Globe & Mail: Canada’s promise to NATO collides with spending increases for retirees

Originally published in The Globe & Mail on March 16, 2024

After former U.S. president Donald Trump invited Russia to do whatever it wants to NATO allies that don’t spend 2 per cent of their economies on national defence, a poll by the Angus Reid Institute found more than half of Canadians support Ottawa increasing investment to meet the NATO target.

This would either require drawing on our personal finances to pay more taxes, or Ottawa will need to reallocate funds from other priorities.

No matter your preference, Canada will struggle to raise funding for national defence because previous governments failed to plan adequately to pay for aging baby boomers. Since the public gives little attention to this failure, and little credit to the Trudeau government for dealing with the problem now, military spending may suffer collateral damage.

According to the Parliamentary Budget Officer, the Trudeau government increased defence spending from around $20-billion when it took office to $36-billion in 2022, with plans to add $15-billion more. Unfortunately, the PBO indicates that annual spending would need to increase by double that – about $30-billion – to fulfill our promise to NATO. This extra funding seems unlikely, because the previously planned increases may be curtailed slightly.

It’s hard for Ottawa to find more money for national defence since the Trudeau government already increased annual spending for Old Age Security by $26-billion between 2014 and 2022, and it budgets another $32-billion in annual investment by 2028. Plus, the government is adding $33-billion a year to the Canada Health Transfer – half of which is used by Canadians over the age of 64.

Seemingly unaware of these fiscal realities, Bloc Québécois MP Andréanne Larouche has tabled an ill-conceived private members’ bill that would bluntly accelerate OAS payments for Canadians 65 to 75 by another 10 per cent. Having passed second reading, the bill overlooks the question of whether current OAS spending could be better targeted to support financially insecure retirees.

Although private members’ bills rarely pass third reading, the bottom line is that federal funding for retirees is already growing by more than double the investment required by Canada to meet the NATO target.

It is important to acknowledge as much, because the Fraser Institute observes that “the federal government is unable to meet the demands of its allies without seriously weakening its fiscal position unless it’s finally willing to prioritize such spending over other currently favoured federal initiatives and programs.”

The institute singles out spending on $10-a-day child care and the Canada Child Benefit as key budget pressures crowding out federal defence funding. But increases planned for these programs are modest by comparison with OAS – at $3.2-billion and $7.6-billion respectively.

By pointing this out, some will once again critique me for pitting boomers against other generations.

But such critique is silly. Discussion of boomers’ consumption of tax dollars, public debt, the housing market or the atmosphere’s ability to absorb carbon isn’t what puts older Canadians in tension with younger. Past governments created those tensions when they failed to work with boomers to plan adequately for their needs, and the needs of those who follow.

Nor do budget tensions exist just between generations. When nearly one in every five dollars of federal spending will go to OAS by 2028, the failure of past governments to plan adequately for boomers’ retirement risks crowding out investment in any other priorities, including national defence.

We must all help pick up the fiscal pieces.

It’s why I invite more dialogue about reining in the fastest growing parts of federal and provincial budgets – OAS and medical care for those 65 and older.

It’s why I encourage revisiting taxation, especially among older folks like me who have gained considerable untaxed wealth from homes that surged in value well above $1-million.

It’s why I point out that eliminating scandals such as ArriveCan or the Phoenix payroll system will never be enough to eliminate the federal deficit without hard trade-offs or new taxes. Such financial fiascos are shameful. But they are peanuts in size by comparison with increases for OAS.

These ideas aren’t always well-received but they needn’t be divisive. They cut across ideological lines and can bring us together to tackle this challenge.

We need to be less defensive about previous governments preparing inadequately for the aging population. Because that’s the first step to figuring out how to safeguard funds for healthy retirements and other budget priorities – such as national defence.



Paul KershawDr. 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.

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