Diane Finley’s Demographics

On CTV yesterday, human resources minister Diane Finley said (45 seconds into this interview): “As we go forward, we’re going to have three times the expense in Old Age Security as we do now, but we’re only going to have half the population to pay for it.”

That sounds pretty scary. If the total cost triples, with only half as many people to pay it, each Canadian would have to pay six times as much for Old Age Security (OAS)!

The Chief Actuary does estimate that the cost of OAS, in nominal dollars, will almost triple by 2030. But where is Finley getting her population figures?

Even the low-growth scenario in Statistics Canada’s latest population projections has our population increasing from 34.8 million this year to 39.3 million in 2031. Although seniors pay taxes (including on their OAS benefits), Finley may have been referring to the “working age” population.

In the same scenario, Statistics Canada projects that the population aged 20 to 64 will grow from 21.8 million this year to 22.1 million in 2031. Over the same period, the number of Canadians between the “prime” working ages of 25 and 54 increases from 14.9 to 15.1 million. However you slice it, there will be more (not half as many) taxpayers to fund OAS going forward.

The most charitable interpretation of Finley’s comment is that she meant Canada will have half the working-age population relative to the number of seniors. The senior population, and hence the “dependency ratio,” is projected to approximately double between now and 2031.

At best, Finley is counting this increase twice. The near tripling of OAS costs reflects the rising number of seniors plus inflation.

The Chief Actuary’s report (page 9) also projects that nominal Gross Domestic Product (GDP), which approximates the federal tax base, will double between now and 2030. As a share of GDP, the combined cost of OAS and the Guaranteed Income Supplement will rise from 2.41% to a peak of 3.14%. That’s not insignificant, but it hardly warrants reducing or delaying benefits.

8 comments

  • Diane Finley clearly meant the dependency ratio when talking about “half the population to pay for it”. Your “most charitable interpretation” is the obviously correct interpretation, to the point where searching for another interpretation is very strained.

  • Demographic change is already baked into “three times the expense in Old Age Security,” yet she presents it as an additional factor.

  • It _is_ an additional factor – the situation encompasses not only the higher number of retired people in 2030 (baked into “three times the expense”), you’re also talking about the relatively smaller proportion of working age people in 2030 to support them in the tax base (baked into the dependency ratio).

    If on the other hand the dependency ratio didn’t change over the period, then I’d agree it wouldn’t be worth talking about.

  • Growth in OAS benefits is limited to the rate of inflation. One would expect GDP growth to exceed that rate of growth. So the difference is available to finance an increased number of recipients.
    A progressive income tax would re-distribute a greater portion of overall income.
    Since OAS benefits are fully spent, as the payout ratio of OAS increases as a percentage of government spending (to the extent it reduces the share of, say, off-shore military spending) the multiplied effect of government spending increases, growing the economy more.

  • rcp,

    If Finley wanted to compare absolute numbers, the cost of OAS will almost triple and the population will not grow much. It’s legitimate to instead use a proportional measure like the dependency ratio or costs relative to GDP. But juxtaposing an absolute measure of the cost increase with a proportional measure of population overstates the issue.

  • Erin, let’s try it one more time. The dependency ratio is encoding information that you clearly want to ignore.

    Current federal taxes are on the order of 13% of GDP. Doing nothing about OAS will eventually boost them by 0.73%, which equates to a federal tax increase of 5.6%.

    Even assuming that you think it’s ethical to bequeath a tax increase to our children, what makes you think that they’re going to pay it? They can just vote not to. This is the fatal weakness of unfunded programs.

  • National Post · Feb. 7, 2012

    Re: Tories Firm In Plan To Scale Back Pensions, Feb. 3.

    Free trade, privatization, deregulation and lower corporate taxes were supposed to make us prosperous and preserve our social programs. Instead, seniors’ pensions are under attack as part of a wider program of cutbacks and austerity in a fragile economy. We don’t need to change the Old Age Security – we need to change captains, and get one who doesn’t steer us on to a reef.

  • Larry, keep the letters coming!

    Rcp, that information comes from data that I posted (i.e. 3.14% – 2.41% = 0.73%), not from the dependency ratio or anything Finley said.

    And 3.14% of GDP (or 3.16% including Bill C-3 amendments) is a peak. After 2031, the combined cost of OAS and GIS is projected to decline back to today’s share of GDP.

    The tax increase you infer would be needed to cover the peak cost in perpetuity. The actual fiscal cost of these programs over time will be considerably less.

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