The Future of universal old-age/retirement benefits (OAS & CPP)

[a_majoor]

Someone in the FP coments notd that by allowing the opposition to make apocalyptic predictions, the eventual reforms will look so mild that the NDP and Liberals will have spent tons of political capital on nothing:

http://fullcomment.nationalpost.com/2012/02/01/john-ivison-note-to-bob-rae-yes-we-have-a-pension-problem/

John Ivison: Note to Bob Rae: Yes, we have a pension problem
John Ivison  Feb 1, 2012 – 8:24 PM ET | Last Updated: Feb 2, 2012 7:52 AM ET

“There is absolutely no justification for doing what [Stephen Harper] is doing,” says interim Liberal leader Bob Rae.
 
The NDP will use its opposition day in the House of Commons Thursday to try to embarrass the government over its plans to increase the age at which Canadians are eligible to claim Old Age Security.

The motion hammers Prime Minister Stephen Harper for attempting to “balance the Conservative deficit on the backs of Canada’s seniors.” It’s all good, knockabout stuff and one can hardly blame the New Democrats for subtracting from the sum of human knowledge in the interests of kicking the Tories in the guts.

But, as will become crystal clear once the government gets its act together, the Tories’ proposal to raise the eligibility age for OAS will not take effect for another decade — and even then is likely to be phased in over a period of four years. The reality is that the books will have been balanced for five years before any measures to make people work longer come into force. As importantly, no one now over 50 is going to be impacted.


Mr. Harper knows he can’t wait until the budget in March before he starts to fill the information vacuum with some hard facts, so expect to see more details trickle out over the next few weeks.

In the meantime, it’s like hunting dairy cows with a sniper rifle for the opposition. Even interim NDP leader Nycole Turmel can’t miss, making the point that budgets are about choices and the Tories are choosing to spend on F-35 jets, mega prisons and corporate tax cuts, instead of seniors.

Bob Rae, the interim Liberal leader, sounded like an Italian cruise ship captain sailing too close to the coast. “There is no problem,” he said. Asked if he would reverse the Tory proposal, he answered yes. “There is absolutely no justification for doing what he’s doing,” he said.

That is a rash statement from a man who knows better. The facts are stark – the OAS and Guaranteed Income Supplement program cost Canadians $36-billion in 2010, and expenditures are projected to increase by 32% in the next five years, rising to $108-billion in 20 years. That increase represents a rise in share of GDP from 2.3% to 3.1%. Even the economist who has been wheeled out most frequently to suggest the government’s actions are unnecessary — Kevin Milligan of the University of British Columbia — admits: “That’s not nothing. That’s why it’s reasonable to have a look at it.”

Mr. Rae has been entirely silent on where he would find the extra billions needed to pay for the basic pension as the number of recipients doubles from 4.7 million to 9.3 million by 2030.

The Liberal leader did raise two fair points though — the dramatic impact on the situation of low income single seniors, particularly women; and the domino effect raising the age of eligibility will have on provinces that have to pay extra for social assistance.

In the budget, the government invested a further $300-million in topping up the GIS for 680,000 of the lowest income seniors in Canada. Since the eligibility for GIS is likely to rise in tandem with OAS, a decade from now it is likely that more than a million poor seniors will find themselves on paltry social assistance for an extra two years before being able to access the federal program. The provinces will be on the hook for those two extra years and the government is going to have to explain how it plans to deal with these two problems.

But these are minor skirmishes in the air war now taking place. The government has the opportunity in the debate in the House Thursday to carpet-bomb the idea that the pension plan is connected to the current budget deficit — or that anyone over 50 is going to be side-swiped.

Facts are chiels that winna ding – or fellows that can’t be overturned, for any non-Burnsians. If the opposition parties are going to snipe, they are also going to have to explain how they intend to pay for the demographic realities of an aging population.

National Post
• Email: [email protected] | Twitter:

 

[dapaterson]

Simple, two pronged solution for OAS:

(1)  Decrease the clawback threshold over time - for example,  only use half the CPI for increases to indexing for the next twelve years. 

(2)  Over the next 12 years, increase the eligibility threshold by one year every three, taking it to age 69 for eligibility in 2024.

Para (1) "soaks the rich" and is thus unassailable by the NDP and Liberals; para (2) acknowledges longer lifespans and greater working life, but gives considerable time to adjust.


