Our aging population

Photo: Gerard Moonen

In last week’s report, I raised concerns that Government budgets, such as the recent Liberal Federal budget, often focus too much on short term thinking while ignoring the long term issues that will impact future generations of Canadians. 

This week, the independent Parliamentary Budget Officer issued a report that criticized the recent Liberal budget, noting that the time horizon for consideration of cost impacts has been significantly shortened by the Liberals. The PBO reported that overall, changes made by the Liberals in this budget “have made it more difficult for parliamentarians to scrutinize public finances”. For partisan readers of my report, please note these are the words of the PBO, and not my own.

Last week, I provided specific examples of the ways Canadians currently spend 10% of our entire federal budget just on debt repayment. This will further increase now that the Liberals have ignored their electoral commitment to return to balanced budgets in 2019. In this week’s report I would like to discuss another long term challenge that, in my view, has been ignored in the federal Liberal budget: Our aging demographics.

In 2012, the former Prime Minister announced that, starting in 2023, the age of eligibility for OAS benefits would be increased from 65 to 67, to be fully implemented by the year 2030. In Budget 2016, these proposed OAS changes were cancelled. I will leave out the politics, and will simply provide information that relates to this subject.

When OAS was first created in 1952, the age of eligibility was 70. At that time, the average life expectancy was 66 for men and 71 for women. In 1965, the OAS qualifying age was lowered from 70 to 65. Today, the average life expectancy is 79 for men and 83 for women, meaning citizens are collecting OAS benefits for much longer. 

Here is another consideration: Currently, seniors are the fastest growing demographic in our society. Over the next two decades, the number of Canadian citizens over the age of 65 will double from roughly 4.7 million today to over 9.3 million by 2030.

Why does this matter? Today, OAS spending costs $36 billion a year, and, based on the aging demographics of our society, is expected to rise to $108 billion by the year 2030. 

On the surface, this may not seem like a challenge, until you consider that currently, for every one retired citizen receiving OAS benefits, there is a ratio of four working Canadians, not receiving OAS benefits, who are helping to fund them.  

By 2030 this ratio will be again be cut in half, with just two working Canadians not receiving OAS benefits but paying for twice as many citizens who are eligible. In other words, there will be significantly more citizens who receive OAS benefits, and significantly fewer citizens not receiving OAS benefits but paying for the cost of it. 

For added context, in 1975 there was a ratio of 7 working taxpayers for every citizen over 65.

Why does the ratio of fewer working taxpayers to those over 65 matter? The simple answer is, income tax. Nearly 50% of all federal revenue comes from income tax, compared to GST which generates roughly 10% revenue. Fewer working Canadians will result in significantly decreased income tax revenue, while aging population demographics will result in significantly higher costs for programs such as OAS. 

Keep in mind, these are not partisan concerns, these are the realities of our demographics. While many people did not agree with raising the age of OAS eligibility, it was one proposed solution to this pending fiscal challenge. Budget 2016 eliminated this proposed solution, and offers no long term solution to deal with the problem. Make no mistake, today’s youth will be the ones facing this challenge, which is part of the reason they have become known as Generation Squeezed.

I welcome your comments, questions, and concerns on this or any subject before the House of Commons. I can be reached at [email protected] or toll-free at 1.800.665.8711.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.