The No-Budge Budget
 
Ken Battle, Sherri Torjman and Michael Mendelson, April 2012
 

The Caledon Institute’s analysis of the 2012 Budget argues that a number of its policy announcements are not backed up by solid evidence.  Yet evidence – or lack thereof – has not stopped the federal government from taking action in recent years.

The ‘No-Budge Budget’ title for Caledon’s paper is clearly appropriate given the social policy centrepiece of this Budget: the hike in the age of eligibility for Old Age Security from 65 to 67.  The Budget tries to soft-pedal the proposed change by emphasizing the gradual and lengthy nature of its implementation and assuring Canadians that the measure will not affect today’s seniors or people currently age 54 or older.

This paper argues there is no need to weaken the strong and effective set of programs that Canada is fortunate to have built over the years – at least not if the policy decisions were guided by the evidence.  For example, Old Age Security costs typically are presented in current dollars.  When expressed in this way, basic Old Age Security costs are slated to quadruple between 2010 and 2040.  The trend in constant (inflation-adjusted) dollars, however, tells a different story.  Between 2010 and 2040, basic Old Age Security outlays expressed in constant 2012 dollars will only double in value.  So the cost of the basic Old Age Security pension is rising considerably in real terms, but nowhere near as much when expressed in current dollars.

Another key indicator is Old Age Security expenditures measured as a percentage of GDP (Gross Domestic Product).  Basic Old Age Security pension expenditures amounted to 1.7 percent of GDP in 2010 and will rise to a peak of 2.4 percent in 2030, 2031 and 2032, then will fall steadily as the baby boomers die off to 1.9 percent by 2060 (close to today’s 1.8 percent).

Instead of raising the age of eligibility for Old Age Security from 65 to 67 as a fait accompli, at the very least Ottawa should be undertaking a comprehensive and transparent public review of elderly benefits and the Canada Pension Plan as well as various possible options for reform.  The federal government should also resolve some of the problems that the proposed eligibility change will create.

Lifting the age of eligibility for the Old Age Security from 65 to 67 is a regressive move that will hit low-income seniors hardest: They most rely on Old Age Security for their income and will suffer most as the program is de facto cut by reducing the number of years that seniors can receive benefits.  Low-income seniors (including those with disabilities) who are on welfare or in the low-wage workforce will have to wait two more years to move up to the better benefits available from Old Age Security and the Guaranteed Income Supplement.

Ottawa should take steps to shield low-income elderly women and men from the impact of the increase in the age of entitlement for Old Age Security by providing an income-tested benefit for low-income seniors ages 65 and 66.  It already has the mechanism in place to do so, in the form of the Allowance (the third of the programs that make up Old Age Security).

To slow the increase in Old Age Security spending, the federal government could increase the reach of the clawback, which reduces or removes benefits from well-off seniors.  However, it is essential not to lower the clawback so far that it digs into the large group of middle-income seniors for whom Old Age Security is still a significant source of income.

Yet another possibility is to combine Old Age Security, the Guaranteed Income Supplement, the age credit and the pension income credit into a single income-tested program, based on family income, with a progressive design.

Budget 2012 did introduce some positive measures in several areas.  It confirms that Ottawa will work with willing partners on a First Nation Education Act that will be in place by September 2014.  This commitment recognizes that piecemeal band-aid fixes are not going to achieve sustainable and widespread improvements in First Nations schools.  Comprehensive rebuilding of the First Nations education system is needed to create the kinds of institutions and programs which the rest of Canada takes for granted.

The Budget proposed several improvements to the design and administration of the Registered Disability Savings Plan.  It also announced $30 million over three years to bolster the Opportunities Fund for persons with disabilities, which enables participation in the paid labour market.  Ottawa will create a panel on labour market opportunities for persons with disabilities.

Budget 2012 allocated $150 million over two years to support repair and improvements to small public infrastructure facilities through the Community Infrastructure Improvement Fund.  The announcement was significant in light of the fact that the physical hardware of the country is in serious need of upgrade and repair.  But despite several worthwhile federal investments in recent years, there is still a need for a funding formula that provides predictable and reasonable source of revenue for local governments over the longer term.

The 2012 federal Budget announced plans to support innovation through procurement.  We would encourage Ottawa and other governments to look more broadly at their power of procurement to achieve important social ends as well.

Unfortunately, Ottawa missed an opportunity for a fairer Employment Insurance program that would treat every unemployed worker equally, regardless of region or province.  The 2012 Budget introduces several modifications to Employment Insurance and a significant change in its financing.  But these measures neither address nor even acknowledge the major failings of this significant national program.


ISBN - 1-55382-566-7


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