Invest fairly for young and old alike 

Budgets that work for all generations start with ensuring that we invest fairly for young and old alike. But what is a fair level of investment, and how do we calculate it?

To equip governments with the tools to answer these questions, we recommend regular reporting on the ratio of social spending on Canadians age 65+ relative to those under age 45. We’ve developed a rigorous methodology for calculating this ratio: adding up spending on old age security, the guaranteed income supplement for seniors, and medical care for retirees – and comparing the total to spending on child care, parental leave, grade school, postsecondary, family income supports, and medical care for younger Canadians (for an even more detailed analysis, check out this article). Accurately capturing spending by age is a key part of the generational fairness budget asks to which we are constantly drawing attention.

Data on spending by age is an important starting point, but from there we need to ask ourselves whether the resulting ratio between older and younger ages is fair.  People may reasonably disagree about what’s fair, so here are a few parameters to guide our assessment:

• ‘Fair’ doesn’t mean ‘the same’. Our health and support needs increase as we age, so it’s reasonable to expect to spend more on older Canadians.  Gen Squeeze wants the aging parents and grandparents we love to continue to have access to programs they need and use.
• The financial wellbeing and wealth of older and younger demographics matters for assessing whether we’re finding a fair spending balance. If the financial wellbeing of one age group is being squeezed more than others, we may need to revisit how public investments can help compensate.
• The same can be said for broader social, economic, environmental or other trends. If these trends disadvantage one age group more than others, our spending decision should consider how to help make up the ground being lost by those who are struggling.

So how does Canada fare on these metrics? For a quick summary, check out this video.

We certainly have no problem with unequal spending by age group, since research shows that governments are growing spending many times faster on retirees than on Canadians under 45.  This leaves us with the question of whether this spending imbalance makes sense in the light of the wellbeing of younger and older age groups, and other trends affecting their lives.

Since 1976, the value of principal residences in Canada has increased by over $3 trillion. Canadians over age 55 have accumulated 2/3 of this extra wealth.  Over the same period, poverty dropped dramatically for retirees. Canadians over age 65 have the lowest rates of low-income of any age group in the country, no matter how Statistics Canada measures this concept.  It wasn’t always this way. Back in 1976, retirees had the highest rates of low-income.

Over the same period, the wellbeing of younger Canadians has deteriorated, thanks to the squeeze on their time, money, and environment.  This squeeze is passed onto their kids, because stress is contagious, contributing to persistently high levels of child vulnerability across Canada.  Human beings are especially sensitive to our environments when young so when we don’t invest early, we miss a key opportunity to promote health and prevent problems down the road.

Younger people are being squeezed as a result of declining wages, rising costs for things like housing and child care, growing environmental risks and adaptation burdens, and expanding public debts as Canadians ask for more services but aren’t willing to pay for them.  The bottom line: the hard work of young people today no longer pays off the way it did for previous generations. Individuals are doing what they can to adapt – going to school longer, working more, delaying starting homes and families – but no one person can fix a broken system on their own.

In terms of investing fairly in young and old alike, what all of this means is that governments’ lack of investment in younger Canadians persists against the backdrop of deteriorating determinants of wellbeing for these age groups. With pressures growing post-pandemic to expand services that primarily benefit our aging population – like medical care and long-term care – we’re at risk of seeing the age imbalance in spending tip even further. For more, check out this short video.

Put a high enough price on pollution to reduce environmental debts

The escalating climate crisis is arguably the largest debt to be passed from one generation to the next in all of human history – and the most recent science shows we have less than a decade to avoid irreversibly locking in this debt. That’s why we need to put a high enough price on pollution to revoke the free pass we have given to polluters (that’s pretty much all of us) by allowing us not to pay for the environmental and health harms we help create, and to motivate meaningful action to quickly reduce carbon emissions.

Pricing pollution is widely affirmed as a key climate action.  It’s been recognized with a Nobel Memorial Prize, supported by the International Panel on Climate Change, and embraced by many political and business leaders from around the world.

By a ‘high enough’ price, we mean one that increases at least $10/tonne per year, and surpasses $50/tonne (noting some estimates suggest an eventual minimum of $100-$170/tonne).

Don’t grow debts on younger people (outside of a recession)

The amount of government debt left for each Canadian under 45 today is three times higher than it was when today's Baby Boomers started out as young adults.  That’s before pandemic and recovery spending.  And it doesn’t include new spending many are calling for on pharmacare, long-term care, dental care, and other medical care expansions.  Given the absence of any real dialogue about the cost of these new investments – and the revenue required to cover them – the debt burden landing squarely on the shoulders of younger and future generations is likely to grow. 

Why do we think it’s reasonable to keep growing per capita debt on young people, even outside of a recession?  When did Canadians become people who want more, but aren’t willing to pay for it?  This is a harmful trend that we need to stop.  Yes, there are good reasons to plug the gaps in our medical care system, but the only way to go down this path without growing generational tensions involves hard conversations about how to raise revenue fairly between generations (not just between classes) to cover the costs. 

Rebalance taxes on income vs wealth (especially housing wealth)

Canada’s tax system relies heavily on taxing income, and very little on taxing wealth.  It’s time to ask provincial and federal governments to shift this balance by taxing wealth more – including housing wealth.  This shift is necessary to respond to changes in factors affecting the financial wellbeing of Canadians.

First and foremost, housing prices have skyrocketed across Canada.  One result is wealth windfalls for established (often older) home owners fortunate enough to have gotten into the market decades ago.  While these home owners worked hard to buy their homes, the financial gains many have reaped aren’t the result of any particularly savvy financial planning or investment decision.  Rather, rising home prices bestowed this wealth on them while they slept and watched TV.  To top it off, our tax system shelters this housing wealth from taxation by comparison with other assets, advantaging the older homeowners, and penalizing younger people who face home prices far in excess of what hard work can earn – especially when their incomes are down thousands of dollars per year (after inflation). 

Second, the pandemic has increased pressure to expand medical care, with many Canadians asking governments to invest more in things like pharmacare and long-term care.  While evidence confirms that these ideas have merit, the problem is that our tax system isn’t currently set up to fund such new programs fairly.  The primary beneficiaries of medical care investments – older Canadians – won’t have a chance to pre-pay for new programs.  And in the absence of adequate taxation of the housing wealth primarily held by retirees, we lack a mechanism to ask them to contribute a fair share for new services they will use. This is a problem, especially when Canadians under age 45 are already shouldering an increasing tax burden from escalating medical costs for the aging population.

So how do we get the tax shift we need?

With a coalition of thought leaders, Gen Squeeze proposes a small, annual, progressive surtax on homes valued over $1 million  (see this article for more).  This new surtax would apply to only about 10-12% of homes across Canada, meaning that the vast majority of Canadians won’t pay a penny more. But it will help to disrupt the tax shelter that protects the trillions in added housing wealth home owners have gained since 1977. Just like offshore tax shelters motivate moving money out of Canada to preserve assets, the home ownership tax shelter motivates us to bank on rising home prices to gain wealth. By turning home ownership into an investment strategy, we’re crushing affordability and harming younger and future generations. A tax shift will help Canada to protect real shelters, not tax shelters. 

Check out these resources for more information, or see the article in Maclean’s Big Idea series on why Canada needs more housing wealth taxation.