Generational Tensions In The Fall Economic Statement
New Spending On Retirees Dominates, At The Expense Of Young People
Last time, we discussed the implications of the Fall Economic Statement (FES) on housing affordability. We observed that the Federal Government is focusing primarily on the supply side of the affordability equation, ignoring investor demand that drives up home prices.
Since then, GenSqueeze founder Paul Kershaw has been working hard to dig into the details of the FES, analyzing what exactly is driving Canada’s large and growing Federal deficit projections. Paul summarized his findings in his latest column for the Globe and Mail:
“The deficits announced in Ottawa’s fall economic statement remind us that previous governments never worked out how to pay for the healthy retirement of baby boomers. Now the Trudeau government is left holding the bag, which is very heavy.”
Together, spending on Old Age Security and medical care for Canadians over 65 will rise by a total of $150 billion over the next five years. This massive increase in spending for seniors accounts for the majority of the $186 billion that is projected to be added to our national debt over the same period.
Some commenters were upset that Paul’s analysis seems to absolve Trudeau’s administration of any accountability over the sorry state of our public finances.
Conservative Party Leader Pierre Polievere agrees that blame should land on the current government, arguing that “FES deficits are ‘inflationary spending’ caused by PM Trudeau.”
While it is disappointing that the Liberals have been content to maintain the status quo approach of passing on unpaid bills to the children and grandkids of boomers, it is misleading to suggest that this problem began under Trudeau.
The situation we find ourselves in today has been brewing for decades. Past governments didn’t collect enough taxes from boomers during their working years to finance the spending they would require in old age. Paul explains this in the G&M column:
“When boomers came of age as young adults, there were seven working-age residents for every retiree. Now in retirement, boomers want the same or better supports when there are just three workers to pay for every person over age 65. This means past governments needed to collect enough taxes from boomers during their working years to create a large surplus so there would be a pool of unspent government money on which to draw for their retirement supports. Unfortunately, past governments found it politically inconvenient to ask boomers to build this surplus. So current governments, federally and provincially, now inherit the problem. Deficits are the outcome.”
While the Liberals certainly should have done more over almost a decade in power to cushion the impact of this very predictable surge in costs for our aging population, blaming Trudeau, alone, for decades of missed opportunities distracts us from the real problem: outdated policies in desperate need of updating.
Sadly, instead of focusing on these root issues, each of our federal parties is misdiagnosing the real drivers of spending in the FES. So long as our leaders continue to overlook the intergenerational tensions in our federal budget, young people will continue to pay the price.
That’s all for this time, thanks for reading!
It would be of great help to us if you could share this newsletter far and wide. The more awareness there is about Canada’s broken generational system, the more likely that it will be fixed.
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I think complaints about the responsibility of the current government are tricky -- I saw an estimate that policy changes the liberals brought in (mostly reversing the age increase for OAS before it came into place and the benefit increase for seniors 75+) would cost $50 billion in the next 5 years, above and beyond population aging. This isn't the majority of the increase, but it is a major increase. On the other hand, they did inherit a situation where the partial step towards sustainability was to (effectively) cut benefits rather than raise more revenue. And there's a strong incentive for ad hoc increases to OAS and GIS (which lots of previous governments have done too) because the way it's indexed can make it fall behind wages in the long run.
Totally makes sense to focus more on revenue (that many decades of governments did fail to collect!) than benefits, especially because targeting towards need is hard for a group that has on average more wealth than income. But I can see why people don't want to let the current government off the hook (especially for OAS) for not only not fixing the problem but making it worse. Although, I have also seen a lot of stuff in news and opinion pieces recently suggesting cutting OAS for high-income seniors, which maybe distracts from the fact that revenue increases are needed for healthcare too.
I spent the afternoon yesterday encouraging people to sign a petition. It was from fairvote.ca regarding a Federal private members' vote in February, to hold a citizen's assembly on election reform.
My basic thinking is if one wants a better game, change the rules, just as the NHL increased penalties for fighting and the skill level improved. See
https://www.fairvote.ca/a-parliament-more-like-us/ for evidence that other voting systems enable more women and young people to get elected.
Better representation should create better and longer term thinking, as well as less adversarial dialogue and a wider consensus. These things are needed to make the kind of big changes we need to support the squeezed generation.