Go to the Globe and Mail homepage

Jump to main navigationJump to main content

A significant number of mature workers are expected to retire from the labour force in the next 20 years – the latest sign of a demographic shift as Canada's population ages. (Getty Images)
A significant number of mature workers are expected to retire from the labour force in the next 20 years – the latest sign of a demographic shift as Canada's population ages. (Getty Images)

There's no old age security 'crisis,' PBO report shows Add to ...

Kevin Page says the boomers will not break the bank.

In fact, Ottawa’s finances are in such good shape that it could afford to cut taxes and boost spending all while cutting cheques to a growing number of Canadian seniors.

Mr. Page, the Parliamentary Budget Officer, released a new report Wednesday that takes a close look at the suddenly explosive issue of Old Age Security and pours cold water on Conservative warnings that the program faces a sustainability crisis.

More related to this story

Prime Minister Stephen Harper set off a storm of controversy last month with a speech in Davos, Switzerland, that signalled a review of Canada’s retirement income system. The government has since confirmed that the government is looking at gradually raising the age of eligibility for Old Age Security to 67 from the current 65.

Human Resources Minister Diane Finley has described the situation as a “crisis,” pointing to actuary reports showing the cost of OAS is poised to triple from about $40-billion this year to $108-billion in 2030.

Mr. Page’s analysis agrees with those actuarial estimates – and notes the cost could even be higher if Ottawa chooses to enhance seniors benefits. However, when measured as a percentage of Gross Domestic Product, the PBO says the cost is manageable.

In an interview, Mr. Page said the retiring baby boomers should not come as a surprise to the Prime Minister or government officials.

“I think what shocked people with the Prime Minister’s [speech]in Davos is what’s the context for this decision? Is this fiscal or is it policy?” said Mr. Page, who argues there is no fiscal reason to raise OAS but there may be other reasons such as boosting economic growth through higher workforce participation.

“The Prime Minister, when he was cutting taxes in the 2006 and 2007 budget, do you think he did not know that we were going to be dealing with a rising old age dependency ratio starting this decade and going into next decade? He knew that. But we reduced the GST by two points. We cut corporate income taxes. We cut personal income taxes. We had spending going at a fairly rapid rate. We launched new permanent spending programs. So this is not like ‘Oh my god we have a crisis,’ because we’re running a deficit right now,” he said. “We’ve known this was coming.”

The PBO reaches this conclusion without factoring in recent spending freezes, nor the spending cuts that are expected in the 2012 budget. Should those spending cuts materialize, Mr. Page argues Ottawa will be that much further ahead in terms of having financial wiggle room while the boomers are in retirement.

“Expressed in terms of program spending, elderly benefits are projected to increase from 14.8 per cent of program spending in 2010-11 to 20.9 per cent in 2030-31 and then decline to 14.9 per cent by 2080-81,” states the report.

The PBO report is based on the concept of a “fiscal gap” – essentially an estimate of the required changes to spending or revenues that would be needed to keep the debt-to-GDP ratio constant. The PBO finds that based on Ottawa’s recent decision to cap provincial health transfers to nominal GDP over the long term, the fiscal gap will be in negative territory – meaning Ottawa could boost spending or reduce revenue without piling on new debt as a percentage of GDP.

“PBO projected the federal net debt-to-GDP ratio would decline steadily from its current level, ultimately resulting in a net asset position (i.e., financial assets exceeding liabilities). PBO estimated that the federal gap to be -0.4 per cent of GDP, indicating that – relative to PBO’s baseline projection – the federal government could reduce revenue, increase program spending or some combination of both while maintaining fiscal sustainability,” states the report.

Mr. Page’s findings are similar to another report prepared for Finance Canada in 2009 that found Canada’s retirement obligations were sustainable and that there was no pressing need to raise the retirement age.

However, there have been other expert reports that have argued there is a need for change.

McGill economics professor Christopher Ragan wrote a report last year published by the Macdonald-Laurier Institute that argued Canada does face a “looming fiscal squeeze” as a result of demographics.

That report – which was published in November, 2011, before the Harper government made its announcement on future health transfers – argued there was a need for Ottawa to either cut spending or raise new revenue if spending and taxes are to be in balance.

“The coming demographic changes imply that achieving this balance in the future will only be possible if Canadian governments make deliberate and significant policy adjustments,” states the Ragan report, titled Canada’s Looming Fiscal Squeeze. “Ignoring this fact is a sure route back to the problems we experiences in the mid 1990s with high levels of public indebtedness.”

Alyson Queen, a spokesperson for the Human Resources minister, insisted OAS changes are needed.

"Government will make the changes necessary to ensure sustainability of OAS for the next generation while not affecting current recipients or those close to retirement," she said in an email.

"By 2030, Canada will have twice as many retirees supported by half as many working Canadians. The evidence clearly shows that on its current path, Old Age Security will become unsustainable without changes. That is a dangerous course of action that puts the retirement benefits of future Canadians at risk."

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular