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Why Trudeau is wrong on Old Age Security

Kevin Carmichael explains why going back to 65 is bad policy


 
(Justin Tang/CP)

(Justin Tang, CP)

Michael Bloomberg welcomed Justin Trudeau to his corporate home in New York this week with a love letter of such intensity that even Stephen Harper would blush. Bloomberg wrote a column for his global financial media behemoth that called Canada’s Prime Minister “energetic and pragmatic” and compared Trudeau to John F. Kennedy. “The value of the Canadian dollar and the price of oil, one of the nation’s top exports, have both tumbled to near record lows,” the billionaire and former three-term mayor of New York wrote ahead of Trudeau’s arrival for town-hall event on live television. “But those details—and the apparent demise of the Keystone XL pipeline—don’t begin to tell the story of what lies ahead for the economy of Canada, America’s second-largest trading partner.”

Canada’s main stock market increased about one per cent between the time of Trudeau’s visit to the Bloomberg LP headquarters and the early trading hours of March 18. That’s probably because the U.S. Federal Reserve indicated it was less keen about raising interest rates. But for fun, let’s give Bloomberg’s endorsement of Trudeau’s economic strategy a little of the credit. There is no one on Wall Street with a louder bullhorn than the former mayor.

There certainly is a lot to like about Trudeau’s economic policy agenda. Next week, he will plunge the federal government into deficit, recognizing the unique opportunity presented by ultra-low interest rates to renovate the infrastructure that supports Canada’s economy. There is every reason to think the program will pay for itself through faster economic growth over the medium term. But even if it doesn’t, the potential for improving Canadians’ quality of life through better transit, safer water, and so forth is justification enough. Health and happiness isn’t always free. Canada’s new government is also right on climate change. The previous government was indifferent to the future costs of a lackadaisical approach to constraining carbon. Trudeau has put his country back on the right side of history. But Trudeau isn’t perfect. He used the Bloomberg stage to state that he intends to follow through on an unfortunate election promise: reversing the previous government’s decision to raise the age at which Canadians start receiving payments from the Old Age Security program to 67 from 65. “Tweaking the age like that is a very simplistic solution, that won’t work, to a very complex problem,” Trudeau said of an initiative that was meant to save more than $10 billion a year once fully implemented in 2030.

The Prime Minister likes to say that his policies are based on clear, pragmatic thinking. His promise to once again lower the retirement age felt like a political calculation by a third-place party that needed to embarrass a right-wing government and outflank a left-wing official Opposition. Trudeau seems to have forgotten that voters will forgive politicians a few unkept promises if they actually win. Raising the retirement age isn’t simplistic, it is necessary. The International Monetary Fund for years has documented that asking ever healthier taxpayers to wait a little longer for their pension benefits is among the handful of measures that will allow developed economies to save their public retirement systems for bankruptcy. There is nothing unfair about doing so. Life expectancy for Canadian men when Trudeau and I were born in the 1970s was no more than 70. Now it’s closer to 75 and rising all the time. We’re living longer than the architects of the pension system ever imagined. It’s entirely reasonable to adjust benefits accordingly.

Despite the weight of evidence, the previous government was among the few in the world that worked up the courage to make the change. Trudeau struggled to justify his decision at the Bloomberg event. He called himself fiscally responsible, and he said the issue of demographic pressure on public pensions demands study. Those are reasons to leave the age increase is place, at least until the study is complete. Trudeau mentioned the need to improve the health of Canadians, a well-meaning goal that would keep people alive longer and further strain pensions. He also justified himself by observing that it was cruel to expect manual labourers to work past the age of 65—surely a concern that could have been answered more elegantly.

Stephen Tapp, a former Bank of Canada economist who now is research director at the Institute for Research on Public Policyreckons the reversal will cost 0.2 percentage points of gross domestic product annually over the longer term. Trudeau said he will seek a more “nuanced” response to funding public pensions. If those responses existed, they likely would have been discovered by now. But that probably will be the next prime minister’s problem. Trudeau has chosen short-term political gain over making life easier for those who follow him.


 

Why Trudeau is wrong on Old Age Security

  1. The retirement age wasn’t raised to 67 by Harper’s surprise announcement, at least not for everyone. You had to be born after 1958 and you had to be poor without an adequate pension plan.

    If you have a decent pension then you won’t receive OAS and the age others do will not change your retirement age.

    If the author is concerned that people are retiring too early then perhaps he should be as concerned by TFSAs as well. TFSAs will cost the treasury billions a year, much more than keeping the OAS at 65. A concern raised in the article. TFSAs will allow the wealthier citizens to retire earlier than 65 despite them too being healthier and living longer. A concern raised in the article. But you’ll not read any concerns about the healthy, long lived wealthier Canadians retiring early and costing the treasurer billions and reducing GDP be exiting the labour force. Such concern is only that the poor might do so.

