Canada’s “Fairness For Every Generation” budget was quite clearly designed to promote the perception of fairness, rather than its realization. It’s a marketing document, as federal budgets are, through which a government with a certain degree of gall can claim that “it would be irresponsible and unfair to pass on more debt to the next generations,” while also introducing $52.9-billion in new spending, with the cost to service the national debt ($54.1-billion) now surpassing health transfers to the provinces ($52.1-billion).
One of the big changes that’s garnering much of the public’s attention – the hike to the inclusion rate on capital gains for both corporations and individuals – is exactly the sort of budget item that the government hopes will feed the perception that it is tackling intergenerational fairness. Millennials and Gen Z are supposed to rejoice: Those rich sods will finally be made to pay up (though, as The Globe and Mail’s Salmaan Farooqui reported this week, the changes may affect middle-class Canadians also). But upping the inclusion rate on capital gains won’t make it easier for young families to afford groceries for the week. And while the suite of housing measures included in the budget does suggest that, after more than eight years, this government is finally taking the housing crisis seriously, they aren’t so much about “fairness” as they are course correction, and they won’t make it much easier for young Canadians to enter the market any time soon.
So let’s talk about what a real “fairness for every generation” budget might include.
“Fairness” would mean allowing common-law or married adults to “split” their incomes in the way that retirees have been allowed to split their pension income since 2007. Canadian seniors can currently transfer up to half of their eligible pension income to their partners in order to, for example, reduce the amount of taxes they owe, be eligible for a pension income tax credit, reduce the Old Age Security (OAS) clawback, and so on.
Working adults, however, don’t have this option. That means that households where one spouse is in a significantly higher tax bracket than the other will end up paying more income tax than a household where incomes are relatively matched, even if the total amount earned is the same. This seems like a strange oversight in a budget that explicitly acknowledges the financial pressures on young adults, “especially Millennial parents.”
Those parents are the ones who would benefit the most from income splitting, considering the financial hit that parents (usually moms) take while on leave after having a baby, and while raising young children. There is a cost to the government in lost revenue (when the Harper government proposed income splitting up to $50,000 in 2014, it estimated it would forgo about $2-billion a year) but there are also considerable social and long-term economic benefits, especially as Canada grapples with a perilously low fertility rate. It would also offer some economic relief to young parents directly and immediately, as opposed to whatever benefit may or may not come from increased capital-gains tax revenue.
A true “fairness for every generation” budget would also address long-overdue changes to the age of eligibility for OAS and the Guaranteed Income Supplement (GIS), instead of boasting about leaving it at 65, as this budget does, where it has been since 1966. The average life expectancy when OAS was first introduced was around 72 years; it is now 81, which means that a shrinking ratio of working adults are now tasked with subsidizing the retirement benefits of seniors who are living longer. (The OAS is paid out of general government revenues, not individual contributions.) The threshold for clawbacks remains relatively high at $90,997 for 2024 (which, of course, can be mitigated with pension splitting), meaning that, in essence, a generation of comparatively worse-off Canadians is working to support the benefits of a better-off one, including those who still earn relatively high taxable incomes.
“Fairness” might mean a phased increase to the age of OAS eligibility, while perhaps leaving eligibility where it is for the GIS, which is targeted to low-income seniors. It might also mean lowering the threshold amount for clawbacks to somewhere at least a little bit closer to the median individual income.
Changes of that nature wouldn’t be popular, or politically expedient – especially considering where the Liberals will be looking for the majority of their votes in about a year’s time – but it would be fiscally prudent. And also fair (the OAS, after all, has nothing to do with how long seniors worked in Canada; they are eligible if they have lived in Canada for at least 10 years).
“For too many younger Canadians, particularly millennials and Gen Z, it feels like their hard work isn’t paying off,” this budget reads. “They’re not getting the same deal their parents and grandparents did.” The government is correct, though they stopped short of actually offering them that deal.
Robyn Urback