Finance Minister Chrystia Freeland emphasized the need for “fiscal restraint” in her recent budget. But that’s not what she delivered in a budget which includes $132-billion in deficit spending over the next five years. This adds about $6,100 in government debt for every Canadian under age 45 – most of which pays for spending used by the aging population. The Finance Minister piles on this debt partly because her budget turns a blind eye to the housing wealth accumulated by many in older generations.
Ms. Freeland isn’t running deficits to stimulate Canada out of a recession. Her own budget shows the government anticipates positive economic growth in each of the next five years. Nor are the deficits “forcing seniors to choose between heating and eating,” as Opposition Leader Pierre Poilievre maintains. Quite the opposite: Data show that 84 per cent of the deficits are a direct investment in retirement income and medical care for the aging population.
The budget lays bare the reality that there can be no “fiscal restraint” without addressing the intergenerational tension at the heart of federal finances. Asking affluent boomers to pay more in taxes now will be an important part of the solution, especially those who have more than $1-million in housing wealth. This change is necessary to compensate for the fact that previous tax rules didn’t collect enough revenue from boomers during their working years to cover the costs of income and medical supports now consumed by their generation.
Two lines in Budget Table A1.7 “Outlook for Expenses” show that most of the deficit spending will go to retirees. The biggest increase in new spending is for Old Age Security (OAS), which will grow by $85.6-billion between now and 2027. The budget also adds $49.3billion in new money for medical care – half of which ($24.5-billion) – will go to the 20 per cent of Canadians over 65, according to national data about how medical spending is consumed by age.
This adds $110-billion in spending for retirees – equal to 84 per cent of the projected deficit.
At the individual level, the budget adds $4,300 for each person over 65. That’s nearly six times greater than the $755 of extra spending promised a person under 45.
This intergenerational tension is made worse by the fact that the cost of managing the federal debt will increase by $62-billion over the next five years. Only the increase to OAS is bigger than this extra payment to manage the bills Ottawa previously left unpaid. The $62-billion in interest payments is so large that it is greater than the combined increase planned for Employment Insurance, $10/day child care, and the Canada Child Benefit – all key policies for younger Canadians.
The bottom line is that governments are going to need more revenue to pay for the aging population, and they need to raise this in ways that don’t financially squeeze their kids and grandchildren’s generations more than they are already are.
A key part of the solution can be found amid boomers who own million-dollar homes. Compared with 1977, the combined value of principal residences in Canada jumped by over $3-trillion. Twothirds of this additional housing wealth is owned by those over 55.
A modest price on housing inequity could unlock some of this wealth to help pay for the additional medical care, long-term care, and income supports for boomers.
For example, colleagues and I propose adapting annual property tax bills by adding a federal surcharge of between 0.2 per cent and 1 per cent on a home’s value above $1-million. This threshold would exempt about 90 per cent of Canadian households, including all rentals and almost everyone outside B.C. and Ontario.
Anyone incurring the charge could defer payment until the home is sold or inherited – just as seniors are allowed to defer property taxation now.
Online polling of 1,010 Canadians conducted by Research Co. on behalf of Generation Squeeze shows a majority of Canadians support this sort of surcharge, including a majority of respondents who own million-dollar homes.
Support grows if revenue would pay for “medical care, long-term, and pharmacare” for the aging population. This policy change would collect about $5-billion annually – primarily from more affluent older Canadians – and would chip away at deficits driven by that population.
Fiscal restraint in government budgets is incredibly difficult now that many boomers are retired, because costs are growing for government-funded income and medical services that boomers need. If we don’t want to cut these services for many seniors, which I don’t, then our policy-makers should focus less on restraint, and more on raising revenue from boomers who are financially able to contribute more. The point is not to shame boomers. The point is to ask affluent boomers to ensure their generation pays a fair share for the public services it uses so they don’t leave more unpaid bills for those who follow – as is the legacy of federal 2023 budget.
Dr. Paul Kershaw is Founder, Lead Researcher & Executive Chair of Generation Squeeze. He is a policy professor in the UBC School of Population and Public Health, and Director of the UBC Masters of Public Health program.