Besides, if that extra $500 and change per month is such a huge amount, its loss can be offset by a formerly retired individual working 50 hours a month at minimum wage - that's roughly 1 1/2 days per week selling coffee at Starbucks...

 

[a_majoor]

A short history of how CPP reform was accomplished the last time. IF the OAS was reformed at the same time (the 1990's), simple compound interest would have ensured the problem was more managable today:

http://opinion.financialpost.com/2012/02/03/william-watson-no-no-the-status-quo/

William Watson: No! No! The status quo!
William Watson  Feb 3, 2012 – 6:43 PM ET
 
Paul Martin had no trouble with top-down pension reform

In the mid-1990s the Liberal government of Jean Chrétien considered moving the retirement age to 67 from 65 at a pace of one month per year for 24 years. In the end,  Chrétien decided two extra years in the workforce might be OK for people who worked at office jobs but would be hard on anyone who carried bricks for a living. So, though few 65-year-old Canadians probably did still carry bricks, and even fewer do today, presumably, the move was off.

Instead, his government introduced a major reform of the Canada Pension Plan, reducing some benefits, shifting it from a purely pay-as-you-go to a partly funded plan, and almost doubling the CPP payroll tax to 9.9%. The funny thing is, given the opposition’s anguished outrage at Prime Minister Harper’s allegedly anti-democratic Davos musings about the need to finally move to 67, the Liberals had not campaigned on pension reform in 1993. In fact, they hadn’t really talked or even thought much about it until a report from the Chief Actuary just before Paul Martin’s tough-minded 1995 budget indicated that without action, “contribution” rates might soon have to exceed 14%.

It turns out the Chief Actuary’s analysis was flawed. The plan was in trouble mainly because of a surge in disability payments that in fact had more to do with benefits having been made more generous than with Canadians suddenly suffering an epidemic of disability. One public health official got himself into trouble during the debate by opining that many alcoholics weren’t seeking treatment because their CPP disability pension depended on their not getting cured. Over the rest of the decade stricter administration brought the disability numbers back under control.

I’ve got these and other tidbits about the 1990s reform from economic journalist Bruce Little’s award-winning 2008 account of it, Fixing the Future: How Canada’s Usually Fractious Governments Worked Together to Rescue the Canada Pension Plan (which was commissioned by the investment board the reforms created.) There’s lots of fuss this week about whether it’s legitimate for the Harper Conservatives to consider major reforms to our old-age security system either at all or simply that they didn’t run on. Little’s account, pornography for policy wonks, makes clear that the politicians of the 1990s both felt perfectly at liberty to make big changes and didn’t particularly worry about electoral niceties.

No doubt it helped that the official opposition of the day were not the small-minded “No! No! Status quo!” types on display this week but rather the late, lamented Reform Party, which favoured a switchover to Chilean-style mandatory private pensions. With privatization and the Bloc Québécois’ collectivist income-sharing as the only alternatives, there was ample room for creativity in the political middle.

As Little describes it, Paul Martin and a like-minded coterie of provincial finance ministers took the lead in putting together a top-down, inside-job set of reforms.

True, there were extended city-by-city public consultations, as was the fashion. But these were essentially limited to collecting responses to a men-in-suits federal-provincial information paper that, except for details, had drastically narrowed the policy options to what eventually was done.

As Little argues, “The public consultations … were extraordinarily focused. To a considerable extent, the governments loaded the dice in favour of their preferred outcome…. As one provincial official commented: ‘Don’t ask the question if you don’t know the answer.’ It may sound cynical and be somewhat manipulative, but it is the kind of consultation that not only airs the issues but also gets things done.” It does sound cynical and certainly was manipulative and if Mr. Harper decides to do something similar, he’ll only be following in the footsteps of a master.

In the end, the final CPP details were worked out behind closed doors between the feds and the last crucial holdout, Ontario’s Mike Harris Conservative government, which was seeking cuts in Employment Insurance contribution rates to offset the hike in pension taxes. Although in 1997 a federal election did eventually take place, the proposed CPP changes were never a major campaign issue.

That generation of Canadian voters was willing to take its medicine for the benefit of subsequent generations, as I suspect this one will be, too. After the new Parliament met, the Liberals used time allocation to get their reforms through. To finish before Christmas, the relevant Senate committee examined the legislation only after it had been passed but before it was proclaimed — which reduced the committee’s leverage, to say the least.

