Buried in the annex at the back of Ottawa’s recent fiscal update is Table A1.6, titled “Outlook for Program Expenses.” It summarizes the federal government’s major areas of spending, and their expected growth. It’s worth a read.
The biggest individual item in 2019-20 is elderly benefits, at $56.1-billion. That’s up $2.7-billion from last year, and it’s expected to rise by another $3.4-billion next year. By 2025, spending on elderly benefits – which include Old Age Security, the Guaranteed Income Supplement and Allowance payments – is expected to be $74.2-billion annually.
The federal government already spends more on the elderly than on health transfers to the provinces; five years from now, Ottawa will be spending more on elder benefits than on health care and equalizations combined. The amount will be three times as high as spending on children’s benefits.
And the Liberals have promised even more, in the form of an increase in OAS payments for those 75 and older. It’s no coincidence that the first baby boomers will soon turn 75. At a cost of $8.8-billion over the next four years and rising, it’s the government’s second-largest fiscal promise, after its big tax cut.
Rising spending on a rapidly growing demographic is no surprise. But it comes at a cost. And that cost is being shouldered by the younger generation.
Canada has a fiscal generation gap, and it’s getting worse.
One challenge is there are fewer people of working age compared with the number of retirees, a long foreseen structural issue. But that comes on top of burdens that are weighing down younger generations more than those who came before.
Education and housing top the list. For Canadians in their 20s and 30s, working and living in cities such as Toronto and Vancouver, their situation is financially more perilous than the previous generation. Gone are the bargain tuition rates and reasonable housing prices that baby boomers enjoyed.
Debt is swamping many young people early on. Average undergraduate tuition doubled in the 1990s and has doubled again since then. The cost of housing in large Canadian markets has risen at an annual rate of 6.6 per cent since 2000, more than triple the inflation rate.
It is sometimes said by older people that hard work and diligent savings are the keys to success. Those words are more true than ever – and for young people, that’s the challenge. In the late 1970s, the average young Canadian needed five years to save a 20-per-cent down payment on a home, according to research from Generation Squeeze, a group founded by UBC professor Paul Kershaw. It took just six years in the Greater Toronto Area and Metro Vancouver.
Today, the national figure is 13 years. In Toronto, it’s more than 20 years. In Vancouver it’s almost 30.
The data suggest that, when measured by their savings and assets, millennials are poorer than boomers were at the same age. According to American data, when the median boomer was 35 in 1989, the generation owned 21 per cent of the country’s wealth. The median millennial is 31 today, and the generation owns 3 per cent of U.S. wealth.
There are reasons why the phrase “OK, boomer” caught on this year.
Compared with the needs of the retired and soon-to-be-retired, issues central to the lives of people in their 20s, 30s and 40s are underfunded.
One controversial way to address that, which no government is likely to touch, would involve taxing the capital gain on principal residences, whose values have skyrocketed in many parts of the country.
If sales of homes were taxed at the regular capital-gains inclusion rate of 50 per cent – meaning only half of the increase in value is taxable – it would bring in about $6-billion a year, according to the federal finance department.
The country’s generation gap used to be the dire state of older citizens, relative to the young. Poverty among seniors was once the norm. But investments such as OAS, GIS and the Canada Pension Plan slashed elderly poverty compared with decades ago. Universal health insurance minimized seniors’ medical costs and some provinces pay for pharmacare for seniors.
These are victories, but they obscure failures among other age groups. It’s time to think hard about how to focus on improving life for younger, working-age Canadians.