Jeffrey Simpson: How promises kept become future problems

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Two decisions, announced before this week's budget, will have lasting and quite probably negative effects on Ottawa's fiscal position and the country's economic growth.

The two decisions – reducing the age for receipt of Old Age Security to 65 from 67 and increasing the number of family reunification immigrants – will both cause future governments trouble. Both steps were promised by the Liberals in the campaign. They kept those promises. Future governments will regret that they did.

Take OAS. The Harper government in its 2012 budget announced that the qualifying age for receipt of the OAS would go to 67 from 65 in April, 2023. The increase would be phased in over six years. The OAS would continue to be indexed during those six years.

Why did the Conservatives act? Because they looked at actuarial tables of the aging of the population and saw that, without change, OAS payments would double over the next 15 years as the share of the population over 65 climbed.

They estimated that the OAS' cost would balloon to about $108-billion by 2030 from $38-billion in 2011. Since the OAS is paid for by the federal treasury, not by contributions as with the Canada Pension Plan, the money would come from Ottawa's bottom line.

The Conservatives reckoned that raising the age for the OAS would save about $11-billion a year. It's the same rough calculus that West European governments and the U.S. government have made raising the age of receipt of pensions. But not the Trudeau government.

When the OAS came into being in 1965, the average life expectancy for males was 69 and for females about 75. Today, the life expectancy for males is about 79 and for females about 83. Logic suggests that with people living much longer than about a half-century ago that public policy – in this case the OAS – should be adjusted.

Apparently not. No change, or rather the Liberals' reversal, means that not too many years down the road Ottawa has to find the money somewhere – cut other programs? raise taxes? – to pay the burgeoning OAS bill. Nothing in this week's budget answered the question raised by the pre-budget change to OAS: Where's the money to come from?

Some future government will rue the day the Trudeau government reversed the Conservatives' decision and took Canada out of line with many other Western countries with aging populations.

Then, there is immigration. Before the budget, the government announced higher immigration levels – 300,000 in 2016 from 281,300 in 2015, an increase of about 7 per cent.

However, they shifted the immigration intake away from economic immigrants to family reunification candidates. The number of economic (independent) immigrants will fall to 160,600 from 181,300, while the family reunification immigrants will rise to 80,000 from 68,000. (Refugees will more than double to 55,800.)

There was considerable political pressure from some immigrant communities to increase family reunification. The Liberals campaigned on meeting that pressure, and they have. Said the government in its press release, "when families are reunited, it improves integration and economic outcomes for the immigrant."

Not really. Charles Beach and Michael Abbott from the Queen's University economic department tracked immigrant mobility and outcomes from 1982 to 2004, with special attention to the 1994-2004 period.

They found "independent economic immigrants had consistently by far the highest median income in all 10 years of their first post-landing decade in Canada." Family-class immigrants' median incomes were well down the list of income earners, 10 per cent behind independent immigrants for males, 12 per cent for females.

Compared with all other immigrant categories, they found independents far more likely to move up the income mobility ladder during their first decade in Canada.

As for family immigrants, the authors found "they exhibited the lowest average probability of moving up, the highest average probability of moving down, and hence the lowest average net probability of moving up one or more earnings categories."

What the government has done, according to this research, is tilt immigration in the direction of bringing in more people with less likelihood of economic success, at least in their first decade, at the expense of fewer people with a greater likelihood of economic success.

This is hardly a formula for maximizing the economic potential of immigration, and therefore economic growth, on which government revenues will depend to pay for, among other things, higher Old Age Security costs.

Eds Note: An earlier version contained a wrong figure for the 2015 immigration level.