Maybe in a matter of such fundamental concern to the country Mr. Harper’s Tories should be less top-down and more consultative than the Chrétien-Martin Liberals were. But it’s hard to see what moral standing today’s Liberals have to insist on that.

 

[McG]

Old Age Security sustainable, says budget watchdog
Meagan Fitzpatrick,
CBC News
08 Feb 2012

Canada can ride out the wave of retiring baby boomers and their cost to the Old Age Security program with room to spare, a new report by Parliament's budget watchdog released Wednesday suggests.

The income support program is sustainable and affordable given the federal government's projected revenues and economic growth, Parliamentary Budget Officer Kevin Page said.

In a report on fiscal sustainability and elderly benefits, Page revised some of his earlier predictions based on the government's announcement late last year that the Canada Health Transfer would be tied to GDP after 2016-17.

Benefits for Canada's older population, including the monthly OAS cheques, are financed out of general revenues, and the policy move on the CHT therefore drastically changed the parliamentary budget officer's predictions about the government's fiscal sustainability.

Page had earlier raised concerns about sustainability, but his new debt-to-GDP projections show that not only is OAS sustainable, but the government could even increase the amount it spends on it. To be considered fiscally sustainable, Canada's debt cannot grow faster than the economy.

Opposition pounces

Opposition parties seized on the OAS issue during question period and said Page's findings show, contrary to what the government has been saying, that there is no coming OAS crisis because of the aging population.

Human Resources Minister Diane Finley was pounded with questions about the government's plans for OAS, but she refused to answer whether the age of eligibility for the benefit will be raised beyond the current age of 65.

"What our government is doing is preventing a crisis, the kind of crisis that we've seen hit in Europe," she said.

"We've got to make changes. We're going to do it responsibly and gradually," she said, without specifying what changes are being contemplated.

"We know there's a coming crisis, that's in Old Age Security, that's why we're taking steps now before it's too late because we do not want to burden future generations with massive, massive tax increases to support OAS," said Finley.

Interim Liberal Leader Bob Rae said Page's report shows the OAS program is sustainable and the only thing putting it at risk is the government.

The NDP's finance critic Peter Julian said Page's report shows the government has no justification to change OAS.

"They're trying to create an artificial crisis when the figures clearly show the pension system is sustainable. I think the government lacks credibility," he said.

Davos announcement prompts uncertainty

Old Age Security suddenly became a hot topic on Parliament Hill after Prime Minister Stephen Harper suggested in a speech in Davos, Switzerland, in late January that changes to the retirement income system are on their way.

He did not mention OAS specifically, but his office quickly supplied estimations of how much OAS will cost in the years ahead, and Harper and his cabinet have been talking ever since about ensuring that income support programs are sustainable in the future.

Read more at:  http://www.cbc.ca/news/politics/story/2012/02/08/pol-old-age-security.html?cmp=rss

 

[GAP]

I'm sure I could change a bunch of numbers to make any argument I want....not sustainable, sustainable, April - maybe sustainable, May - unknown  :

 

[Rifleman62]

Anything the current government says:  i.e. the sky is blue.

Parliamentary Budget Officer Kevin Page: Absolute nonsense.

CBC screams: Hidden agenda of Harper to quickly, and as painfully as possible, starve all of Canada's seniors (including Quebec!)

 

[Edward Campbell]

Anything the current government says:  i.e. the sky is blue.

Parliamentary Budget Officer Kevin Page: Absolute nonsense.

CBC screams: Hidden agenda of Harper to quickly, and as painfully as possible, starve all of Canada's seniors (including Quebec!)

Given the PBO's track record, which is pretty consistently worse than the government's own forecasts, I'll take the "hidden agenda," thanks.

 

[DBA]

The PBO comes across as useless. It warns about structural deficits that must be tackled but then when action is actually contemplated says it isn't necessary. Which is it? Controlling the growth of some programs sure seems like a very prudent way to tackle structural deficits.

 

[GAP]

Kinda makes sense...........

Rethink retirement
Jack M. Mintz  Feb 8, 2012
Article Link

Gradual changes to Old Age Security would make room to spend on health care and other funding priorities

The recent kerfuffle over Old Age Security costs have raised the angst that seniors’ benefits of up to $540 per month may be cut. Older Canadians should take a deep breath. Any changes to OAS will not affect current or soon-to-be retirees. In fact, federal budgets won’t be affected for years to come.

