OAS-Losses2

Announcing a bad policy 10 years in advance doesn’t make it a good policy.

So the fact that the Harper government is giving people at least 10 years to prepare for two years of life without an important source of income, hardly makes it OK — as so many media commentators have tritely implied. In fact, in this case it makes the policy even more unfair.

Likewise, the fact that many young Canadians seem to have (wrongly) resigned themselves to the fact that public pensions won’t be there for them when they retire, hardly eases the pain of this unnecessary, destructive measure. Consider this quote from a Gen X-er (a self-employed marketer … sigh) in the Hamilton Spectator: “I was pretty sure any government-funded retirement will not exist for my generation.” That’s a tragic sentiment, both because of its defeatism, and its misplaced lack of confidence in public pensions. Because the clear reality is that it’s private individual retirement plans that will not be there for him. Compared to those Ponzi schemes, public pensions are like the Rock of Gibraltor — especially for precarious workers like our self-employed marketer. If the Conservatives are counting on fatalistic attitudes like that one to allow this policy to sneak through, I hope they’re proven wrong, for two reasons: I want the policy to be defeated, but I want young people today to have more faith and hope in the solidarity and cohesiveness of future society.

Initially, when the OAS/GIS trial balloon was floated by Mr. Harper in Davos, many seemed to think this policy would somehow betray their core constituency among older voters. In reality, of course, the reverse is true. It is precisely the older voters who are protected by this move (anyone over 54 right now will not have their OAS/GIS benefits affected at all). Young people will continue to pay taxes to support those boomers’ pensions, but then will have two years of their own golden age ripped away from them. The most bitter irony of all is that the cost of OAS/GIS (measured appropriately as a share of GDP) will start to decline in 2030 (according to the most recent actuarial review of the program). So anyone born after 1965 will have their own access to this important program restricted just as the whole program becomes less expensive! The Conservative plan thus exacerbates any so-called generational inequity in the current system, rather than ameliorating it. (I don’t buy that old intergenerational complaint in any event: the equalizing impact of a generous universal pension system far outweighs any niggling concerns about intergenerational transfers.) This cynical calculation by the Tories was probably intended to short-circuit any repeat of the “Good Bye Charlie Brown” protests that derailed Brian Mulroney’s aborted effort to undermine the public pension system in the 1980s.

Thanks to the appendix tables in that same actuarial review, we can perform an interesting exercise. Table 5 of the review projects average OAS benefits in each year until 2060. From that table, anyone who is under 54 right now can calculate how much OAS benefits they would lose, as a result of having up to their first 2 years of benefits eliminated. The following table reports (in undiscounted dollars) the approximate lost OAS income for people in each age cohort. (For the first few rows in the table, the loss depends on the month of your birth, so these estimates are an average for the full year. People who are 54 right now don’t lose anything; but people who turn 54 later this year will lose partial benefits, and the first row is an average of these effects. For the detailed phase-in schedule see the Service Canada website.)

OAS losses

Personally I would lose around $14,000. That’s bad enough. But someone who is 20 today would lose over $34,000.

Another painful irony for those near the bottom of the above table: As those above them start to work longer in life to foot the bill of the OAS cutback, their own chances of finding a job will be reduced at the same time. Making old people keep their jobs longer, in a world where youth unemployment is a recognized crisis, has got to be one of the most counter-productive policy prescriptions ever devised. Those trumpeting the measure as a way of fostering higher labour force participation and hence faster GDP growth are still living under the misapprehension that employment is determined by the number of available workers; in fact, of course, employment is determined by the number of jobs.

In sum, it is clearly today’s young people who would be the real losers from this move. So instead of a Good-Bye Charlie Brown repeat, I think we need a more youthful cartoon analogy: perhaps a gang of anime crusaders with enough foresight to be furious that they will be denied access to a system that they themselves paid for. They will storm the Harperite ramparts to defend a system that is strong, affordable, and fair. This government is many things, but it is not stupid. A forceful pushback against this hurried, ill-considered retrenchment of a crucial public program could actually win.

This article was first posted on The Progressive Economics Forum.

Jim Stanford

Jim Stanford is economist and director of the Centre for Future Work, a progressive labour economics institute based in Vancouver. He has a PhD in economics from the New School for Social Research in New...