It was billed as the child care budget.
But look past the rhetoric and instead examine how Ottawa is actually spending, and the 2021 budget is really about elder care.
For every new dollar of spending on children between the last prepandemic fiscal year of 2018-19 and fiscal 2025-26, two additional dollars are projected to be spent on seniors (or as the budget calls those outlays, elderly benefits), as the chart below shows.
All told, Ottawa will spend an extra cumulative $104.4-billion over seven years on elderly benefits, while additional cumulative spending on children’s benefits and child care will tally just under half that amount, at $52-billion.
Even that lopsided ratio understates the pressure of spending on the elderly. Those figures take into account the billions the federal government has promised to spend on setting up national subsidized daycare. But it does not include the cost of fulfilling Prime Minister Justin Trudeau’s promise to the provinces to boost federal health transfers after the pandemic ends, to help share the burden of costs driven to a large extent by the needs of an aging population.
Add in billions more to fulfill that commitment, and Ottawa’s spending will tilt even more toward spending on older Canadians.
Demographic changes are driving part of this change. As this second chart shows, the full entry of the baby boomers into retirement means that the proportion of the population at least 65 years old will rise sharply over the next decade, even under Statistics Canada’s slow-aging scenario. Under the agency’s fast-aging scenario (with lower fertility rates and immigration levels, among other factors), the proportion of the population 65 or older keeps on rising past the mid-century mark.
Either way, there will be far more older people in Canada, year after year, adding to the cost of programs such as Old Age Security and the Guaranteed Income Supplement – and health care.
Economist Don Drummond, a former senior official in the federal Finance Department, says the aging of Canada’s population is a significant driver of health care costs, pushing up expenditures by about 0.9 per cent a year. That aging factor is part of the reason that the premiers are demanding Ottawa increase its health care transfers by $28-billion a year immediately, with transfers increasing $4-billion a year after that. That would shortly double Ottawa’s health care outlays from the projected $43.1-billion for 2021-22.
Mr. Drummond says it’s unlikely that Ottawa will accede to that scale of increase. More plausible (or at least more reasonable) is an added $5-billion to $10-billion to current annual health transfers, increasing after that point by 4 per cent to 5 per cent a year. Even that more modest amount would represent a substantial increase in health care spending, largely if not exclusively focused on seniors.
The rising grey tide will also crimp Canada’s work force. Statistics Canada says its projections show that the proportion of Canadians 15 to 64 – the core of the work force – will fall to between 57.9 per cent and 61.4 per cent in 2068, down sharply from 66.7 per cent in 2018.
Peter Dungan, an economist with the Rotman School of Management at the University of Toronto, says workers born in the peak of the baby boom, in the late 1950s, will hit retirement age in the middle part of the decade. It won’t be until 2030 that the rush to retirement eases, he says, while noting that some of those older Canadians will continue to work.
But delayed retirement by some older workers, and even expanded child care, won’t be enough to keep work force participation rates from shrinking, Prof. Dungan says.
Those inexorable demographic changes will mean a shrinking group of workers paying the bills for a growing number of older people.
But not all of the pressure on the federal budget is from those external choices. The federal Liberals have made a series of political choices, some as they entered office six years ago and some during the pandemic, that have added to the rising expenses of benefits paid to older Canadians.
The most significant change was the rollback of the Conservatives’ plan to delay the qualifying age for Old Age Security payments to 67 from 65. Implementing that change would have both constrained the growth in OAS expenditures, and provided an incentive for 65- and 66-year-olds to keep on working. Nixing that change accomplished the reverse. “It shouldn’t have been promised,” Prof. Dungan says.
The Liberals have added to the tally of elderly benefits during the pandemic. Some of those moves, such as the one-time payments to OAS and GIS recipients last year, and a second one-time OAS payment this summer, won’t increase permanent spending.
But the government also promised to increase OAS payments permanently by 10 per cent for recipients 75 and older, starting next July. That will boost yearly payments to individuals by $766, an amount fully indexed to inflation.
The Liberals say the move is to ensure a “secure and dignified retirement,” implying that their goal is to alleviate poverty, or at least help out cash-strapped seniors. But if that were indeed the goal, there’s already a custom-designed policy tool at hand – the GIS, which is targeted to seniors whose income is under $18,744. By contrast, an individual can have an income as high as $79,053 and receive full OAS payments. Even with clawbacks, the OAS doesn’t entirely disappear until income hits $128,149.
In any case, Mr. Drummond says, poverty among seniors has been dramatically reduced in recent decades. If poverty alleviation was truly the government’s aim, it could have made a much bigger impact by redirecting funds to children’s benefits, particularly the Canada Child Benefit, paid to eligible families with children under 18.
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Patrick Brethour