Budget 2024: an opportunity to promote generational fairness

Canada has taken important steps to advance generational fairness by committing to $10aday child care, putting a rising price on pollution, and proposing new measures to address housing unaffordability. Generation Squeeze has been there to help create these policy victories.

Budget 2024 is an opportunity to continue to improve the health and wellbeing of all generations, from the early years onwards. Generation Squeeze recommendations for priority actions to achieve this goal are summarized below. Some require bold leadership. Others point to necessary steps to improve accountability and ensure adequate information to inform policy decisions. All are pressing as we seek to address the crisis in our medical system, the affordability crisis, and the climate crisis — all while our population continues to age and the proportion of working-age residents declines.

Generation Squeeze will analyze Budget 2024 and impacts by age, and mobilize findings across our 42,000+ network. We welcome opportunities to discuss our recommendations in more detail, and to collaborate with the government to make Canada work for all generations.

1. Put generational fairness at the centre of policy and budget decisions by creating a Generational Fairness Task Force. 

Generational unfairness is the disease underlying some of Canada's biggest problems: unaffordable housing, the high cost of raising a family, a deteriorating climate, age imbalances in government spending and debt, and rising medical care investments that are not making Canadians healthier. A Minister with a mandate to address generational fairness, alongside a Commissioner (or similar) with responsibility to monitor and report on this issue, will help ensure that policies and budgets align with the principle of intergenerational fairness and solidarity.

Many other jurisdictions have already recognized the need to consider generational fairness in government decisions (Wales, Scotland, United Kingdom, Australia, Hungary, United Arab Emirates). It is time for Canada to catch up. As a member of the Network of Institutions for Future Generations via the Commissioner on the Environment and Sustainable Development, this country has a foundation from which to build.

Ensuring that Canada’s commitment to address generational fairness is clear at the federal level will help to embed the kind of long-term thinking needed to tackle problems like climate change, unaffordable housing and growing debt — all of which disproportionately affect younger and future generations. It is much more likely that the well-being of younger Canadians will be addressed as urgently as other age groups if there is a Task Force responsible for generational fairness in budgeting.

2. Ground housing policy in the principle that restoring housing affordability for all requires home prices to stall, so that earnings can catch up

We can no longer tolerate the gap between homes prices and local earnings growing any larger. Federal housing policy must be recalibrated to advance the goal of ensuring that home prices stall, so that earnings can catch up.

Although rising prices are bad for younger generations, they have simultaneously created wealth windfalls for many home owners, especially older Canadians who have been in the market for longer. Compared with 1977, the combined value of principal residences in Canada jumped by over $3-trillion. Two-thirds of this additional housing wealth is owned by those over 55.

Aligning housing policy with the goal of stalling prices can be advanced by putting a modest price on this growing housing inequity via a small annual surtax on the most expensive homes — a proposal supported by 68% of Canadians according to recent polling. The surtax would apply to the top 12% of homes valued at $1 million or more — 88% of Canadians won’t pay a penny more. But it will help ratchet down the runaway home prices driving up wealth inequity and crushing affordability for younger generations, while raising $5 billion annually to invest in deeply affordable, energy-efficient rental and co-op homes.

To further scale up the supply of such homes, Budget 2024 should align the mandates of the Canada Infrastructure Bank with the Canada Mortgage and Housing Corporation. See this report for more information.

3. Strengthen accountability for investing in wellbeing from the early years onwards by adopting four key metrics:

1. Monitor the ratio between spending on key social investments relative to spending on medical care

   Science shows that health does not begin with medical care. It begins where we are born, grow, live, work and age. As long wait lists and uneven access to primary care accelerates pressures to spend more on illness treatment via the Canada Health Transfer, it is increasingly important to make clear that investments in things like housing, child care, climate change, reconciliation, and poverty reduction are necessary to create health.

   Reporting on the social:medical spending ratio in Budget 2024 will help Canada prioritize investing in wellbeing and illness prevention with as much urgency as investing in treating illness after the fact. Budget 2024 should call on the Canadian Institute for Health Information to facilitate this reporting by using their data and expertise to track the ratio of social spending relative to spending on medical care.

2. Analyze the distribution of government spending by age

   Budget 2024 should include an accurate and meaningful assessment of the distribution of spending by age. The flawed age accounting methods currently used invite the mischaracterization that federal spending is ‘ageist’ against seniors — even though the largest budget increases routinely expand retirement income supports. This distortion of budget spending harms younger Canadians (see this study for more information).

   In Budget 2023, the biggest increase in new spending was for Old Age Security (OAS), which is growing by $85.6-billion between 2023 and 2027 (Table A1.7). The budget also added $49.3billion in new money for medical care, half of which will go to the 20% of Canadians 65+ (according to national data about how medical spending is consumed by age).

