Old Age Security sustainable in long term: watchdog

The demographic time bomb that will hit Canada once the baby boomers retire won’t cause a fiscal crisis, the country’s budget watchdog says.

OTTAWA — The demographic time bomb that will hit Canada once the baby boomers retire won’t cause a fiscal crisis, the country’s budget watchdog says.

In fact, Parliamentary Budget Officer Kevin Page says the federal government has enough fiscal room to enrich benefits for seniors and cut taxes, or increase spending elsewhere, without breaking the bank.

The new report from the PBO released Wednesday suggests that the debate over Old Age Security reform should be about priorities, not necessity as the Harper Conservatives have so far framed it.

Prime Minister Stephen Harper set off a political fire storm at a speech in Davos last month when he put pension reform on the table as part of the government’s agenda to transform Canada’s economy.

Since, ministers have used terms like “unsustainable” and a “crisis” to defend the need to tackle pension benefits as the number of seniors collecting OAS doubles over the next 20 years.

One option the government is looking at is to raise the age of eligibility for benefits to 67 from the current 65.

But while the Page report finds that the burden on government will indeed increase as the boomers age — from 14.8 per cent of program spending today to 20.9 per cent in 2030-31 — elderly benefits remain within Ottawa’s ability to pay.

That’s because Ottawa gave itself a fiscal sustainability bonus worth about 0.4 per cent of gross domestic product in December, by fixing future health-care transfers to provinces to the growth of the economy plus inflation.

“PBO’s updated long-term debt-to-GDP (gross domestic product) show that the federal fiscal structure is sustainable even under the baseline assumption that there is some additional enrichment to elderly benefit payments,” the report states.

“This indicates that… the federal government could reduce revenue, increase program spending or some combination of both by 0.4 per cent of GDP annually while maintaining fiscal sustainability.”

The bonus is worth about $7 billion during this fiscal period and will rise over time in line with nominal economic growth, Page said.

The report doesn’t break new ground in that Page’s assumptions mirror closely those of the Office of the Chief Actuary, which put the total cost of OAS and the Guaranteed Income Supplement, at about 3.2 per cent of GDP when the retired baby boomer bulge peaks in 2030. That’s only about 0.8 percentage points more than the current burden.

But the new report will add to the political debate about priorities for spending taxpayer money.

Conservative MPs have stressed that the total cost of OAS benefits, which averages about $500 a month to Canadians over 65, will triple from the current $36 billion to $108 billion in 2030. Page says costs are likely to hit $142 billion in 2036-37, assuming some enrichment of the benefits.

The raw numbers, however, obscure the fact that in the interim, Canada’s working age population will continue to grow, as will the economy, while inflation eats away at the relative value of the costs increase.

Opposition parties have attacked the Harper government for pressing ahead with corporate tax reductions and spending on military jets and prisons, rather than on needy seniors.

Page’s report suggests the government can likely afford to do both.

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