Tory budget slashes $5.2-billion in spending, gives boomers a pass on OAS

Ottawa — The Globe and Mail

Minister of Finance Jim Flaherty smiles as he delivers the federal budget in the House of Commons on Parliament Hill in Ottawa on Thursday, March 29, 2012. (Sean Kilpatrick/The Canadian Press/Sean Kilpatrick/The Canadian Press)

From Old Age Security reform to pensions for public servants and MPs, the Conservative government’s 2012 budget is billed as an effort to make hard choices now so that federal programs and benefits are sustainable over the long term.

At $5.2-billion, the size of the budget’s planned annual spending cuts are slightly larger than the $4-billion Ottawa planned last year, but less than the $8-billion figure the government floated earlier this year.

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It is a level of cuts that will neither calm union fears nor satisfy deficit hawks.

Sweeping in scope, the budget includes expected changes to boost jobs through immigration, innovation and skills training. It also finally answers the question of who will be affected by changes to curb the cost of Old Age Security.

All Canadians who are 54 and older by this weekend will not be affected by the change to OAS, a benefit worth more than $6,000 a year.

That means most of Canada’s baby boomers will be collecting OAS by the time eligibility age for the retirement benefit is raised to 67.

The government says the changes are needed so the program – and Ottawa’s bottom line – are not overwhelmed by the large baby-boom generation of Canadians born between 1946 and 1964. Yet all but the tail end of this cohort will be protected from the higher eligibility age, which will be phased in between 2023 and 2029.

“Canadians are living longer and healthier. There are fewer workers to take their place when they retire. Canada has changed. Old Age Security must change with it,” Finance Minister Jim Flaherty told the House of Commons Thursday. “In this budget our government is looking ahead not only over the next few years but also over the next generation.”

The long-rumoured change is already raising concerns about generational fairness, as well as the impact it will have on Canada’s poor.

It also applies to the Guaranteed Income Supplement, a benefit geared to low-income Canadians that is administered as an add-on to OAS. Ottawa is promising to compensate provinces for the fact that this change will impose two years of additional welfare costs for Canada’s poor, though welfare is generally less generous than the combination of federal OAS and GIS.

The budget is called “Jobs, Growth and long-term Prosperity,” yet it outlines plans to cut 19,200 positions in the federal public service – including 600 executive jobs. These cuts can be expected to set in play a year of internal upheaval, primarily in Ottawa-Gatineau.

While a few programs and bodies will be shut down entirely – including the National Round Table on the Environment and the Economy, the Katimavik youth experience program and Assisted Human Reproduction Canada – the budget is largely vague on where savings will be found.

Further detail on specific cuts will likely emerge from departments in the coming weeks.

The budget’s release carried little of the intense political drama of previous years when the Harper government had a minority of seats in the House of Commons and needed opposition support on the fiscal plan to avoid being forced into elections.

Nevertheless, new Opposition Leader Thomas Mulcair – who was chosen as NDP Leader over the weekend – wasted little time in blasting Mr. Flaherty's fiscal plan.

“The Conservatives were elected on a promise to create jobs, instead they're slashing health care, they're slashing pensions,” he said. “In the long term, the continuation of these Conservative policies will leave the greatest economic, ecological and social debt in our history, in the backpacks of future generations.”

Interim Liberal Leader Bob Rae was equally critical, calling the budget “very harmful to the nature of the federation because so many and much of the costs are being dumped on the provinces.”

Similarly, he said increasing the minimum age for OAS eligibility will mean the people who need it most are forced to work longer, even as they are often in physically demanding jobs.

“I think we have to understand increasing the age from 65 to 67, really it's an attack on poor people and an attack on the provinces, those are the people who are going to bear the cost of this change.”

Thursday’s budget projections see the government balancing the books in 2015-16 instead of a year earlier as many economists had started to predict.

However, the deficit forecast for 2014-15 is just $1.3-billion, essentially a rounding error. Moreover, the starting point is a shortfall for the current year that is $6-billion lower than the government was expecting last fall, when it published a fiscal update.

The deficit of $24.9-billion in the fiscal year that ends this week would shrink to a gap of $21.1-billion in 2012-13, $10.2-billion in 2013-14 and $1.3-billion in 2014-15. Under the plan, the government would post a surplus of $3.4-billion in 2015-16. The path to a balanced budget, though, could accelerate, since the projections include an “adjustment for risk” that subtracts $3-billion from expected revenues in each year.

Craig Wright, chief economist at Royal Bank of Canada, called the fiscal document “a prudent plan towards a balanced budget” and said it includes many measures that will better position the country as the longer-term challenges linked to the aging population draw nearer.

The budget did not include any immediate measures to deal with a housing market that Mr. Flaherty and Bank of Canada Governor Mark Carney have repeatedly expressed concern about in recent months, as borrowers take advantage of low interest rates to pile up debt. Nonetheless, the budget says Ottawa will introduce “enhancements to the governance and oversight framework” for Canada Mortgage and Housing Corp. CMHC is the Crown corporation that backstops risk in the housing sector by providing insurance on mortgages.

The government, meanwhile, will take advantage of low interest rates by issuing more 10-year bonds and fewer shorter-term securities, a move that will allow Ottawa to minimize the cost of servicing its own debt.

The budget’s spending cuts are slightly more aggressive than the plan Mr. Flaherty laid out in last year’s budget. At that time, a cabinet committee was asked to find at least $4-billion in permanent savings. The 2012 budget announces cuts worth just over $5-billion a year by 2014-15.

In measuring the forecasted cuts for 2014-15 as a percentage of last year’s spending, the departments receiving the biggest cuts are Agriculture (9 per cent), Health Canada (5.7 per cent), Canadian Heritage (5.6 per cent), National Defence (5.5 per cent) and the Canada Revenue Agency (5.1 per cent).

In terms of dollar amounts, the biggest cuts planned for 2014-15 are at National Defence ($1.1-billion) and Public Safety ($370-million).

The Aboriginal Affairs department receives a 2 per cent cut, but there is new spending for First Nations, including $331-million over this year and next to improve water and sewer systems on reserves.

Perhaps the measure that will have the most visible and universal effect on Canadians is a plan to eliminate the penny. Starting this fall, the Royal Canadian Mint will no longer put pennies in circulation, saving the government $11-million a year and bringing Canada in line with countries such as New Zealand and Australia. (Consumers will be able to continue using pennies “indefinitely,” but prices will be rounded to the nearest five-cent increment if pennies aren’t available.)

The budget also includes good news for cross-border shoppers, increasing the dollar-amount of goods Canadian travelers can bring back into the country from overnight trips to the United States before paying duties.

With reports from Gloria Galloway and Carys Mills

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