   Together, this adds $110 billion in spending for retirees — equal to 84% of the projected deficit. At the individual level, Budget 2023 added $4,300 in spending for each person over 65 — nearly six times greater than the $755 of extra spending promised to those 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. This is greater than combined increases planned for Employment Insurance, $10/day child care, and the Canada Child Benefit — all key policies for younger Canadians.

   As Canada’s population ages, governments need more revenue to cover the growing costs of the health and income supports retirees expect. They need to raise this in ways that don’t financially squeeze their kid’s and grandchildren’s generations more than at present.

3. Adopt a measure of inflation that adequately considers home price increases

   Budget 2024 should task Statistics Canada to remedy inaccurate reporting on inflation in home prices. Data that under-estimate inflation by failing to adequately account for the skyrocketing price of established homes risk sending the wrong signal to the Bank of Canada as it manages interest rates and monetary policy. While low interest rates have economic benefits, they also contribute to driving up home prices, as the lower cost of borrowing allows buyers to bid up prices. This systemic problem erodes generational fairness by reducing affordability for younger residents while growing wealth for established (often older) home owners. See this report for more information.

4. Strengthen accountability for meeting climate targets

   Budget 2024 should resource an expansion of the mandate for Canada’s Advisory Body to include a lead role in defining emissions reduction targets, and serving as a watchdog for their implementation. Current net-zero legislation includes litle reporting for actions prior to 2030, limited transparency in emissions modeling and projections, no requirement for independent advice, and no clear implications for failure to meet targets. Whereas Canada’s Act permits the government to self-determine whether it is on track to meet targets, experience in other jurisdictions confirms the value of an independent body to provide non-partisan and evidence-based advice and monitoring. Empowering the NZAB to play this role will solidify accountability for meeting Canada’s climate goals.

4. Continue to invest in $10 a day child care at a level aligned with the urgency of this cost savings for Canadian families

Budget 2024 should continue to catalyze implementation of the emerging $10 a day child care system, and take steps to ensure that $10 a day is the maximum fee for everyone (not just the average), with no fee for low-income households. We should apply the same logic to child care as public education and medical care — more affluent individuals are asked to pay more via taxes — not via higher fees at the door.

Consistent with a recent report from BC, federal and provincial/territorial funding should also prioritize paying early child care educators pay equity salaries for the professional work they deliver. Adequate remuneration is critical to attracting and retaining the workers needed to make $10 a day child care available to all Canadian families at a time with affordability pressures are high.

5. Preserve Old Age Security (OAS), and make our tax system fairer between generations, by reallocating funds from two credits for seniors that cost $6.4 billion annually: the Age Credit and the Pension Income Credit

Preserving our guaranteed annual income for seniors (OAS) is necessary to protect Canada’s proud legacy of investing in the financial security of retirees.  These investments have successfully reduced seniors’ poverty below that of any other age group. 

However, the sustainability of OAS is under threat as our population ages.  OAS cost $69 billion in 2022.  By 2027 it will cost $96 billion. This $27 billion annual increase is as large as the entire annual budget for EI, and three times greater than the entire federal investment in $10/day child care. In effect, OAS costs are rising faster by comparison with all other policy measures in the federal budget. 

Unfortunately, tax revenues are not keeping pace with the rising cost of OAS. This means growing government deficits, and increasing pressure to limit spending elsewhere to make up the shortfall – including investments in the wellbeing of younger people and future generations.  

At the root of these challenging trends is the hard truth that, during their working years, baby boomers paid taxes when there were seven working-age adults for every retiree. Now, in retirement, boomers expect the same or better services when there are only three working-age Canadians to pay for every senior. The consequences for fiscal restraint, and young people’s tax dollars, are enormous. There is little revenue left over to invest in the kids and grandchildren of boomers, and we saddle their offspring with larger and larger unpaid bills. 

The federal government could reallocate $6.4 billion a year to help cover the growing cost of OAS by eliminating two questionable tax credits. These credits target retirees who receive OAS.  Full, or even partial, reallocation could therefore help secure needed revenue for OAS as costs continue to grow. 

$5 billion annually.  The Age Credit gives a tax break to anyone over age 65 with an annual income up to $92,000 – which is about $25k more than the median income for all Canadians.  It’s arbitrary to assign an age-based tax credit to seniors, the age group with the most wealth, the least poverty.  

$1.4 billion annually.  The Pension Income Credit allows any senior with pension income to automatically shelter a portion of it from taxation – regardless of their total income.  This credit effectively treats pension income differently from income earned via paid work.  Working age adults don’t enjoy a similar shelter for their earned income – not even minimum wage and other low wage workers who are more likely to experience poverty and housing instability.