Canada’s pension is financially sustainable, a conclusion reached by the research I directed in 2009 for federal-provincial-territorial ministers of finance. But bigger issues are at play, as pointed out by the Prime Minister in his National Post interview last Saturday. The whole package of elderly support measures will be a significant drain on public finances in the future. We should examine the state’s role in supporting retirees who are now living much longer.

In the past, federal governments enhanced elderly benefits without taking sufficient care to examine the economic effects especially on labour markets. When OAS was introduced in 1952, retirement eligibility was 70 years of age while the average life expectancy was 68. Many would have passed away before receiving OAS.

During the years 1965-69, the eligibility age was moved down to 65, even though life expectancy was increasing. Now, with life expectancy above 80, most Canadians qualify for OAS for a very long time after 65. Other OAS changes included indexation of benefits (1973), spousal allowance (1975) and the end of universality for high-income seniors (1989). The OAS is clawed back at the rate of 15¢ for every dollar when individual income is above a threshold (for 2012, $69,562). It is fully clawed back when income reaches $112,772.

Given Canadian demographic changes, we know two things. First, labour shortages, already a complaint in many parts of Canada, will be exacerbated as post Second World-War Boomers retire. Second, low fertility rates, offset only in part by robust immigration policies, don’t compensate for the retirees. Thus, the relatively shrinking working population will pay most of the taxes needed to support an increasing number of retirees.

From an economic point of view, how long should the state subsidize retirement? The OAS along with other elderly benefits makes it easier to retire with good replacement income at the age of 65. Yet, many seniors wish to and can easily work longer years in productive jobs. We should be considering incentives to work longer, not less, as with earlier reforms.

Demographic changes also raise fiscal concerns. Federal and provincial governments provide health, drug and long-term care benefits, elderly tax credits, OAS and the Guaranteed Income Supplement, all of which are supported by general tax revenues.
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The financial sustainability of supporting the elderly is at risk. Even though OAS spending is only 2.3% of GDP today (rising to over 3% by 2030 and then declining as Boomers die off), public health-care spending is over 8% of GDP. Canadian governments see a large share of their budgets being spent on supporting retirees, especially those with low incomes.

To help cover future expenditures, governments should reduce general support for long periods of retirement instead of cutting back health, education, infrastructure and other public services that are more critical to economic growth and Canada’s social safety net. Even though OAS itself is not a major cost to the government over time, it makes sense to save in this area to make room for other priorities. The question is what reforms should be considered. The objective for governments in providing support for the elderly is twofold.

One is to make sure low-income Canadians have a sufficient level of income for their retirement to avoid poverty. As the OECD has noted, Canada has made remarkable progress in this area in that we have one of the lowest elderly poverty rates in the world. While this has been true in recent years, we also want to maintain this distinction and even improve upon it. The second is ensuring an efficient pension system that minimizes distortions on labour supply while enabling Canadians to ensure sufficient income during the retirement years.

Given these two objectives, I recommend that we provide higher OAS payments to those Canadians who choose to work past the age of 65. Starting in 2022, the retirement age should increase at the rate of two months per year until, 12 years later, it reaches 67.

Further, the clawback for the OAS should be set at lower thresholds to focus OAS on those with low and modest incomes. One simple way is to eliminate inflation adjustments for the threshold — over time, more and more higher-income Canadians will not receive OAS benefits. Some reduction in the threshold could also be considered to help make room for other elderly support programs, such as long-term care.

All of these changes would only be introduced gradually. It is not fair to change the rules of the game on the existing elderly population who do not have the opportunities to make up for any losses in benefits. However, for the younger population, the eventual reduction in elderly benefits through OAS will reduce fiscal pressures faced by future federal and provincial governments.

OAS reform makes sense. The Harper government should continue the dialogue promoted by a published green paper on the subject.

— Jack M. Mintz is the Palmer Chair in Public Policy at the School of Public Policy, University of Calgary.
More on link

 

[Edward Campbell]

More support for reforming the OAS, from a very credible source, accoring to this article which is reproduced under the Fair Dealing provisions of the Copyright from the Globe and Mail:

http://www.theglobeandmail.com/news/politics/on-pension-reform-dodge-hopes-harper-steps-up/article2325915/

On pension reform, Dodge hopes Harper steps up

JEREMY TOROBIN

Ottawa— Globe and Mail Update
Published Friday, Feb. 03, 2012

When it comes to pension reform, David Dodge has seen this movie before – twice – but he hopes it ends differently this time.