    • Good point. Where was all this concern when Freedom 55 was what everyone was supposed to be aiming for? (Young and dumb as I was, that never made sense to me.) Or when governments were cutting back and offering early retirement packages? When education grants were cut back? Canada has been fumbling the ball for a couple of decades. Raising the age for retirement was just easy pickings for the Conservative government. Restraining themselves from cutting another percentage point from the GST would have made more sense.

    • Good point re: TFSA’s. Glad Trudeau pulled back on the deduction. He should be getting credit for the huge savings that will multiply over time for not allowing the crazy increased deduction and not chastised for putting pension eligibility back where it should be.

      • TFSAs aren’t deductible, and never were. They shelter one’s after-tax income from further taxation, that’s it. RRSPs are fully deductible, and a far greater benefit to high income earners. Are you opposed to the RRSP deduction?

  2. So says one who hasn’t got a physical job that will wear out their body by the time they are 60.
    The poor working stiffs should just keep working until they drop…..SO much cheaper for the wealthy craving tax cuts. The feds should have left the GST where it was and that $170. whiskey and that $100,000. car would have cost the rich what it should.

    • This Harper retirement policy for the well off, air conditioned office workers with no lifting, no pounding, no climbing. It’s a policy for people who are empathy free from those who shingle roofs in winter and the blustering heat of summer, supermarket checkout clerks on their feet 8 hours a day, elder care and hospital lifters and movers.
      I remember relatives and friends and they’re everywhere today as well, who as lifetime physical labour toilers count the days and hours until 65 comes around.
      For the soft workers who design these cruel policies the amount of money in the old age pension is trivial in their over all retirement plan. Their professional planner probably overlooks it.
      Let’s hope we are finished with these unfeeling, punitive, painful social policies.

      • Why base fiscal policy on financial feasibility when you can just go with your feelings and a bunch of hyperbolic, emotional charged statements? That’s the mantra of the left at least. Good to see where you stand…

        • What’s feasible, in the minds of the J. Edwards and Dianne McCollums is taking from those above the mean and giving it to those below. For no other reason than it makes them feel superior.

          • Why is it that anyone critical of fiscal and tax policies that mainly benefit the very well-off are attacked as being poor, lazy lefties looking for handouts? I work for a living and am fairly well off. However, Harper’s increasing of the TFSA tax shelter limit and cutting of pension eligibility benefited me personally by ZERO and worse. Not everyone has a lot of savings left over to shove into tax exempt (not to mention off-shore) accounts. Those who can’t, following your conceit, will actually have to keep working even harder and longer to make up for the ever compounding tax shortfall caused by rewarding idle wealth sitting in bank accounts, rather than productive effort.

          • Perhaps the increase in the TFSA limit and increase in OAS eligibility age (note: NOT pensions) benefited you ZERO because you’re one of the legions who are “fairly well off” because of a tidy public sector pension entitlement. Those not as fortunate are left to their own devices to fund their retirement needs beyond what CPP/OAS will cover, i.e. food, electricity, heating. RRSPs are one way, TFSAs another. It is not surprising, but no less offensive, for those teeth are clamped tight on the public teat to rage against measures intended to benefit those who are not

  3. Despite the Conservative perspective of Macleans, and the centre-right IRPP concerns, there have been numerous critics who point out that the aging population is really THE SHORT TERM problem (contrary to the article’s argument), and people raising panic over this matter simply have to look at the POPULATION PYRAMID to see the reality of that. I suspect the real purpose of Harper’s attempt to change this policy was to save money to pay for current and future tax cuts and tax breaks for the wealthy, just like everything else he did. Retirement is also an issue about quality of life. People who want to work longer will keep working anyway but those who want to retire at 65 may have very good reasons — like health problems arising from working too long and hard. Note: Encouraging earlier retirement could also alleviate youth unemployment, and help new graduates and apprentices into the job market sooner. Harper’s attempt to roll back the retirement age was an unfair breach of trust with Canadians and not done with their consultation, despite being a major policy change that affected all of us. Trudeau obviously consulted and responded appropriately.

    • Your comment is in welcome contrast to the bleatings of the neocon mouth-breathers above. Thank you for the sound reasoning.

      • Except his comment made zero sense and did not contain any sound reasoning. The delay in OAS entitlements would not have kicked in for many years, and therefore offered ZERO net savings for any “Harper government”, even if he had won the next 2 elections. And with people living longer than ever before, the idea of encouraging early retirement as a remedy for youth unemployment is so bat-shit crazy, where does one even start? Taking people out of the labour pool to improve job prospects of others? Is that a serious suggestion, or is that comedy? What good would reducing youth unemployment do if by doing so, you’re forcing them to support an enormous prematurely retired population? Since the two of you are incapable of thinking while typing, you might wish to refrain from making comments online where the public can read them. Honestly, I’m insulting my own relatively modest intelligence by even bothering to crawl into the gutter to reply to either one of you.

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