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Hill Dispatches: Lots of pension options, no open discussion in Parliament

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Quick now, what do Kim Campbell -- who served as prime minister briefly in 1993, and led her party to its biggest defeat ever -- and Stephen Harper have in common?

Well, aside from the fact that they are both nominally "Conservative," they both seem to believe, as Campbell put it during her disastrous 1993 campaign, "an election campaign is no time to discuss serious issues."

Saying that, during an election campaign, cost Campbell dearly.

But quietly following that precept during the last campaign allowed Harper to avoid a difficult discussion of his plans for Canada's pension system.

In fact, Harper seems to think pensions are such a difficult subject he would rather not talk about them too much in the House of Commons -- or even in Canada, for that matter!

Pension system started in the 1920s

In many ways, the old age pension system is the granddaddy of Canada's social safety net. Long before unemployment insurance or universal public health insurance were on the agenda, pensions for seniors was a live issue.

It all started in 1924, when Parliament appointed a special committee to study the question of pensions. There was no NDP then, nor even its precursor, the Cooperative Commonwealth Federation (the CCF), but the CCF's eventual leader, J.S. Woodsworth, was a member of Parliament as was his "Labour" colleague, A. A. Heaps, and they fought hard for some measure of support for the elderly.

In 1927, with Liberal Mackenzie King as Prime Minister, we got the "Old Age Pension Act."

That Act provided for a maximum pension of $20 per month, which was available to "British subjects" over 70, who had lived in Canada for 20 years, and was restricted to those whose income was less than $365 a year.

First Nations people ("status Indians") were excluded from the 1927 scheme.

It was a modest beginning, but a beginning nonetheless, and, over time, the old age pension was extended and improved.

The age of eligibility was reduced to 65 in 1965; the Guaranteed Income Supplement was established in 1967; inflation indexing was introduced in 1972; and benefits were extended to same-sex common-law partners in 2000.

Guaranteed annual income for seniors, in effect

Today, Old Age Security (the OAS, as the one-time old age pension is now called) is universal, although "clawed back" from "higher income" individuals. The Guaranteed Income Supplement (GIS) provides income, over and above the OAS, to low-income seniors.

Together with the contributory Canada (and parallel Quebec) Pension Plans, these programs mean that there is, in essence, a guaranteed annual income for seniors in Canada. Today, the rate of poverty among senior citizens is considerably lower than it was 40 years ago; although there are still plenty of seniors living on the edge of poverty.

Conservative Senator Hugh Segal has frequently said that the Canadian pension system is such a success story that it should serve as a model for a guaranteed annual income for ALL Canadians. We have come close to eliminating poverty for seniors, Segal argues, now let's do it for other age groups as well.

Economist Monica Townson is prominent among those who argue that not only should the OAS and GIS not be reduced, either by reducing payments or delaying eligibility, they should be strengthened. Among her suggestions are to change the inflation indexing formula for the pensions so that it is tied to wage rates and not prices, to increase the GIS for single individuals and to make it easier for immigrants to collect the OAS.

Redirect spending from private sector subsidies to public pensions?

Townson points out that the government invests significant revenue in programs that form what is sometimes called the "third tier" of the pension system, including the Registered Retirement Pension Plan (RRSP).

Although the RRSP program is of great value for many middle-income Canadians, and should be maintained in some form, it does nothing for low-income Canadians. Even among those qualified to make RRSP contributions, the majority do not.

"Statistics Canada reports that 88% of tax-filers were eligible to contribute to an RRSP in 2006, but only 31% actually made contributions," Townson wrote two years ago, in a paper for the Canadian Centre for Policy Alternatives. "They used only 7% of the total contribution room available to them."

Today, the government, in effect, "spends" over $15 billion a year on RRSPs. Again, some of that expenditure is a worthy support to hardworking Canadians; but some also goes to multi-millionaires. Townson suggests that one could reduce this subsidy to private sector pension plans and redirect the savings to public sector pensions. After all, these private sector pension expenditures are every bit as much "unfunded liabilities" and "entitlements" -- to use the Prime Minister's words -- as the OAS and GIS.

However, even if the government were to choose not to cut the pension pie differently, not to redirect subsidies now paid to those who are better off to those most in need, it is not at all obvious that the pension system is about to become unsustainable.

"The sky is falling! The sky is falling!"

There is plenty of evidence that Harper and his chorus of cheerleaders in the commentariat (see Coyne, Andrew, et al.) are crying Chicken Little on the question of Canada's looming, "unfunded" pension obligations.

Kevin Milligan, a UBC economist, points out that Harper's alarming forecast that the cost of the OAS will climb to more than $100 billion in 2030 from less than $40 billion today does not take inflation into account.

"As an economist, I would never characterize things in terms of nominal (i.e. non-inflation adjusted) dollars in the future because it's hard to put those in context," Milligan told the Globe and Mail. "I don't know what we'll be paying for a litre of milk then."

Townson makes a similar point in her 2009 paper:

"Total annual expenditures on the Old Age Security programs are expected to increase to $110 billion by 2030, at which point the spending would represent 3.1% of Gross Domestic Product, compared with 2.2% in 2007." Townson wrote. However, she added, "because benefits are indexed to inflation, which is assumed to be lower than the rate of growth in both the GDP and the income of new retirees, the amount of income-tested benefits will also be reduced."

That is why the "crisis" Townson sees in the future is not one of an unsustainable public pension burden, but of declining benefits for seniors, in "real" dollars.

"Sustainable social programs" -- which means... ?

For now, we have Harper government "stealth policy."

There is no discussion; no sharing of facts and evidence; no study of options.

Harper talks vaguely about "assuring the sustainability of our social programs." But what are the goals of those programs; what shared values should they reflect?

There is no public forum to deal with these basic questions.

As with the previous Chrétien-Martin government, too much policy is breathlessly enunciated in a clouded and turbulent atmosphere of supposed "fiscal crisis."

Ironically, while the government wants to boast about Canada's world-beating economic performance, it also wants Canadians to feel genuinely terrified of a looming iceberg of debt and deficit.

Harper and Flaherty's message to Canadians is similar to Chrétien and Martin's in 1995: It's time for all hands on deck to man the lifeboats, with no questions asked!

In all of this we don't hear too much, publicly, from the big elephant on board Canada's fiscal ship of state -- the financial sector, that is, the banks, the trust companies and the insurance companies, who have a huge stake in our retirement system. We can be sure, though, that they've got their well-appointed lifeboats securely launched.

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