Prime Minister Stephen Harper has refused to answer repeated questions in the House as to whether he is planning to raise the eligibility age for Old Age Security to 67 from 65, leading opposition parties to howl that he is refusing to come clean.


However, Mr. Dodge – the former governor of the Bank of Canada who was deputy minister at the Finance Department during the deficit-slashing mid-1990s – hopes the government does just that. Moreover, in an interview Friday, Mr. Dodge suggested Mr. Harper should take advantage of his majority government and even raise the age for the Canada Pension Plan, something other governments have shied away from, and which the current Conservatives say is not on the table and not necessary.

“At least since the mid-1980s we’ve known we were going to have to do something,” he said. “We knew that back in ‘97 when we did the revisions of the CPP. At the time the decision was we were doing so much to fix that adding one more layer – i.e. the gradual increasing of the age – was probably too much to bear. So, we didn’t do it, although we certainly talked about it, and the finance minister and officials at the time talked about it and realized we really should do it. But we didn’t because we were doing so much else.”

“So, quite frankly,” he continued, “we’re at least 15 years late in getting started in raising that age of entitlement for CPP, OAS and the normal expectation as to how long people would work in the private sector with private-sector pension plans. That’s absolutely clear, and because labour participation rates will start to fall later this decade, we’re up against the wall. It would have been a lot better if we’d done things in 97, it would have been even better if we had done things in 85 when we first looked at this under the Mulroney government, because you need a long phase-in.”

Leaving the CPP aside, the cost of the OAS program is poised to soar as the baby boom generation retires, which is starting now. Other governments saw this coming, but ultimately backed down from plans to tackle the problem. In particular, when Tory Prime Minister Brian Mulroney partially de-indexed the program from inflation in his 1985 budget, he was famously accosted by then-63-year-old protestor Solange Denis, who fumed “You lied to us.” A week later, Mr. Mulroney reversed the decision, which he called “a mistake.”

Twelve years later, then-Liberal Finance Minister Paul Martin won over Ms. Denis – even to the point of dancing together for the cameras – for his proposed revamp of the OAS in 1996. Mr. Martin planned to replace the OAS and the Guaranteed Income Supplement for low-income seniors with a Seniors Benefit based on family, rather than individual, income. The fury came from others however, and Mr. Martin also backtracked.

Mr. Dodge is warning the Harper government against wasting another opportunity to start the clock on addressing a fiscal problem that everyone has known about for decades.

“There’s nothing, absolutely nothing new here, other than the fact the prime minister spouted off when he was standing among the great and the good over in Davos,” Mr. Dodge said, referring to Mr. Harper’s speech at the World Economic Forum in Switzerland last week, when he indicated he intends to tackle some of these issues.

“This has been in the literature, it’s been well understood for a long period of time. This one is in my mind (a) overdue, and (b) there’s a lot of noise that is pretty stupid, quite frankly – and maybe even politically stupid – coming out and saying, you know, ‘We can’t ever contemplate raising that age.’ All you have to do is remind people that originally it was age 70, and that was when people had a lot shorter life expectancy than they have today.”

Of course, for elected officials there is a big difference between recognizing the gravity of a problem and having the political will to take the actions that top bureaucrats recommend. Mr. Dodge has the battle scars to prove it, having served as Mr. Martin’s deputy. So, does he think the Harper government will break the mould?

“Generally, things that are not necessarily popular are done under majority governments,” Mr. Dodge said. “So I would hope they get on with it and do it.”

And what of the inevitable criticism from opposition parties, which could stalk the government all the way into the next election campaign?

“I would just hope that not everybody on the opposition side of the House is crazy,” he said. “There’s lots of people there that understand full well that there’s a big problem here.”

David Dodge is right: there are plenty of Liberals and Dippers who know "full well that there's a big problem here," but their political leaders are too dishonest and too focused on immediate political davantage to allow their members to serve the country and the people; it's "party, party über alles" for Bob Rae and Nycole Turmel.

 

[Brad Sallows]

The people who are old and alive today in the earliest years of retirement have had a good run.  They've seen the best of the welfare state, and shied away from paying the bill.  Having voted prosperity for themselves at the expense of others who were literally not physically present to object, they are now behaving disgracefully.  It is time for them to acknowledge their selfishness, sit down, and STFU.

