Great.
Thank you for your invitation.
My name is Kevin Milligan, and I am a Professor of Economics at the University of British Columbia, here in Vancouver.
I will direct my remarks to the changes to the guaranteed income supplement that are proposed in Bill C-97.
The GIS was introduced in 1967, and has grown into a vital part of Canada's retirement income security system for seniors. The GIS is focused on low-income seniors, with over two million seniors now receiving the benefit. That's about one third of all seniors in Canada. The GIS is vital to poverty alleviation among seniors. Some people arrive at retirement with too little income. Maybe they had unemployment or a health problem that made it difficult to save when they were younger. Others start retirement on a firm footing but end up outliving their savings and risk falling into poverty at older ages. In both these cases, the GIS tops up the income of these low-income seniors and allows them to have a dignified retirement.
A challenge with the GIS arises from how it is phased out with income. As someone earns more income, the GIS is reduced at rates of 50¢ to 75¢ on the dollar. If you earn one more dollar, you lose 50¢ or 75¢ off your GIS. For low-income seniors who want to work past age 65, these phase-out rates impose a very high effective tax rate on earned income.
Now, many seniors are actually pretty happy to retire from the workplace. They just put their feet up and enjoy their family. Others are unable to work because of health or family needs. For those Canadians, the GIS is there for them to top up their incomes. However, there are some older Canadians who want to continue working. Perhaps they're a new Canadian who arrived in Canada midway through their life and they need to fortify their retirement savings in order to build a nest egg. Perhaps they're someone who wants to continue to ply a trade part time into their retirement years. For those Canadians who want to work, the phase-out rates in the existing GIS can present a barrier to work.
In budget 2008, finance minister Jim Flaherty established an exemption of $3,500 for earned income in the GIS. For the first $3,500 you earned, you didn't lose anything off your GIS cheque. This exemption currently allows seniors to earn up to $3,500 a year without losing their GIS.
In budget 2019 and here in Bill C-97, Minister of Finance Bill Morneau has proposed to extend and enhance this GIS exemption in three important ways. The basic exemption is proposed to be extended up to $5,000. There will then be a partial exemption on the next $10,000 of earnings. As well, self-employment will now qualify for the exemption. Combined, this means that a senior who might be working at a part-time job or another kind of job and earning, say, $20,000 a year will now be further ahead by almost $3,000 per year.
In my assessment, this measure is well designed and should be supported for two main reasons. First, the GIS is left in place for those who need it most, that is, seniors at highest risk for poverty, and this proposal leaves in place every dollar now going to needy seniors. Second, for those able to work, this measure allows them to keep more of their earnings and build a more secure income base for their own future retirement.
Thank you for this opportunity to testify. I look forward to your questions.