Do No Harm [OAS]

CaledonInst.org – blog – Ottawa’s increase in the age of retirement for Old Age Security violates the first principle of social policy.
June 04, 2012    Ken Battle

The first principle of social policy: help the poor. Its flip side: do no harm to the poor.

The 2012 federal Budget’s announcement that the age of eligibility for Old Age Security will be increased from 65 to 67 violates the first principle of social policy.  Low-income seniors will be hurt, not helped, by this decision.  Worse still, poor seniors will be hit harder than the better-off.

This is not the first time that a government policy has harmed rather than helped the poor.  A bit of background puts the Old Age Security change in a broader context.

Social programs are not just for the poor.  Canada’s social security system provides a broad range of programs and services delivered by the federal, provincial/territorial and, in some cases, municipal governments, as well as by the voluntary sector and some employers.

Some of these provisions are broadly-based, serving the majority or all of the population.  Prominent examples are medicare, Old Age Security, the Canada and Quebec Pension Plans, Employment Insurance, Workers Compensation, federal child benefits and income tax benefits for persons with disabilities.  Other measures are geared to lower-income Canadians, and include the Guaranteed Income Supplement, Working Income Tax Benefit and federal refundable GST credit as well as provincial and territorial child benefits, various refundable tax benefits and social assistance (better known as welfare).

Ottawa’s track record over the last two decades is mixed when it comes to low-income Canadians.  On the plus side, it increased the Guaranteed Income Supplement for poor seniors in 2005 – the first real increase since 1984 – and again in 2011.  In 2007 it introduced a promising new program for the working poor, the Working Income Tax Benefit.  Low-income Canadians also have benefitted from improvements to broadly-based programs, such as securing the financial sustainability of the Canada and Quebec Pension Plans, the creation of the Universal Child Care Benefit (albeit a flawed scheme, as noted later) and substantial multi-year boosts to the Canada Child Tax Benefit.

On the other hand, the continual tightening of Employment Insurance in terms of both eligibility and benefits has barred about half of this country’s jobless – including most of the unemployed with low and modest earnings – from this key income security program.  Improvements to tax benefits for persons with disabilities and their caregivers are welcome, but they exclude those who pay little or no income tax and therefore do not qualify for non-refundable tax credits or receive just a pittance.  Welfare – whose payments have generally remained substantially below the poverty line for many years – remains a tangled safety net that does more harm than good for many recipients.

The story of federal family policy shows how vulnerable hard-won and long-sought reforms that help the poor can be.  The Conservative government’s first Budget in 2006 abandoned the previous government’s plan to provide increased federal investments in provincial/territorial early learning and child care systems.  Instead, it brought in the Universal Child Care Benefit, arguing that what families really need is money to buy their own child care.

The 2007 Budget made matters worse by resurrecting the non-refundable child tax credit, a program that – incredibly – excludes low-income families and provides a tax saving to all other families, including the wealthy.  The Universal Child Care Benefit goes to all families with children, rich and poor alike.

Ironically, Ottawa sealed the deal with a classic stealthy move – it has not indexed the Universal Child Care Benefit’s $1,200 a year, which is today worth only $1,080 in 2006 dollars.

Ottawa should axe these two flawed programs and instead improve the progressive Canada Child Tax Benefit.

The latest harm-the-poor bombshell came in the 2012 Budget’s announcement that the age of eligibility for Old Age Security (both OAS and the Guarantee Income Supplement) will be gradually increased from 65 to 67 over six years, starting in April 2023 and reaching 67 in January 2029.

Raising the age of eligibility for Old Age Security is a regressive move that will hit low-income seniors hardest:  They most rely on the old age pension for their income and will suffer most as the program is effectively cut by decreasing the number of years that seniors can receive benefits.  This move will reduce income overall for low-income Canadians aged 65 and 66 and, as a result, raise their poverty rate.

Poor Canadians typically work in non-standard jobs that are low paid, unstable, often part time, tedious or downright dangerous.  When they reach 65, they see a significant improvement in their standard of living as they move from the low-wage workforce to Old Age Security.  That no longer will be the case for those low-income seniors aged 65 or 66, who have to wait two more years before they can look forward to receiving benefits.

Not all working poor seniors age 65 or 66 will be able to keep on working, especially those who are in poor health.  They will have to resort to welfare or support from family members once Old Age Security begins at 67.  Social assistance recipients will also lose, since they do considerably better now on Old Age Security than welfare.

There is no way the government will budge on its planned age hike for Old Age Security, so Caledon has proposed a fix:  provide an income-tested benefit for low-income seniors ages 65 and 66, to shield them from the age raise.

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