New spending on retirees leads the way (again)—not enough urgency on the debt, housing and climate pressures facing younger Canadians

The federal government tabled its 2023 Budget on March 28. Gen Squeeze Founder, Dr. Paul Kershaw, was in the lock up to crunch the numbers on key issues driving our dysfunctional generational system. 

The punchline? Once again, the government is investing more urgently in retirees than in younger people, and is choosing to beef up the retirement security of seniors more than the financial or climate security of those who follow them.  

For a deeper dive into what’s missing and where progress is being made and credit is due, here are seven key takeaways:

1. And the winner is… retirees! 
2. New spending on retirees dwarfs new spending on younger Canadians: ~$4,300 vs ~$755
3. Paying interest on debt is a significant budget line item
4. The federal government is taking up the slack on investing in health—not just medical care 
5. Still making progress on child care… but we can’t take it for granted
6. What happened to housing?
7. Ongoing progress on climate action—but is there enough urgency?
   
   

1) And the winner is… retirees! 

The bulk of new spending in the federal government's 2023 budget goes to supporting retirees (See Table A1.1). Fully $190 billion in new money by 2027/28, including:

• $80 billion for the Canada Pension Plan (CPP)
• $85 billion for Old Age Security (OAS)
• $25 billion for medical care for Canadians age 65+

Spending on retirees through the CPP is an investment in which our country can be especially proud, because it doesn’t leave large unpaid bills for those who follow. Unfortunately, new spending on OAS and retirees’ medical care continues to create intergenerational tensions. Here’s why:  

When boomers started out as young adults, there were 6.9 working-age Canadians for every person over the age of 65. Now there are 3.3. This wouldn’t pose a problem if medical care and OAS had been built on a tax system that required Canadians to pay fully during their working years for the health and income supports they will use in retirement. But that isn’t how our policies work—except for CPP.

By the mid-1990s, the federal government recognized that a shrinking ratio of workers to retirees required changes to CPP. To keep the program solvent for future generations, CPP shifted to a pre-pay system. The payments individuals contribute over their working lives are closer to the average cost of CPP benefits they are expected to use in the future. The change increased annual CPP contribution rates by 65%, but ensured the long-term viability of the program.

Unfortunately, Canadian governments didn’t similarly adapt revenue collection for OAS and medical care, which remain ‘pay as the country goes’ systems. Governments collect revenue in each year to correspond (more or less) with the cost of benefits paid in that same year to whomever is using these programs.

This lack of foresight means federal government budgets are now in a precarious position, routinely running deficits even when the economy is not in recession.

While the 2023 budget might aim for something we’re all behind—making sure our aging parents and grandparents have the care and financial support they need—it largely overlooks how we might fairly achieve this goal by failing to be honest with Canadians about the revenue needed to help pay for it. 

All told, Budget 2023 adds ~$7,200 for every resident age 65 and older. When we subtract the pre-paid CPP component ($2,900), this budget adds ~$4,300 in new spending for the aging loved-ones in our lives for which they have not fully prepaid. This figure is over five times larger than the ~$755 that Federal Budget 2023 invests per person under age 45. 

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2) New spending on retirees dwarfs new spending on younger Canadians: ~$4,300 vs ~$755

The numbers are pretty clear. Across the board, spending on younger people falls well short of the high water mark set for retirees—despite the fact younger people face higher levels of poverty, lower wages, more debt, and greater employment uncertainty:

• $18 billion for the Canada Child Benefit
• $16 billion for Employment Insurance
• $15 billion for medical care for Canadians under age 45
• $13 billion for $10/day child care
• $1.9 billion for housing

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3) Paying interest on debt is a significant budget line item

The cost of managing the federal debt will increase by $62 billion over the next 5 years by comparison with interest payments made in 2022. That $62 billion increase is greater than the entire increase planned for Employment Insurance, child care, and the Canada Child Benefit combined.

That’s the price we pay for the bills we’ve run out on in the past.  

Alas, Budget 2023 continues this trend. Over the next five years, Ottawa will add $132 billion in deficits—i.e. spending more than we collect in tax revenue.  We’ll incur these deficits even though the government’s own budget numbers show it does not anticipate negative economic growth in any calendar year over the next five (see Table A1.1).  

The $110 billion in new spending on OAS and medical care for retirees accounts for 85% of projected deficits. That’s a clear indication that we’re still dodging the hard truth that today’s retirees did not pre-pay fully for the income support and medical care on which they now rely. By planning years of deficits, the federal government is effectively proposing that we leave the tab to our kids—on top of the higher taxes they are already paying for retirement support for today’s aging population.  

It would be one thing to pass on substantial new debt to younger Canadians and future generations for investments that will directly benefit them—like measures to address housing affordability and climate change. But that’s not what Budget 2023 is doing (see points 6 and 7 below).

