Mr. Chairman, members of the committee, thank you for the opportunity to be here. I apologize for not having something written, but I was just confirmed this morning. Because of other commitments I wasn't able to write something formal.
I was asked to comment on the changes proposed to OAS. I'll just go across some broad strokes with respect to OAS and GIS.
First, I think it is a move toward recognizing the demographic deficit the country is facing. Professor Christopher Ragan did a paper for us showing that by 2040, the structural deficit the country would face would be 4.2% of GDP, which is about $67 billion in current terms. That's driven almost exclusively by demographic changes, largely income transfers to seniors and health care expenditures. I think the changes to OAS are a step in the right direction to dealing with that deficit down the road.
However, I would characterize the reforms as modest. I certainly wouldn't characterize them as radical by any stretch, for several reasons. First, using the traditional definition of sustainability, the program was not sustainable because it either would require more resources or crowding out of other spending. It wasn't sustainable if we used the traditional measure or definition. The actuary said that OAS and GIS spending would go from one in five dollars of government spending to one in four dollars by 2030, so either more taxes or crowding out of other spending would have to occur.
Secondly, the increase in the age to 67 is not all that radical, if you think about it. For example, if we were to index the age of eligibility beginning in 1966, when Canada pension was brought in, the current age of eligibility for retirement would be 74. So the move to 67, given the fairly marked increase in life expectancy over time, is a fairly modest change. In my own writing, I suggested 69. Again, if we had just indexed it, it would have been 74.
Something the committee should consider is creating a mechanism to index it in the future so that the age of eligibility is automatically increasing as life expectancy is increasing. Right now what happens is the cost of the total benefit increases with no action, simply as life expectancy is extended.
Thirdly, one of the things I was disappointed about is there was no discussion about the eligibility for the benefit on OAS—not GIS but OAS. The fact that you get the full benefit up to almost $70,000 in income indicates to me it is not a well-targeted program, and in an era of scarce resources I think we could do a much better job, particularly in looking at GIS and some of the concerns that Andrew raised, which I agree with on GIS. Those could be more than fully funded if we were to scale or claw back OAS at a lower level of income.
As an example, a two-adult household can have income up to $140,000 and receive full OAS benefits. Again, there's room to scale that back so that we can better use those resources for lower-income seniors. Indeed, one of the real successes of Canada internationally is our ability to essentially wipe out poverty for seniors, largely through the GIS program and its interaction with OAS. So I would suggest that's something we should be putting on the table, the discussion of better targeting the elderly benefits to GIS through a more aggressive clawback of the benefits on OAS.
Lastly, and again, I think I'm echoing--at least in my understanding--some of Andrew's concerns, there are some question marks. For example, we don't know yet the interaction between the provinces and how they will respond to the gap between 65 and 67, even though the government has at least indicated some additional transfer funds. There's a question as to what that program looks like.
In addition, I think the interaction with the pension laws at the provincial level is a critical issue, particularly if the incentive is that we want seniors to work more. What we can't have is a curtailment of benefits to encourage them to work and then marginal tax rates of over 50% because they're getting benefits scaled back if they stay in the labour force. For example, how does the change that has been proposed to the OAS interact with the RRIF guidelines on when you have to start taking income out of deferred tax accounts?
These are important issues that need to be addressed in totality. While I think the budget is a good first step on OAS, there are some important issues that we at the very least need some details or some contours about as to how they'll interact with the increase in the age of OAS.
Thank you.