"We have an ageist federal government"

Recently Gen Squeeze supporter Mary Peirson (MD, CCFP) wrote to us, “We have an ageist federal government – one that favours older Canadians and retirees in particular.”

We’re very inspired by messages like this from older Canadians, who are concerned about the harmful intergenerational legacy Canada is poised to leave. And they want to do something about it! 

As Mary puts it, “I am a boomer and I find it embarrassing and uncomfortable that our government appears to be blind to these issues of equity and fairness.”

We need more leaders like Mary from across the age spectrum to make clear that today’s affordability, debt and climate challenges are NOT ‘youth’ issues. These are issues of intergenerational fairness and solidarity. 

We’d like to share Mary’s take on some key policies propping up generational unfairness: Old Age Security, universal drug benefits for Ontario seniors, pension income splitting, and the principal residence tax exemption.

Old Age Security (OAS)

Canada’s guaranteed annual income for seniors

What Mary has to say:

“This payment to seniors comes from general tax revenues… As such it is a direct transfer from working people (the vast majority being much below age 65) to retirees. The income at which OAS begins to be clawed back is too high given costs for seniors are generally lower in retirement. And seniors nearly all organize retirement income to maximize OAS, even if they have substantial wealth and assets… OAS should be means tested (means = total wealth including all investments, income and hard assets).”

Mary’s analysis is right on the money (no pun intended). OAS is the elephant-in-the-room in federal budgets, consuming a huge share of our tax dollars. Because successive governments haven’t adapted program financing, OAS has become a key driver of ballooning federal debt, which will be inherited by future generations.

Seniors remain eligible for full OAS benefits even with $81k in annual income. That’s over $14k more than Canada’s median income from full-time work. In contrast, the Canada Child Benefit starts being clawed back at just $33k in income.

Universal drug benefits for Ontario seniors

What Mary has to say:

“This is also ageist (anti-youth) and regressive. This program should be income tested with the option to buy into the system (regardless of health status) if net worth is too high to receive this program for free. And the program should be available to all Ontarians on a means-tested basis with the option to buy in.” 

Evidence suggests that adding prescription drugs to our publicly funded medical system can improve health outcomes. However, the spiralling costs of medical care already risk crowding out important investments in the things that help keep us healthy and well, like safe homes and clean air and water. While it’s no surprise that medical care pressures are increasing as our population ages, governments haven’t engaged Canadians in a conversation about how to cover these additional costs. Younger people are already paying more in taxes than did previous generations for medical care for their aging loved ones. It’s timely to also consider whether some more affluent seniors are also well positioned to contribute more.

Pension income splitting

Allows seniors with high pension earnings to transfer a portion to a spouse with lower earnings, thereby reducing the overall amount of taxes paid by the couple

What Mary has to say:

“This policy is both ageist (anti-youth) and discriminates against singles. This policy is particularly regressive as it minimizes taxes for all seniors (especially wealthy seniors) while ignoring working families who often have large income disparities during child rearing years. And being single, or widowed should not be punitive from a taxation perspective.” 

Mary is right to question the wisdom of pension income splitting. It costs governments $2B a year in foregone tax revenue – more than federal spending on housing, even in the midst of an affordability crisis! This spending doesn’t even help the seniors who might need it. Most gains from pension income splitting go to the richest 40% of seniors, and 7 in 10 don’t benefit at all.

Seniors also benefit from two other questionable tax loopholes. The Age Credit gives a tax break to any Canadian age 65+ with an income of up to $92K. This credit costs $5B a year in foregone revenue – just about equivalent to $5.6B in federal spending on child care in 2023-24. The Pension Income Credit allows seniors to automatically shelter a portion of their pension income from taxation regardless of total income, at an annual cost of $1.4B.

Principal residence tax exemption

A.K.A the home ownership tax shelter (HOTS) 

What Mary has to say:

“This tends to favour older individuals who were able to acquire a home when it was relatively more affordable and have seen a huge tax-free windfall as housing prices have skyrocketed.  It would make sense to eliminate or curtail this particular tax exemption and expand Tax Free Savings Account contribution room so that all members of society might be able to equally benefit from tax exempting programs.  In particular, young private sector workers who don’t have pensions and may never be able to afford a home (or afford it much later than their parents/grandparents did).”  

When home values rise, HOTS ensures that wealth gained by home owners is sheltered from taxation. Wages from hard work are taxed more than housing wealth windfalls gained while home owners sleep and watch TV. Home owners have gained an additional $3.2 trillion in housing wealth since the mid-1970s – most of it tax free.

HOTS cost the federal government a whopping $10 billion in 2022. Provinces lost billions more. It is by far the largest housing subsidy Canada offers… and we’re giving it to those who already own homes! Not to those who can’t afford a home, as either renters or owners.

All of the pressures Mary flags are compounded by the fact that today’s seniors are living longer. During their working years, Baby Boomers paid taxes when there were 7 working-age adults for every retiree. As retirees, Boomers now expect the same or better services when there are only 3 working-age residents for every senior. The consequences for intergenerational fairness – not to mention young people’s tax and debt burdens – are enormous. 

As Mary affirms, “the math is unsustainable.”

Thank you, Mary! You are truly a generational fairness maven.