Q & A: critical experts wade in on the OAS debate

A tough, detailed appraisal of the government’s plan to somehow curb Old Age Security spending is available today both on 3D Policy’s webite and over at iPolitics as a featured opinion.

It’s by two former senior finance department mandarins, Scott Clark and Peter DeVries, and brings badly needed clarity to the debate sparked by Prime Minister Stephen Harper’s surprise remark about his intention to reform pensions in his “major transformations” speech last week at the World Economic Forum in Davos, Switzerland.

Clark and DeVries argue that since the government has already clamped down on spending growth in big-ticket areas like defence and health, the projected rise in OAS costs isn’t by itself large enough to pose any real threat to federal finances.

Their commentary is well worth reading, but I also took the opportunity to interview Clark this morning for a less formal sense of how he sees this volatile debate unfolding. He brings the unique perspective of a former deputy minister of finance, and a key insider during the fight to eliminate the deficit back in the 1990s—when the Liberals decided against cutting seniors benefits as too politically risky.

Here’s part of our conversation, edited and condensed:

Q What’s your complaint about the way the government is framing its decision to make changes to Old Age Security?       

A The way it’s been played by the government is that spending on seniors, mainly the OAS and the Guaranteed Income Supplement, which is only a little over two per cent of gross domestic product, isn’t sustainable. Well, nobody’s ever defined what that means.

Q How would you define sustainable?

A You have to have a context. It means in some sense that it’s not affordable. In policy terms, the way you define sustainability is in terms of your overall spending and revenue framework and your debt burden. You say, ‘Are we in a situation where our debt is rising faster than our economy is growing?’ That’s what happened throughout the 1980s and the early 1990s.

Q So is today’s fiscal situation unsustainable?

A Well, according to the government, and I think they’re right, the overall debt-to-GDP is very low by historical and international standards. It’s going down for the next five years. The debt burden is actually falling. Most of the spending that the federal government does is growing slower than the economy.

Q They recently informed the provinces that federal health transfers will, over the long run, be held to the nominal growth in GDP. That’s key, right?

A Both the Parliamentary Budget Officer and ourselves have said is that prior to that change on health, the government was entering a period of a structural deficit that was rising. But the PBO has said now that they’ve cut health transfers, that’s not a problem anymore.

Q And you’re saying that limiting growth in health transfers puts them in a position where they could leave OAS alone if they wanted to?

A It’s sustainable. Overall spending by the federal government is falling as a share of GDP. And on the revenue side, taxes are going to be rising as a share of GDP, because as income grows people go up through the tax brackets and you have a gradual increase in the overall effective income tax rate. That’s progressivity—our tax system works that way.

Q You make a strong case that OAS isn’t a problem. Yet the situation the Prime Minister and senior cabinet ministers keep pointing to—a growing retired population being supported by a proportionately shrinking workforce—does sound serious. What do you make of the way this debate is unfolding?

A Why would a Prime Minister go to Davos and even think about saying what he said? If you’re thinking about all the issues of an aging demographic situation—which is what the Parliamentary Budget Officer has been talking about for years—then good policy would be to put out a document on it last fall with the economic update. Say, ‘Here are a lot of demographic issues that we have to deal with,’ and then everybody starts thinking intelligently.




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Q & A: critical experts wade in on the OAS debate

  1. You cherry picked two former public sector union fatcats to critique a government planning to pare spending to public sector union fatcats.  Medium, message, etc.

    “public sector union fatcats” 

    “since the government has already clamped down on spending growth in big-ticket areas like defence and health” 

    Spending on both have increased substantially under Harper; the clampdowns you speak of haven’t actually happened yet, and in any case the modest reduction in spending growth announced may be ephemeral and would take several years to bring spending down to pre-Harper levels.

    It’s not like this small, incremental changes fix things fiscally forever or negates the realities of an aging population.  


    the projected rise in OAS costs isn’t by itself large enough to pose any real threat to federal finances. ”

    True, but it will take a measure of austerity in all government programs to pay for the elephant in the room neither the author or the cherry picked former public sector union fatcats acknowledge in this short piece: health care spending is most certainly heading for a crisis and it is a huge ticket item.  

    “ the overall debt-to-GDP is very low by historical and international standards.  ”

    Canada is heavily decentralized: public debt of all levels of gov is 84% of GDP, marginally lower than Greece’s 116%.  When Que and Ontario and other provinces face their inevitable debt crisis the feds are certain to bail them out, so their debt matters too.  By international standards our debt is actually one of the highest in the world. 

    I get that debt to GDP is good in that it factors in economic growth but it is a derived statistic; per capita, debt is high by any measure.

    Historically, I have the IMF’s Historical Public Debt Database in Excel format in front of me and it measures Canada’s public debt as % of GDP for every year since 1869.  Our current 84% is high by historical measures.

    “Most of the spending that the federal government does is growing slower than the economy”
    The government is winding down one-time Keyenesian stimulus.  That aside, normal non-stimulus spending is up, up, up.Conservative-hostile media and Conservative-hostile former public sector union fatcats colluding to knee-jerk bash the Conservatives’s evidence-based policy proposal – big surprise there.  

    • You lost me at’public sector union fatcats’.  Who do you think should be asked – some random guy on the street, or maybe the President of Manulife?

    • I’m wondering about this union for Deputy Finance Ministers. Who do they negotiate with? When they threaten to strike do they lock themselves out of the office? Declare themselves as essential personnel? Hold backroom soliloquies?

    • Uh, you know you aren’t really supposed to mention that the Conservatives are spending all our money on “other things” so they can take the position that they’re justified in taking away our safety net, right?  Isn’t this a preamble to the Conservative talking points manual or something?

    • Public uniion sectorrrzzzzzzzzzzzz…you just can’t resist, can you?

    •  ”two former public sector union fatcats“??

      Such a misinformed characterization of senior echelon public servants suggests you have no clue what you’re talking about, so I can safely disregard the rest of your “critique”.

  2. “…good policy would be to put out a document on it last fall with the economic update. Say, ‘Here are a lot of demographic issues that we have to deal with,’ and then everybody starts thinking intelligently…”
    “Thinking” and “intelligently”.

    That is a fundamental contradiction for Harper and the CPC…

  3. Meh. Just kill OAS now. They’re going to have to sooner or later anyway, do it while there’s still some money left in the kitty and use that for directed supports to those who need it at all ages.

    A person who’s unemployed at 65 (or 67, or 80, or whatever) has the same income problems as someone who’s unemployed at 30.  Now if you think there’s an age at which people should no longer be expected to work, fine, get the provinces to list age as a reason why a person might be on welfare and not actively seeking employment.

  4. http://blogs.ottawacitizen.com/2012/01/31/seniors-are-taxpayers-too/

    Well i was leaning Gartner/Coyne’s way, but i think this guy tell’s it like it is; where the rubber hits the road politically.
    Is it so hard really. Let those who want to keep on working work, let those who don’t retire at 65 and pick up their OAS but with the clawback for upper incomes either inceased or kicking in earlier.

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