Globe & Mail: A way to support poor seniors - and cut the federal deficit

Originally published in The Globe & Mail on December 20, 2024

Lost in all the drama surrounding this week’s fall economic statement was a serious discussion of the role Old Age Security plays in driving federal deficits. Canada will not restore fiscal guardrails until our national leaders grapple with this challenge.

In 2014, the year before Justin Trudeau became Prime Minister, the budget for OAS was $44-billion. According to the fiscal update, it will cost $86-billion next year. That $42-billion annual increase is almost exactly the deficit projected for 2025.

No other program has grown so rapidly. The Canada Child Benefit is up $15-billion over the same period; Employment Insurance, $11-billion; and child care, $8-billion.

And no other program will increase more in the years ahead, with OAS reaching a staggering $104-billion by 2029.

There is no escaping that OAS is the primary reason why Canada has little dry “fiscal powder” with which to fight the coming tariff war, as Chrystia Freeland lamented in her resignation letter.

Or that OAS is the primary source of the inflationary deficit spending against which Conservative Leader Pierre Poilievre routinely rails.

What’s worse, we have depleted our fiscal reserves for a program that we don’t even know is working.

Remember that the Auditor-General reported just weeks ago that Ottawa bureaucrats have no idea if OAS is meeting its objectives because they haven’t updated their thinking about the program in almost three-quarters of a century.

Since the fall fiscal update did not respond to the Auditor-General’s scathing indictment, it must be judged a failure. Canadians deserve to know how the government plans to clarify the objectives of OAS, how we will pay to achieve those objectives and the metrics by which we will monitor its success.

While we don’t know how long Dominic LeBlanc will be Canada’s Finance Minister, his legacy will be impressive if he develops this plan. The most effective, least painful path to reduce deficits starts with reining in OAS spending, allocating it more wisely to eliminate seniors’ poverty and planning revenue resiliency for the program.

We can contain funding for OAS by reducing the subsidy it delivers to retirees with six-figure incomes, as I previously reported about a Generation Squeeze proposal. A national poll shows three-quarters of Canadians support this idea, including retirees.

This refinement would reduce the OAS price tag next year by $6.8-billion, freeing up funds to shore up Canada’s NATO commitments and border security. We must increase spending in these areas because Donald Trump’s repeated jokes about Canada becoming the 51st state belie his admiration for Vladimir Putin, who currently steals territory from Russia’s neighbour.

As Mr. Poilievre continues to fly high in the polls, it is worth emphasizing that the proposal to fix OAS would save as much money as former Conservative prime minister Stephen Harper’s plan to increase the age of eligibility for OAS from 65 to 67.

I initially supported the Harper plan because it would improve federal fiscal health. But in the years since, I have judged that plan too blunt because it would eliminate 900,000 seniors from receiving OAS, whether they are rich or poor.

Poor seniors deserve more support, not less – including those aged 65 and 66. That’s why my colleagues at Generation Squeeze propose to eliminate seniors’ poverty by providing an additional $5,000 to every one of the half-million retirees who fall below Canada’s official poverty measure. The $2.5-billion cost could be paid by scaling back the OAS handout for affluent retirees.

Some will bristle at my calling OAS a handout, believing they deserve the benefit because they paid taxes throughout their working years. But OAS is not the Canada Pension Plan (CPP). In anticipation of baby boomers aging, the government changed CPP in the mid-1990s so Canadians collect a benefit that is relatively proportionate to what they contributed to CPP.

Ottawa did not do the same for OAS. It remains a government subsidy paid to whomever is eligible, and its eligibility rules are very generous.

Ottawa claws back the Canada Child Benefit from families with kids when their household income surpasses around $79,000. By contrast, retired couples can have $180,000 in combined income before OAS payments are reduced.

Canadians need to revisit the generosity of OAS for affluent retirees because it is a primary reason we leave large deficits for our kids and future generations. The fall economic statement shows these deficits will persist for the foreseeable future – until we fix OAS.

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.