National Post (National Edition)
Listen to Lagarde (just this once)
The Liberal government has declined to listen to the advice of its own economic advisory council on retirement age.
Perhaps the Liberals might be more willing to listen to one of its ideological soulmates, someone who shares its views on the use of deficits to boost economic growth.
Someone like Christine Lagarde, the managing director of the IMF.
The federal Liberals’ Advisory Council on Economic Growth had already emphasized the importance of eliminating disincentives for older Canadians to keep working, in order to help growth.
It recommended that the ages of eligibility for Old Age Security (OAS) and the Canada Pension Plan (CPP) be recalibrated and increased to meet the reality of an aging society and a considerably longer life expectancy.
The council noted this action would follow the worldwide trend, as many other OECD countries have taken this step to make their public pension systems more fiscally sustainable. It was no surprise the Liberals swiftly rejected the recommendation.
When the Liberals took power, they reversed the policy of the previous government to gradually increase the age of eligibility for OAS benefits from 65 to 67.
But in March 2016, Ms. Lagarde summarized her own views on this issue in a speech on the role of fiscal policy in addressing demographic change and fiscal well-being. She noted the impact demographic change will have on economic growth, financial markets and fiscal health, with age-related fiscal spending expected to jump from 16.5 to 25 per cent of GDP by the end of the century. Describing entitlement reform as a game changer, Ms. Lagarde described two reforms. For health-care expenditures, she proposed increasing competition among insurers and service providers. There is certainly scope in Canada for savings here.
Her other proposal was consistent with the advisory council’s recommendation on eligibility for public pensions.
She argued that pension systems need to be flexible enough to respond to demographic shifts, and noted that some countries have linked benefits to life expectancy, including Germany, Finland, Portugal and Japan. In Japan’s system, the growth of benefits is formulated to slow automatically to offset increases in life expectancy and changes in the labour force. An automatic link between benefits and life expectancy in Canada could be a good alternative to a one-time increase in the age of eligibility. It would provide greater flexibility in responding to future demographic changes, and eliminate the need for future governments to have to deal with this issue if Canadians are blessed with developments leading to longer healthier lives.
Ms. Lagarde flagged that policy-makers need to put in place a proper safety net for those who might not be healthy enough to work longer.
There are some simple measures the Liberal government could take in line with what the previous government announced in its 2012 budget.
The 2012 budget stated that certain federal programs that provide income support would be adjusted in line with the changes to OAS eligibility. An obvious example would be ensuring that people that have qualified for disability are no worse off. There might be other tweaks such as enhancements to the caregiver tax credit that could be considered.
As the Liberal government prepares its next budget, it should take heed of one particular point in Ms. Lagarde’s speech, where she stated “…the sooner the reform, the fairer the adjustment.”
The Liberal government is not doing Canadians any favours by putting off a decision that will ultimately have to be made.