The federal budget takes a stab at dealing with several challenging issues which face Canadian taxpayers in the future.
The biggest single challenge is the expected jump in federal expenditures from rising Old Age Security payments. As the Baby Boomer generation ages, more and more people will be collecting OAS payments. While a few of those payments will be fully clawed back due to high income levels, most will be paid out to seniors.
The increasing cost of providing these payments, which are the largest single direct payment from Ottawa to individual Canadians, will be a huge burden to those remaining in the work force. Keep in mind that many younger people are working at relatively low-paying jobs, and their prospects for enjoying the type of wages that Baby Boomers received through much of their working lives aren’t nearly as good.
Gradually raising the age when people can first receive the OAS from 65 to 67 is a good way to deal with rising future costs. No one who is close to retirement and has been planning on a retirement age of 65 will be affected, but notice has now been served to those who are 53 or younger that the age of eligibility will change.
Another very important long-term move is to begin to tighten up public service pension plans, including those of MPs. While no specifics have been worked out, the government is working towards a higher retirement age, having public servants and MPs pay more into pension plans and boosting the age at which MPs will get pensions (they can now get them at age 55). All of these ease pressure on taxpayers of the future.
The third long-term strategy is to eliminate the deficit by 2016. This is an excellent step forward, and if it comes sooner, that’s even better. When the government isn’t running a deficit, it can start to pay down its debt. The sooner it does this, the better.
While interest rates are low, it makes sense to both pay down debt and refinance other debts which now involve higher interest rates. Reducing annual interest payments is the best single way to ease pressure on future taxpayers for the long term.
Many governments craft budgets with an eye to the next election, and fail to think long-term. This budget contains several key long-term strategies, which will over time ease the pressure on working people.
That’s good news.