Canada’s Old Age Security (OAS) benefits may not be in such bad shape after all, even with the surge of baby boomers reaching retirement age. According to a February 8 report from Parliamentary Budget Officer (PBO) Kevin Page, the government should be able to maintain — or even improve — OAS benefits without going further into debt, if spending and saving continue at the current rates.
In his role as PBO, Page’s duties include providing independent analysis to Parliament on the country’s finances and economic trends, and to estimate the potential cost of proposals put before Parliament. His most recent report follows a speech last month, in which Prime Minister Harper indicated that the government would be reviewing the country’s retirement income system. The government has since confirmed that it will be looking at gradually increasing the age of eligibility for OAS from 65 to 67 in order to offset the expected surge of applicants as the baby boomer generation retires.
How Bad is It Really?
But pushing the nation’s retirement age back by two years may not be necessary, the PBO explains in his report. Although it’s true that the cost of OAS is set to almost triple over the next 20 years, from about $40 billion in spending this year to $108 billion by 2030, the cost should remain manageable because the country’s Gross Domestic Product (GDP) will also continue to grow.
As Page points out to the Globe and Mail, the surge in boomers reaching retirement age comes as a surprise to no one. And yet, the federal government has opted to reduce the GST and cut income taxes while also launching new spending programs. So, says Page, the fact that the country is now running at a deficit shouldn’t be seen as a crisis, because they’ve known all along it was coming.
How Can Canada Afford It?
Even despite the tax cuts and increased spending, thanks to a recent plan to change the way the Government of Canada financially assists the provinces with the cost of health care, OAS benefits should not be in jeopardy, at least according to the PBO report, which takes into account the country’s “fiscal gap” — an estimate of the changes necessary to keep the debt-to-GDP ratio constant over the coming years.
The PBO’s analysis finds that the fiscal gap should actually shrink and eventually end up in negative territory (that is, the country’s GDP will grow faster than its debts), even if OAS benefits are not only maintained but enriched beyond just the cost of inflation. According to these projections, if taxes and spending continue at their current rates, the country will eventually have a fiscal gap of -0.4 percent of the GDP, putting it into a position where its financial assets exceed its debts. According to the report, this means “the federal government could reduce revenue, increase program spending or some combination of both while maintaining fiscal sustainability.”
The message that we are consistently seeing from the government is that there is no need for seniors or those about to retire to be concerned about their benefits being affected. However, if you do have unforeseen expenses crop up, a reverse mortgage from the CHIP Home Income Plan can help free up some of the equity in your home. Contact Horizon Equity to find out how.