 

[Jed]

Way to blunt, Brad. It ain't gonna happen. 

 

[Edward Campbell]

Given the PBO's track record, which is pretty consistently worse than the government's own forecasts, I'll take the "hidden agenda," thanks.

More on Kevin Page's forecasts in this column which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/rosy-oas-forecast-rests-on-shaky-ground/article2338217/

Rosy OAS forecast rests on shaky ground

NEIL REYNOLDS

OTTAWA— From Wednesday's Globe and Mail
Published Tuesday, Feb. 14, 2012

Five months ago, the ornery economists at the Parliamentary Budget Office were calling on the federal government to reform the country’s Old Age Security program. In its September fiscal sustainability report, the agency warned that Canada’s aging population would soon put downward pressure on government revenues and upward pressure on programs for the country’s elders. “Policy makers will need to address the aging demographic issue,” top PBO economist Kevin Page said in an e-mail to Globe and Mail reporter Bill Curry. “We feel it should be part of the discussions leading to the 2012 budget.”

But that was then. Now Mr. Page says we no longer need to address the consequences of an aging population. Now we can afford to fund OAS for the next two generations – at least. Now we can afford to cut bigger cheques for our elders. An aging nation? Bring it on.

How could Canada’s economic fortunes turn around so abruptly? In September, Mr. Page calculated that the country needed to cut government spending, or increase taxes, by something approaching $50-billion. Did our fortunes turn around before Prime Minister Stephen Harper signalled OAS reform in his speech at Davos in January? Or did they turn around after Mr. Harper’s speech? It would be wrong to conclude that Mr. Page is a partisan economist, an Opposition economist. But it gets harder to prove that he isn’t.

Mr. Page’s flip-flop on Old Age Security lends credence to Finance Minister Jim Flaherty’s assessment of Mr. Page’s work: unreliable. Recall Mr. Page’s stern warnings of 2010 that the country risked deficits forever more (or, more accurately, through 2085). Equally curious was Mr. Page’s rush to judgment on the OAS file – reporting that all is well – only a few weeks before the government tables its 2012-13 austerity budget. Might not this budget prove relevant to OAS reform?

Suppose for a moment that Mr. Page is wrong on OAS. Suppose that two working Canadians will not be able to support four or five senior citizens in 2030, or six or seven in 2040. In this case, the longer we wait to address the problem, the harder it will be to do it. Further, let’s not forget that – believe it or not – the PBO has been wrong before. As convincingly demonstrated in a Globe and Mail analysis, the Finance Canada’s economic projections have proven more accurate than PBO projections nine times out of 15. (In two times out of 15, the agencies tied.) This is statistically significant.

Theoretically, the Finance Canada and the PBO projections should be reliably comparable – because both agencies depend on independent private sector forecasts of the country’s biggest financial companies and on the independent public sector forecasts of academic economists. Based on these independent forecasts and its own internal tweaking of them, the Finance Canada thinks that the economy will grow in 2012-13 at the nominal rate of 4.3 per cent. From its own identical process, the PBO thinks that the economy will grow at the nominal rate of 4.5 per cent. Indeed, the PBO thinks that the economy will grow at the nominal rate of 4.5 per cent from now through 2017 – and beyond.

What we have here is not a significant disagreement on the need to reform OAS. The argument has little to do with the elderly, whose number in 2032 can be precisely projected. It has much to do with the country’s rate of growth in the next 20 years, a number that can’t be precisely projected.

In its latest economic and fiscal outlook (November, 2011), the PBO concedes the importance of the rate of economic growth to its conclusions: “Estimates of potential GDP are key inputs into estimates of government’s structural balance since they are used to identify cyclical revenue and expenditure components of the federal budget balance.”

In other words, the PBO’s assertion that OAS expenditures are sustainable rests on the slightly more optimistic economic growth rate that it chooses to project. Indeed, more specifically: “The PBO believes that differences in estimates of the economy’s performance … are largely responsible for the discrepancy in Finance Canada and PBO estimates of the government’s structural budget.” In the end, the OAS flap embodies a slight difference of opinion – 0.2 percentage points – in Canada’s nominal growth rate for the next generation or two. Picky, picky.

The numbers: http://www.theglobeandmail.com/report-on-business/economy/economy-lab/data-room/oas-and-gis-beneficiaries-1966-2060/article2329256/?from=2338217

It certainly looks like Kevin Page sees his role as critic or counterweight to the government. If that's the case then it's a very good thing his term is not being renewed.

