Without considering the overall tax impact and looking at net costs, these "cherry picked" budget line items are irrelevant and misleading. OAS is taxable. Plus, RRSP's are fully taxed as single year income upon death. There is a lot more to consider here. Is it out of balance? Absolutely. Is it as bad as claimed, likely not but can't be determined until all variables are included.
Good point Steve, we don't include net costs here, but the disparity between spending on young and old is so wide that it doesn't seem possible this could account for the difference. We don't need to cherry pick to illustrate how spending on retirees is being prioritized.
For example, as Paul mentioned in an article this past December (link below), the federal government has announced $150 billion in new spending over the next 5 years for retirees (OAS + medical care). This is the main driver behind the $186-billion in federal deficits between now and 2028, the cost of which will be passed on to younger Canadians. At the same time, only a fraction of that amount is being invested in younger folks, for example, about $16 billion in child care.
I do not disagree with this point, never have. But, I just want to address all of the contributing numbers so we are working with an accurate baseline IE: child benefits incl daycare are tax free, OAS, CPP etc are not). Once the details are understood, adjustments can be made to address this. As a simple example, if the retirement age was shifted (something the Liberals severely chastised the Conservatives for attempting) by 5 years, the spread changes dramatically. Likewise, if RRSPs were forced into drawdown when OAS is taken, the impact would be staggering. Or if, like every other country with a "forced" retirement plan like CPP, the contribution cap was more in line with the more successful plans, things change fast.
What concerns me most is that when we ignore the details, everything we do to "correct" issues often has a negative cascading impact. The housing crisis is likely the best example. And what is most upsetting, is politicians (all stripes) pick on these individual elements, create supporting rhetoric to attract votes without any concept of real consequences (IE: Liberals claiming they support seniors vs their claim Conservatives don't). This is further evidenced by the $150billion announcement Paul referred to.
Sometimes I feel like people see the statistic about the number of workers to retirees when boomers were young, but think it's the current situation that is abnormal demographics. The current ratio of workers to seniors is about what you would expect if all generations were the same size when they were born! On average people spend 17 years retired, and 50 years in whats (maybe too broadly) defined as working age. The average person spends about three times as long working-age as over 65, so that would be about the ratio of workers in a stable population. (They weren't the same size, but the difference was already mostly made up by immigration.)
It's true that governments didn't plan for boomers to retire. But the whole structure of our safety nets, many put in place in the 60s as boomers were reaching adulthood, was basically made possible by boomers being such a huge demographic relative to their parents and simultaneously having fewer children than their parents did (so relatively less public resources were needed for spending on children). Governments didn't plan for that to end, but it was always an unusual (or transitional) situation.
That is such a great point Valerie, and one that I had not recognized. It makes me a bit optimistic in a way. If we can just get through this weird transitional period, back to a place where generations are more equal in number, then maybe things will fall back into balance fairly naturally. But I guess that's easier said than done....
Was interesting to read this now - back when I wrote it, in 2021, I mentioned that "inflation hasn’t been an issue in quite some time", and was concerned that large government deficits might lead to inflationary pressures. Maybe I should've stuck to my job creating financial forecasts lol!
Without considering the overall tax impact and looking at net costs, these "cherry picked" budget line items are irrelevant and misleading. OAS is taxable. Plus, RRSP's are fully taxed as single year income upon death. There is a lot more to consider here. Is it out of balance? Absolutely. Is it as bad as claimed, likely not but can't be determined until all variables are included.
Good point Steve, we don't include net costs here, but the disparity between spending on young and old is so wide that it doesn't seem possible this could account for the difference. We don't need to cherry pick to illustrate how spending on retirees is being prioritized.
For example, as Paul mentioned in an article this past December (link below), the federal government has announced $150 billion in new spending over the next 5 years for retirees (OAS + medical care). This is the main driver behind the $186-billion in federal deficits between now and 2028, the cost of which will be passed on to younger Canadians. At the same time, only a fraction of that amount is being invested in younger folks, for example, about $16 billion in child care.
https://www.gensqueeze.ca/globe_mail_past_governments_boomers_retirement
I do not disagree with this point, never have. But, I just want to address all of the contributing numbers so we are working with an accurate baseline IE: child benefits incl daycare are tax free, OAS, CPP etc are not). Once the details are understood, adjustments can be made to address this. As a simple example, if the retirement age was shifted (something the Liberals severely chastised the Conservatives for attempting) by 5 years, the spread changes dramatically. Likewise, if RRSPs were forced into drawdown when OAS is taken, the impact would be staggering. Or if, like every other country with a "forced" retirement plan like CPP, the contribution cap was more in line with the more successful plans, things change fast.
What concerns me most is that when we ignore the details, everything we do to "correct" issues often has a negative cascading impact. The housing crisis is likely the best example. And what is most upsetting, is politicians (all stripes) pick on these individual elements, create supporting rhetoric to attract votes without any concept of real consequences (IE: Liberals claiming they support seniors vs their claim Conservatives don't). This is further evidenced by the $150billion announcement Paul referred to.
Sometimes I feel like people see the statistic about the number of workers to retirees when boomers were young, but think it's the current situation that is abnormal demographics. The current ratio of workers to seniors is about what you would expect if all generations were the same size when they were born! On average people spend 17 years retired, and 50 years in whats (maybe too broadly) defined as working age. The average person spends about three times as long working-age as over 65, so that would be about the ratio of workers in a stable population. (They weren't the same size, but the difference was already mostly made up by immigration.)
It's true that governments didn't plan for boomers to retire. But the whole structure of our safety nets, many put in place in the 60s as boomers were reaching adulthood, was basically made possible by boomers being such a huge demographic relative to their parents and simultaneously having fewer children than their parents did (so relatively less public resources were needed for spending on children). Governments didn't plan for that to end, but it was always an unusual (or transitional) situation.
That is such a great point Valerie, and one that I had not recognized. It makes me a bit optimistic in a way. If we can just get through this weird transitional period, back to a place where generations are more equal in number, then maybe things will fall back into balance fairly naturally. But I guess that's easier said than done....
"Too many of us see the economy as not man-made construct, when it is and can be remade with more enlightened rules."
So many great points in here, as always, Glen!
I haven't thought about Kelton's ideas in quite sometime, but I would consider myself a skeptic. I did, , write up my thoughts on "The Deficit Myth" a while back, long before I joined Gen Squeeze: https://medium.com/alpha-beta-blog/do-government-deficits-matter-55eab48ac5fe?sk=dd31c06b6db7eef63a96af98cfe94741
Was interesting to read this now - back when I wrote it, in 2021, I mentioned that "inflation hasn’t been an issue in quite some time", and was concerned that large government deficits might lead to inflationary pressures. Maybe I should've stuck to my job creating financial forecasts lol!
I wouldn't be suprised if I was missing something within Kelton's work! What am I missing regarding debt?