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Prime Minister Justin Trudeau, seen here on May 14, 2020, didn’t highlight that the government has chosen not to place any income limit on the $2.5-billion in benefits for seniors.

Adrian Wyld/The Canadian Press

The $2.5-billion in benefits rolled out last week for seniors marked an important juncture in the Liberals’ massive spending to support Canadians and the weakened economy – namely, sending cash to people who demonstrably do not need it.

Prime Minister Justin Trudeau described the lump-sum payments of $300 to everyone receiving the Old Age Security pension, and an additional $200 to low-income seniors, as payments to cover higher expenses resulting from the fight against the novel coronavirus, such as grocery delivery expenses, higher drug costs and the inability to shop for bargains.

But what Mr. Trudeau didn’t highlight is that the government has chosen not to place any income limit on those benefits. That $300 payment will go not just to seniors struggling to make ends meet but also to the highest-income Canadians, so long as they are eligible for the OAS. So, seniors that have earnings high enough that they see some, or even all, of their OAS benefits clawed back will still receive emergency assistance.

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And, unlike OAS payments themselves and other emergency benefits related to the coronavirus, the top-up payments for seniors announced this week are tax-free.

However, Ottawa has provided some focused relief for lower-income seniors. The government will send an additional $200 payment to all recipients of the Guaranteed Income Supplement, paid to those whose individual income is no higher than $18,600 or whose household income is no higher than $34,416.

In an e-mailed statement, Employment and Social Development Canada said only about 2 per cent of OAS recipients have incomes high enough that their pensions are fully clawed back. An additional 5 per cent have incomes that result in a partial clawback (which begins at $79,054). The department said nearly 85 per cent of OAS pensioners have after-tax income below $50,000. The department said the decisions to issue a “simple” payment was made to ensure seniors received the funds quickly.

Tammy Schirle, professor of economics at Wilfrid Laurier University in Waterloo, Ont., said it is easy to understand why Ottawa would see the need to assist lower-income seniors. But Prof. Schirle said it is not obvious why the government did not simply target benefits to those seniors, and instead chose to send funds to higher-income households.

Many households, not just seniors, face some incremental expenses, she noted. And a higher-income senior would presumably be able to absorb such costs relatively easily. “No one is sending me a cheque this month. I don’t need it," she said. “Why someone who is 66 needs that cheque, I’m not sure.”

Prof. Schirle said the debate over providing targeted benefits to some seniors, and therefore excluding others, is a perennially thorny one. “There is a very old conversation here about how to better target funds toward those seniors who need it most rather than seniors most broadly. That appears to be a very difficult conversation to have in Canada.”

Jason Clemens, an economist with the Fraser Institute, said he is also puzzled by Ottawa’s decision to give the $300 benefit to all OAS recipients, particularly when it had a ready-made solution to provide a targeted benefit to lower-income seniors – those receiving the GIS.

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About one-third of seniors have a low enough income that they receive the GIS. Mr. Clemens said that if Ottawa had simply limited its payments to those seniors, it could have cut the cost of the program to $1.05-billion from $2.5-billion. Alternatively, he said, the government could have spent the same amount of money, but opted for much higher targeted individual payments of $1,189.

Prof. Schirle said limiting payments to GIS recipients would have been sufficient to help those needing help with extra costs resulting from the coronavirus lockdown.

Mr. Clemens said the government did not even take the step of making the benefits taxable, as is the case with the Canada Emergency Response Benefit. If it had done so, higher-income seniors would have to hand back at least some of their benefits, trimming the cost of the program, he said.

Given that the deficit for this year is above $250-billion and rising, and the national debt is headed toward the $1-trillion mark, the design of the program raises fresh questions about the Liberals’ fiscal prudence, Mr. Clemens said. “The money’s not free.”

Marissa Lennox, chief policy officer for the Canadian Association for Retired Persons, said her organization does not view the aid program as adequate and that a continuing benefit is needed. She said the government needs to take other steps to support seniors, including a relaxation of rules around the timing of cashing out and taxation of retirement investments.

Ms. Lennox said it is important to get assistance to seniors quickly and that the decision to give the $300 benefit to all OAS recipients will help to minimize delays.

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Tax and Spend is a new series that examines the intricacies and oddities of taxation and government spending.

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