 

[Rifleman62]

To pile on:

http://paulsrants-paulsstuff.blogspot.com/2012/02/about-that-pbo-expalnation-re-oas-being.html

A CAW Worker's Voice Of Reason

This blog is posted from a now retired 33 year CAW member. The purpose of this blog is to allow others to see the perspective of the average worker, rather than the views of CAW leader Ken Lewenza.
If you have any concerns or comments on this blog, contact me at [email protected]

Tuesday, February 14, 2012

About That PBO Expalnation Re: OAS Being Sustainable...

I previously posted about PBO Kevin Page releasing a report in 2011 stating federal finances were unsustainable, and his flip-flop last week about how federal finances were in fact sustainable, and no changes or reforms were needed to OAS. Another Blogging Tory,h/t PlattyTalk, contacted the PBO for an explanation, and received this reply:

"It’s good to hear from you again Mr. Platten. I would be more than pleased to provide clarification.

The short answer is that over the period of time from Mr. Page’s initial (September 29 2011) comment, which pertains to our September 2011 report (http://www.parl.gc.ca/PBO-DPB/documents/FSR_2011.pdf), to his recent comment (that pertains to our February 2012 note http://www.parl.gc.ca/PBO-DPB/documents/Sustainability_OAS.pdf), our assessment of the sustainability of the federal fiscal structure changed as a result of the Government of Canada’s December 2011 renewal of the federal Canada Health Transfer (CHT) – no other assumptions or projections underlying our fiscal sustainability analysis have changed.

Our September 2011 report was based on the assumption that the federal CHT would continue to grow at 6% annually beyond 2016-17. However, on December 19 2011 the Government of Canada announced that beyond 2016-17 (to at least 2024) growth in the CHT would be limited to nominal GDP growth (with a 3% minimum guaranteed). This fundamentally changed the federal fiscal structure given that we projected nominal GDP growth to average 3.8% beyond 2016. Following the renewal of the CHT, the PBO published a note in January 2012 (http://www.parl.gc.ca/PBO-DPB/documents/Renewing_CHT.pdf) which indicated that as a result of the change to the CHT the federal fiscal structure was now sustainable.

In February 2012, the PBO published another note (http://www.parl.gc.ca/PBO-DPB/documents/Sustainability_OAS.pdf) that reiterated the updated federal results and compared various projections of elderly benefits. The main contribution of our February note was to provide an analytical framework for assessing the sustainability of the federal elderly benefits program. With growth in the federal CHT beyond 2016-17 limited to nominal GDP growth, the current federal fiscal structure has sufficient room to absorb the cost pressures arising from the impact of population ageing on the federal elderly benefits program. Indeed, PBO baseline estimates that there is some scope (0.4% of GDP annually) for reducing federal revenue and/or increasing federal program spending (relative to PBO’s projections) while maintaining fiscal sustainability at the federal level.

However, the mirror image of the change to the federal CHT structure is reflected at the provincial-territorial level – the provincial-territorial fiscal situation has deteriorated. As a result of the change to the CHT, the amount of policy action required to achieve fiscal sustainability at the provincial-territorial level has increased from 1.5% of GDP annually (published in our September 2011 report) to 2.9% of GDP (published in our January 2012 report). At the same time, the federal situation has improved from requiring 1.2% of GDP annually in policy action to achieve fiscal sustainability to having 0.4% of GDP in fiscal ‘room’ to reduce revenue and/or increase program spending while maintaining fiscal sustainability. That said, at the consolidated (i.e., combined) federal and provincial-territorial level, the overall fiscal structure remains unsustainable over the long term.

I hope this helps to clarify Mr. Page’s comments and our analysis. I would be pleased to discuss further and provide additional information, so please don’t hesitate to contact me.

Thank you kindly for your interest in our fiscal sustainability analysis and I would encourage you to continue to follow it closely.

Best regards,Chris Matier
Office of the Parliamentary Budget Officer
50 O'Connor Street, Room 912B
Ottawa, Canada
K1A 0A9

Notice the parts highlighted in blue? The only calculation that caused Page to change his doom and gloom prediction to a rosy one was a result of the federal government limiting the escalating clause, currently at 6% until the year 2017, to one linked to nominal GDP growth, which Page himself projects to be 3.9% yearly. That's a reduction of 2.1% yearly in the Canada Health Transfer increase to the provinces and territories.

