Finance Committee on June 1st, 2012

[Dr. Michael Wolfson]

When I ran those simulations it was before the budget so I didn't know what the government was going to do with GIS. It hadn't been clear. I assumed the OAS eligibility would be raised from 65 to 67, but the GIS would be kept. I didn't think the government would want to cut incomes for the poorest of the seniors in that particular age range, but in fact the bill does propose to do that. It changes the dollar amount of the savings.

There are clearly knock-on effects. If you have less income, there is less income tax paid, and there are less commodity taxes, sales taxes, GST, HST that are collected. There is a knock-on effect for the provinces to the extent that people go on social assistance to make up the difference, particularly if they have no other sources of income.

To reinforce comments of a couple of other folks, Arthur and Keith, it really is useful to look at this as a system, because there are these interacting aspects. The technical machinery exists to do it. I don't remember the numbers precisely since I only started at this last night again.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm just reading the numbers.

[Dr. Michael Wolfson]

We are talking hundreds of millions of dollars moving around here.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Do you essentially agree with his analysis?

[Prof. Keith Ambachtsheer]

I think there is the question of the absolute amount of taxes that you are willing to allocate to this area. Then there's a distribution effect of how you use that money.

The example that I used, if we want to be more frugal, if you like, from a fiscal sustainability point of view, we must focus more on specific groups that need the assistance more than others do.

I go back to my example of paying OAS to people that are in retirement making over $100,000 a year.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It makes no sense.

[Prof. Keith Ambachtsheer]

Yes.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Putting what you now know into this article with the changes with GIS, is your analysis the same, in effect, that the net effect on the fiscal balances of both governments combined would be essentially nil?

[Dr. Michael Wolfson]

I think the federal government would be better off. The key phrase is that I put both governments together, because there are offsetting effects on the provinces. Plus, there are another 70,000 65-year-olds and 66-year-olds who would fall below the low-income line.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So the feds are better off, and the provinces are worse off. What's that number?

[Dr. Michael Wolfson]

I confess that I don't remember.

Plus, the simulation assumed that the GIS would continue. It'll be a bit different, given that it wouldn't.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It is helpful to know.

Have you thought about this, Mr. Ambachtsheer?

[Prof. Keith Ambachtsheer]

I haven't done the technical modelling, but if you do it at a high enough level, and you do it deductively.... I think the projection was that if you didn't do anything with respect to OAS, it would go from 2.5% of GDP to 3.3% of GDP. If you make these changes, obviously you're going to do less. The only point I'd make, again, is that moving the age is essential. I focus more on the fact that we need to have more people in the labour force 20 years from now because of what's happening to demographics. That's the way I look at it.

The question around fiscal sustainability is this math around how much we want to spend on these things and how we allocate to various groups.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you very much, Mr. McKay.

We'll go to Ms. McLeod, please.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you, Mr. Chair.

I, too, would like to thank everyone for preparing such articulate presentations on such short notice. It has really been a good conversation.

It's interesting, of course, that many of the people my age, when we were in our twenties, thirties, and forties and entering the workforce, had no idea that OAS and GIS existed. They thought the Canada Pension Plan was going to be broke. Our whole perspective was that we had to take care of ourselves. So when I came to Parliament and learned what we do have out there, I was actually pleasantly surprised that we have a system that is relatively supportive in Canada.

We've talked about a lot of countries having made this change already. Of course, we have until 2023 in terms of how the details ultimately work out. I know that the minister has indicated that it's not going to be to the detriment of the provinces in terms of their fiscal situation. We've brought up the issue of people with disabilities and people in some difficult circumstances, and it might be 61 and it might be 62 and it might be 65.

Can anyone speak internationally to what other countries did with this transition?

[Prof. Keith Ambachtsheer]

The most interesting example may be Sweden. They really took their whole system apart about 10 years ago and kind of put it back together based on what they saw going forward. They call it a notional DC system—defined contribution system—which basically means that everybody in the country puts in 16% of pay. It may be split between employers and employees, but the total is 16% of pay. Fourteen per cent of that goes to a redistribution system and goes out as pensions, and the other 2% goes into individual retirement savings accounts. That's the broad system.

The question then becomes what 14% of pay going into the pool will buy you. They have a forward-looking system that actually looks at forward demographics and asks how much they can pay out if they want to be equal between this generation and future generations. They will recalculate on that basis, and the amount of pensions that come out of that system can go up or down as the demographics change.

They also integrate the longevity question, which is that if people are going to live longer, and we still put in 14% of pay, then the pension has to be less, or you have to save more on your own.

That's a very broad design in which everybody understands the system and how it works. We have a much more complicated system. We have many more moving parts.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

We've talked about some countries going from 65 to 70 or from 65 to 67. Did they have any specific strategies if someone was really experiencing challenges with the transition? Were they different strategies, or really, did that piece remain the same?

