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After a hiatus of a few months, the federal government has tied itself to a new fiscal anchor.

At least that is how the Finance Department is describing its commitment to slightly reduce the size of Canada’s net debt relative to the economy over the next four years. But there are some lingering questions about how willing the government is to limit its spending propensities by committing to a longer-term goal.

In the 2021 budget, the government says it “is committed to unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium-term.” In a briefing for reporters, a senior government official said the government was fulfilling that commitment with a fiscal plan that reduced the annual deficit to $30.7-billion in 2025-26 and the ratio of net debt to gross domestic product to 49.2 per cent. (That plan also envisions significantly higher spending across a broad range of programs. Without that spending, the relative size of the debt would fall much more significantly.)

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What happens after that point? Ottawa isn’t committing itself to any specific goal, with the senior official saying the government doesn’t want to be tied up in a fiscal straitjacket. That’s in contrast with earlier fiscal anchors. Under previous governments, both Liberal and Conservative, a balanced budget was used as a fiscal anchor. Sometimes, reaching that goal was years away, but the destination was always clear. That was mostly true of this government’s previous fiscal anchor, reducing net debt relative to GDP to less than 30 per cent. The goal was clear, even if the progress toward achieving it was uneven.

And now? The government does want to further reduce the net-debt-to-GDP ratio, but it isn’t spelling out goals or timetables. Which is another way of saying it doesn’t have a goal – at least not a public one.

But that’s rather the point of a fiscal anchor: a public commitment that constrains the government’s actions. If there’s no constraint, there’s no real commitment – and effectively, no anchor.

Taxing questions

Is Ottawa targeting poverty among the elderly by boosting Old Age Security payments?

Weighing in on the government’s decision to increase those payments, one reader contends that the move is aimed at reducing poverty rates among older seniors, particularly women.

The government also presents that line of argument in the budget, saying that “many seniors are living longer and relying on monthly benefits to afford retirement. After a lifetime of hard work, they deserve a secure and dignified retirement.”

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All told, Ottawa proposes to spend $1.675-billion this year, climbing to $3-billion by 2025-26, on higher OAS payments. There’s just one problem: It is choosing to send those funds not just to poor seniors, but to all seniors over 75 who receive OAS.

Some of the funds going to wealthier seniors will be clawed back, but it still means the government is boosting OAS for relatively well-off households, starting with one-time payments of $500 in August. Clawback rates, as of this coming July, don’t begin until an individual’s income rises above $79,054 and don’t completely offset the enhanced benefits until income reaches $128,149. That means there will be a substantial number of seniors receiving enhanced benefits whose incomes are not only above the poverty line but well in excess of average income.

But there is a program specifically designed to help low-income seniors: the Guaranteed Income Supplement. An individual’s income must be below $18,744 to receive the GIS (for couples, the amount is higher and depends on other benefits being received), and, sadly, many seniors qualify. According to budget documents, 39 per cent of Canadians 75 or older receive the GIS, as do 29 per cent of those aged 65 to 74.

Clearly, if the government’s sole aim was to help out low-income seniors, the GIS would have been a much more direct and effective route. Some of the $1.675-billion it will send out this year will reach those poorer seniors, of course. (And the government is exempting the one-time $500 payments from the definition of income for the GIS, so at least low-income seniors won’t face a clawback of their bonus funds.) They will also get the enhanced OAS payments if they are old enough.

If the government had targeted just this group, it could have provided much more assistance to seniors with the greatest financial insecurity. But that would have also meant fewer seniors would receive payments.

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Debt issues: University of Calgary economics professor Trevor Tombe delivers a thoughtful reality check on Ottawa’s assertion that it will boost economic growth to shrink the burden of its new debts over time. That’s true, but there is inherent risk, he writes: “If another recession or two hits, debt will rise. If an expansion continues unabated, debt will fall. We just don’t know which of the two will happen. It may be prudent to prepare for the worst.”

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