The second line highlighted actually seems to somewhat contradict what Page stated last week, that OAS was sustainable in it's present format. He states as a result of the changes to CHT, provincial and territorial finances were not sustainable. So in effect Page now thinks that by dumping more health costs to the provinces, Ottawa can afford an increase of $106 billion in OAS payments in the year 2030. Given that the CHT in 2011 was roughly $30 billion, it seems unfathomable that a 2.1% reduction in the CHT escalation , which Page himself projects to be 3.9% from 2017 forward, could result in a net yearly savings of $106 billion 2030 onward.

In fact, even if the government were in fact able to save the $106 billion through reduced CHT increases, it would still be a wash, making the federal finances unsustainable as Page alluded too in September 2011.

Update: In order to properly assess Page's prediction, it would be helpful if he made public the CHT projected amount in 2030 both before and after Flaherty's announcement of changes to the escalation clause.

 

[Nemo888]

The people who are old and alive today in the earliest years of retirement have had a good run.  They've seen the best of the welfare state, and shied away from paying the bill.  Having voted prosperity for themselves at the expense of others who were literally not physically present to object, they are now behaving disgracefully.  It is time for them to acknowledge their selfishness, sit down, and STFU.

There are lies, damn lies and statistics. The main impetus behind this is the argument that people live so much longer. But if you factor out infant mortality, childhood diseases, etc they paint a very different story.

Between 1940 and 1990 average life span for men who reach the age of 65 had increased a whopping 2.9 years.  Big fricking deal. This will destroy our economy? Increase CPP deductions and STFU you greedy *** boomers.

 

[ModlrMike]

There is serious need for both CPP and OAS reform. CPP contributions need to rise, and OAS clawback provisions need to be reviewed. Currently, OAS clawback begins when your net income is $67,668. That's NET income. Factor at least 25% nominal tax rate and you get close to 85K of gross income. That's pretty good if you ask me, and we're going to add an almost $7000 in OAS payments. The total OAS is not clawed back until you reach almost 107K in NET income.

I know we have to ensure that our elderly folks have sufficient income, but 67K in NET is well more than many working folks make gross. Perhaps we could leave the age eligibility issue alone and increase the clawback ratio so that wealthy seniors are not getting a benefit that should more properly be aimed at poor seniors.

 

[GAP]

There are lies, damn lies and statistics. The main impetus behind this is the argument that people live so much longer. But if you factor out infant mortality, childhood diseases, etc they paint a very different story.

Between 1940 and 1990 average life span for men who reach the age of 65 had increased a whopping 2.9 years.  Big fricking deal. This will destroy our economy? Increase CPP deductions and STFU you greedy *** boomers.

tsk tsk.....

 

[Edward Campbell]

There is serious need for both CPP and OAS reform. CPP contributions need to rise, and OAS clawback provisions need to be reviewed. Currently, OAS clawback begins when your net income is $67,668. That's NET income. Factor at least 25% nominal tax rate and you get close to 85K of gross income. That's pretty good if you ask me, and we're going to add an almost $7000 in OAS payments. The total OAS is not clawed back until you reach almost 107K in NET income.

I know we have to ensure that our elderly folks have sufficient income, but 67K in NET is well more than many working folks make gross. Perhaps we could leave the age eligibility issue alone and increase the clawback ratio so that wealthy seniors are not getting a benefit that should more properly be aimed at poor seniors.

:goodpost:


I'm one of those seniors who get's "too much." I'm not complaining, mind you, but I agree the system needs reform and I will not whine if I am told to do with a bit less.

I don't pretend to know "how much is enough" but if we are going to ask current workers (in their 40s) to wait two more years to draw CPP and/or OAS then maybe pensioners can start seeing clawbacks equal to about 4% by gradually lowering that tax "clawback" threshold to, say, $65,250.

 

[GAP]

:goodpost:


I'm one of those seniors who get's "too much." I'm not complaining, mind you, but I agree the system needs reform and I will not whine if I am told to do with a bit less.

I don't pretend to know "how much is enough" but if we are going to ask current workers (in their 40s) to wait two more years to draw CPP and/or OAS then maybe pensioners can start seeing clawbacks equal to about 4% by gradually lowering that tax "clawback" threshold to, say, $65,250.

and as the age increases, the clawback does also. The clawback, in my mind, should begin around the $50,000 mark (remember this is net income).