literature, it’s been well understood for a long period of time. This one is in my mind (a) overdue, and (b) there’s a lot of noise that is pretty stupid, quite frankly – and maybe even politically stupid – coming out and saying, you know, ‘We can’t ever contemplate raising that age.’ All you have to do is remind people that originally it was age 70, and that was when people had a lot shorter life expectancy than they have today.”
Of course, for elected officials there is a big difference between recognizing the gravity of a problem and having the political will to take the actions that top bureaucrats recommend. Mr. Dodge has the battle scars to prove it, having served as Mr. Martin’s deputy. So, does he think the Harper government will break the mould?
“Generally, things that are not necessarily popular are done under majority governments,” Mr. Dodge said. “So I would hope they get on with it and do it.”
And what of the inevitable criticism from opposition parties, which could stalk the government all the way into the next election campaign?
“I would just hope that not everybody on the opposition side of the House is crazy,” he said. “There’s lots of people there that understand full well that there’s a big problem here.”
With files from Bill Curry