Cutting OAS costs necessary for future fiscal health: Flaherty

OTTAWA — Finance Minister Jim Flaherty said Thursday he considers it imperative that the government restrain the growth of public pensions, although he stopped short of calling them unsustainable.

OTTAWA — Finance Minister Jim Flaherty said Thursday he considers it imperative that the government restrain the growth of public pensions, although he stopped short of calling them unsustainable.

Flaherty made clear that changes are coming to the Old Age Security program that pays an average $500 a month to lower-income Canadians upon turning 65, and that he will outline the government’s thinking in the upcoming budget.

“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 on a conference call from Tel Aviv, where he has been visiting for most of the week.

“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.”

The opposition parties and some experts have been critical of the government for presenting the issue as a clear-cut case of unsustainability.

Ottawa estimates the cost of OAS will rise from $36 billion in 2010 to $108 billion in 2030, while the number of taxpayers for every senior declines from four-to-one to two-to-one.

But as a slice of gross domestic product, or the size of the economy, OAS remains 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 also concluded that Canada does not face a major affordability problem with public pension schemes, adding that there is “no pressing financial or fiscal need” to raise the age of eligibility.

New Democrats said they would ask the Commons to reject cutbacks to OAS.

“Advice commissioned by the Harper government contradicts these very claims. It’s time for the government to back down from this wrong-headed move,” said seniors critic Irene Mathyssen in a release to the media.

Flaherty agreed that the changes are for the long term and do not impact on the government’s current deficit, which is slated to decline rapidly each of the next three years to a balanced position.

He reiterates that any measures in this year’s budget, which is expected in March, will not impact anyone currently receiving OAS or about to start receiving the benefits.

It remains unclear whether the government plans to announce a review of the programs or announce specific changes to OAS in the upcoming budget.

Flaherty said he would not reveal what is in the budget, but has previously called the budgetary item on pensions a “review.”

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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