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Hill Dispatches: Non-partisan report contradicts Harper on pensions

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The Parliamentary Budget Office (PBO) does not use dramatic language. It takes the "just-the-facts-m'am" approach.

And so, when the PBO decided to issue a report on pensions, it called it, blandly: "Federal Fiscal Sustainability and Elderly Benefits."

This report, just out, is part of a series of "fiscal sustainability reports" that the PBO has been issuing for the past two years and intends to continue issuing.

The PBO reports to parliament, and not the government.

Its role is to provide independent, non-partisan analysis. The purpose of the PBO's sustainability reports is to assure that Canada can afford to pay for programs to which it is committed, in the short, medium and long term.

And so, when the PBO decided to take on the question of pensions and other elder benefits it did so without a dog in the race. Its interest is in whether or not these benefits are affordable.

The PBO does not recommend political choices. That is up to the elected representatives.

The PBO's newest report states, in essence, that the OAS and GIS are sustainable in the long term, even if we assume what it calls a "modest enrichment" of the benefits, that is, increases greater than inflation.

Selective quotation as a form of push-back

The opposition pounced on that conclusion today, in question period, and will no doubt continue to cite it.

The government's reaction has been, mostly, to point out that Liberal politicians had warned about the sustainability of elderly benefits when they were in power; or to argue that other studies reach a more dire conclusion than that of the PBO, without citing any particular facts or figures.

But Conservative politicians have also tried other "gotcha" tactics, as well.

In fact, today's question period reached a high point in the art of selective and dubious quotation when Human Resources Minister Diane Finley quoted the NDP Member for London Fanshawe (Irene Mathyssen) as having warned about Canada's burgeoning population of seniors and the need to provide for them.

It seems that Finley forgot that the London NDP member was sitting a few metres from her.

When she got her chance, Mathyssen stood up and pointed out that she had, indeed, warned about the growing elderly population in Canada, but that her purpose -- quite the opposite of suggesting that benefits should be cut -- was to advocate for greater investment in housing and other services for the elderly.

OAS will grow, then decline

As for the Parliamentary Budget Office, it is worth considering the nub of its analysis.

The PBO report starts out by citing the fact that  "federal elderly benefits" ( the OAS and GIS) will grow from 2.2 per cent of GDP in 2010-11 to 3.2 per cent of GDP 24 years from now, in 2036-37, an increase of one percentage point. (And this is based on an assumption of enriched benefits. The PBO says that if benefits merely rise in line with inflation, the increase, in percentage of GDP terms, will only be .8 per cent not 1 per cent).

The report then goes on to consider the affordability of elderly benefits in terms of projected federal revenues.

It does this because, in the report's words, "the elderly benefits program should be assessed in the broader framework of fiscal sustainability, which requires that government debt cannot ultimately grow faster than the economy."

The PBO starts out by assuming a federal tax "burden" of 15 per cent of GDP, which is what it is projected to be for 2015-16. (And which is, by the way, 2 percentage points of GDP lower than the average over the last 50 years.)

Under this scenario, elderly benefits are projected to increase from a little under 16 cents per dollar of tax revenue in 2010-11 to nearly 20 cents in 2030-31 -- an increase of about 4 cents per dollar of tax revenue.

Sounds like a fairly large increase, at first blush.

However, the PBO report adds that, in the years following 2036-37, there will be a steady decline in the cost of elderly benefits to 12.8 cents per dollar of revenue by 2080-81.

That may be cold comfort to those of us who are over 10 years old, and not too likely to live to see 2080!

But the government keeps saying it is concerned about long-term sustainability, here. Human Resources Minister Finley repeated that mantra about five times during today's question period.

And so, the PBO has given the government a long-term picture.

And that picture shows that there is no financial, "bookkeeping reason" to cut OAS or other benefits, either directly or by raising the eligibility age.

The "fiscal gap" and room to spend

The PBO insists that its primary duty is to monitor what it considers to be the fundamental fact of fiscal sustainability -- Canada's debt-to-GDP ratio. On that score, its report is very clear. It says that "the federal net debt-to-GDP ratio will decline steadily from its current level, ultimately resulting in a net asset position (i.e., financial assets exceeding liabilities)."

In other words, based on projections of current program spending, revenues and debt servicing, we are not about to hit some kind of fanciful debt wall. In fact, we will soon have capacity to spend more, or reduce revenues.

The PBO is a prudent and small-c "conservative" agency. It is not in the business of spinning optimistic, fiscal fairy-tales.

And so, when the Parliamentary Budget Office says that it "estimates that the federal fiscal gap is -0.4 per cent of GDP," it is not kidding! Note that the "gap" is a negative number. Were it positive, that number would indicate the amount one would have to increase revenue or decrease spending to prevent the debt-to-GDP ratio from continuing to rise.

In Canada's current case, the negative number indicates the increased amount that we can spend (either directly or through reduced revenues) and still have the debt-to-GDP ratio go down.

The PBO concludes 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 [i.e., a continuing decline in the debt-to-GDP ratio]. This amounts to $7 billion in 2011-12  [emphasis added]..."

Will the government be looking for new arguments for cutting the OAS?

It's all a lot of technical economics, indeed. But it is also common sense.

The PBO tells us that elderly benefits will grow for a while, and then decline.

And it also tells us that -- taking tax revenue, the amount of money Canada owes and other economic factors all into account -- benefits to the elderly, as they are currently defined, do not pose a fiscal risk for Canada.

If the Conservative government wishes to persist in making plans to cut the OAS, it may want to come up with an argument other than that of "dire necessity" or "long-term sustainability."

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