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4) The federal government is taking up the slack on investing in health – not just medical care 

Everyone pretty much knew what to expect on health care in the 2023 budget, thanks to recent FPT funding agreements. Despite provincial complaints that nearly $200 billion in federal funding isn’t enough, it’s important that the feds didn’t allow medical care to break the bank, and crowd out spending on other things essential for health.  

Science confirms that health begins where we are born, grow, live, work and age—it doesn’t begin with medical care. Yet for decades, governments have bought into a myth that medical care is what most makes us healthy.  Gen Squeeze and partners recently launched Get Well Canada  to call on governments to align health policy with the evidence that Canadians will ‘Get Well’ when we invest in safe and affordable homes, living wages, quality child care and schools, and a healthy environment—even more urgently than we invest in medical care.  

Credit is owed to the federal government for taking on increased responsibility for investing where health begins—not just in the medical care we need once we’re ill. In 1976, Ottawa consistently spent less on social policy than did the provinces, because provinces spent more on social and educational programs than they did on medical care. Now the opposite is true.

In recent decades, provinces have prioritized  growing medical spending more than social spending. Ottawa has been compensating by expanding investments in programs like $10/day child care, the national housing strategy, and the poverty reduction strategy. Thanks to this growth in federal social spending, Ottawa now carries more responsibility for investing where health begins than do the provinces.  

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5) Still making progress on child care… but we can’t take it for granted

The federal government continues to fulfill its promise to build a $10/day child care system. This is Canada’s first new social program in a half century, which is important. But we must guard against complacency. 

While child care fees are declining across Canada (a huge affordability win for families), we’re lagging behind on creating new spaces, finding people to staff them, and paying these professionals a fair wage. We need provinces to accelerate child care investments to address these issues, because right now many are largely riding the coattails of federal leadership.

The federal budget still makes no mention of moving from an average fee of $10/day, to making $10 the maximum fee, with no fee for low income households (earnings below $45k). We’ve been recommending this to federal and provincial governments for years, and Manitoba recently became the first province to heed this advice. Now it’s time for the federal government to urge other provinces to follow suit. Perhaps there is reason for Ottawa to inject additional funding to achieve this goal, especially since its $13 billion increase in child care over the next five years is modest by comparison with the $85 billion it added for OAS.

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6) What happened to housing?

The federal government deserves credit for past moves to address Canada’s housing affordability crisis, including funding to support municipalities to resist NIMBY’ism that slows the construction of new supply, taxing house flipping, money for low-income renters, and subsidies for first-time home-buyers. Their 2023 budget continues to acknowledge that housing remains a big problem in communities across Canada. Ample proof of the scale of the challenge is available in our most recent report on the gap between home prices and earnings in communities across Canada—gaps that much publicized recent price dips have made little dent in.

If the budget is any indication, however, this federal government doesn’t have many NEW ideas about what additional policy changes are needed to address persistent housing challenges. No significant new measures were announced, and there are few new investments (though funding for Indigenous housing is welcome—even though it’s small).

The reality is that we’ve tackled most of the easiest things that were on the table to fix housing. What’s left is hard—and that’s now where we need federal leadership. We need to break Canada’s addiction to high and rising home prices. We need to tax housing wealth differently so we can build more affordable housing, and incentivize investment outside of real estate (especially investment that simply bids up the price of existing homes). And we need to fix the way we measure inflation to better account for increases in the largest cost of living—a home.

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7) Ongoing progress on climate action – but is there enough urgency?

Ottawa deserves credit for continuing to increase the price on pollution over the next five years. Pollution pricing is widely recognized as a key tool to harness market forces to incentivize citizens and companies to disrupt carbon pollution intensive habits that undermine the stability of the climate on which we all depend. By design, Canada’s pollution pricing system will continue to deliver more money in carbon reduction dividends to the large majority of households by comparison with what those households pay for their pollution.

Budget 2023 also makes a commitment to “consult” on an approach to “carbon contracts for difference,” which will help Canadian business invest in cutting emissions, based on predictable carbon price increases. The Canadian Climate Institute flagged this as a key measure needed in the federal budget—but mere consultation process doesn’t match up with the urgency of meeting our 2050 net-zero target.

Also in support of Canada’s net-zero commitments, Budget 2023 invests another $21 billion over 5 years for clean electricity, clean technology, resilient infrastructure, clean transportation, and support for workers. This investment is important. But to truly judge its significance, let’s keep in mind that it’s just one quarter of the amount by which Ottawa is increasing spending on OAS. Or in other words, this budget invests far more urgently in income security for retirees than it does in mitigating the financial, infrastructure and health risks posed by climate change—risks disproportionately borne by younger and future generations.

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