[Prof. Keith Ambachtsheer]

What I like about the OAS change, and Arthur Sweetman mentioned the point, is the ability to choose when you start taking it. And it is actuarially fair. If you wait three or four years, the amount is adjusted for the reality that you waited three or four years to take it. I think one of the design elements we need in the system is to give people more choice and more options as to how they retire, when they retire, and whether there is a gradual phase-in of retirement. These all need to be part of what we think of as a holistic solution.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Mr. Nikias, I note that you positively received the idea of the creation of the expert panel to support the labour market inclusion of people with disabilities.

When you talked about a federal labour market strategy, were you talking about a bigger piece, or would this be one part of it?

[Vangelis Nikias]

Certainly that will be part of it. One specific idea I think you could recommend, which would help people with disabilities—I know we have called for it in the past—is to make the federal public service a model employer for people with disabilities. That would have a beneficial impact on people with disabilities, and I would suggest on the federal public service as a whole.

That would be a component of a broader labour market strategy.

[Cathy McLeod, Conservative, Kamloops—Thompson—Cariboo, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McLeod.

Monsieur Caron, s'il vous plaît.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

My question is for Mr. Sweetman. Like my neighbour here, I agree with your vision on retirement and the economic security of citizens. I also agree with Mr. Ambachtsheer who says that we really need to have an overall vision of the whole system, and economic security after 65 or 67, rather than looking at this clause by clause or point by point.

Mr. Sweetman, my questions are about employment insurance. I agree with you, Mr. Jean, and some of my Conservative colleagues: in some parts of Canada, there is a labour shortage. You would have to be blind not to see that, in fact. I also see that Canada does not have a single economy; rather, it is a mosaic of regional economies. The reality in Alberta, particularly in Fort McMurray, is not necessarily the same as in my riding in eastern Quebec or in the Atlantic provinces. You mentioned that the impact of changes to employment insurance would be felt more in Alberta, where there is a labour shortage, than in the Atlantic provinces where many seasonal workers live.

I'll give you an example. In my riding, there are still a lot of seasonal jobs, even though there is greater economic diversification. An employer I know, a cabinet-maker in my riding, has to lay off her specialized staff two to three months per year. She runs the risk of seeing these people leave—and that is in fact what happens on occasion—because they can't find a permanent job. In order to stay, they need to be able to supplement their work income with the employment insurance benefits. What this reform means to that cabinet-maker is that to be able to keep the skilled workers she has trained, she may have to hire them and pay them to do nothing to ensure that she does not lose them. These are skilled workers who were specifically trained in and for her business.

Can you comment on that situation, and also on the fact that other regions in Canada may have a different economic reality than the one you probably studied in large urban centres?

[Dr. Arthur Sweetman]

Thank you very much for the question.

I'd like to clarify one point before responding. That is, when I talked about Alberta, my projection is that individual workers in Alberta who are frequent claimants will be much more strongly impacted than workers in other regions, especially other regions with high unemployment rates. That's different from talking about whether the region will be very impacted by the policy change. I don't think Alberta will be much impacted.

There will be a small number of workers in Alberta who will be extremely impacted. The regions that will be most impacted are regions with a lot of workers who are frequent claimants and therefore most subject to the policy, and a region that has jobs available for those workers.

I agree with you entirely that Canada has a broad diversity of economic circumstances and a large number of regional economies. It's not clear that the EI system right now functions very well in any of those regions. If you think about the EI system, it encourages, in fact it subsidizes, part-year but full-time work. I think this is particularly detrimental.

There was a recent study—in my mind, a very good, high-quality study—comparing northern Maine and southern New Brunswick over an extremely long period of time. The U.S. introduced its unemployment insurance system first, in the 1930s. Canada then built its unemployment insurance next, and after that, the EI system became more generous. You can see workers over long periods of time, and you can see firms in particular, over long periods of time, tailoring their behaviour to the parameters of the EI system. You see a massive increase in part-year, full-time work.

I view this as very detrimental to the Canadian economy. If you look at some other countries, Scandinavian countries, that have weather and climate very similar to us, you don't see this. You don't see construction, for example, as a seasonal industry. It's not a seasonal industry. But in Canada, the EI system encourages it to become a seasonal industry.

I think the more we can redesign our EI system so that it does not subsidize, support, and in fact encourage seasonal work, and the more it encourages people to work all year round and encourages employers to have year-round jobs, the better we'll be.

This will be a painful thing for many workers to change, because we've built up this system that functions the way it does over a long period of time. Workers and firms have become very used to it. But for the very long term, it is problematic.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Glover, please.