Flaherty defends OAS cuts

The federal government considers it imperative to cut the costs of public pensions and intends to propose future reforms in the budget, Finance Minister Jim Flaherty says.

The federal government considers it imperative to cut the costs of public pensions and intends to propose future reforms in the budget, Finance Minister Jim Flaherty says.

Battling an increasingly fierce opposition, the minister made clear Thursday that costs to the Old Age Security program that pays an average $500 a month to Canadians upon turning 65 need to be reined in as baby boomers begin to retire.

“This is not an issue that can be ignored unless we want to put at risk the fiscal track of the country, which would be a mistake,” he told reporters Thursday in a free-ranging conference call from Tel Aviv, where he has been visiting for most of the week.

Flaherty also gave a thumbs up to the federal bank regulator’s efforts to curb speculation in the Toronto and Vancouver condo markets and loose lending practices.

Documents made public earlier this week from the Office of the Superintendent of Financial Institutions suggested the regulator had detected some institutions may be loosening standards on mortgages and home equity loans.

OSFI has advised financial institutions it is stepping up monitoring on their practices. Flaherty said he was aware of OFSI’s actions and was satisfied the problem is being resolved.

“I was informed of what their assessment showed with respect to a few financial institutions, which is a matter of concern. That is being corrected,” he said.

But the battle over OAS is unlikely to go away any time soon. The issue again dominated question period Thursday with both parties hammering away the government for proposing a cut to its pension commitments after having stayed silent on its plans during last spring’s campaign.

Liberal Leader Bob Rae goaded Prime Minister Stephen Harper with suddenly discovering the problem of the aging baby boomer generation.

And NDP critics pressed Harper to explain why the government’s own commissioned analysis praised the OAS and the Guaranteed Income Supplement as a “very effective safety net for old age incomes” while judging the programs “financially sustainable.”

“There will not be a cent cut from pensioners or from those who are approaching retirement,” Harper responded. “At the same time, we will ensure that our programs are viable for future generations.”

The lack of specifics on how Ottawa intends to proceed has led to speculation it may be preparing to back down in the face of the opposition, which is also coming from senior citizen organizations.

Two previous governments — one Tory and one Liberal — had also previously announced intentions to rein in pension benefits only to turn tail over fear of a voter backlash.

In media interviews Wednesday and Thursday, Flaherty has been unclear whether he intends to lay down a specific proposal such as increasing the age of eligibility to 67, or merely announce a study of how growth in the programs can be curtailed.

The only certainty is that whatever route Flaherty takes, it will not go into effect this year and will not impact current beneficiaries.

Flaherty did not use the word unsustainable to describe the government-funded pension programs Thursday, but said they would pose a challenge for future governments if costs are not trimmed.

“The research we have, both within and outside government, has shown us for some time that the demographic challenge will bring substantial pressure on the long-term sustainability of these programs,” he said.

Experts has cast doubt on just how much of a drain pensions are for the government. Ottawa faces a much more difficult challenge with health care transfers, but in December moved to tie rising expenditures to economic growth plus inflation.

Ottawa estimates the cost of OAS will rise from $36 billion in 2010 to $108 billion in 2030.

But as a slice of gross domestic product, or the size of the economy, OAS remains a tiny fraction. It will only increase from the current 1.8 per cent to 2.5 per cent in 20 years. Adding in the Guaranteed Income Supplement that goes to the poorest of Canadians brings the total cost to 3.2 per cent of GDP in 2030.

An analysis commissioned by the government concluded there is “no pressing financial or fiscal need” to raise the age of eligibility.

Canadians will have to wait until the budget to see what Ottawa plans, Flaherty said.

In another key measure of the budget — cutbacks to spending — Flaherty said the special committee of the Treasury had concluded its work on the three-year austerity program announced last year and that Finance officials are studying the recommendation.

In the 2011 budget, Flaherty said the government was looking to cut at least $4 billion from departmental discretionary spending in the next three years, but Treasury Board President Tony Clement has suggested cuts could total $8 billion.

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