How to wipe out seniors’ poverty, no extra charge

Posted on April 3, 2011 in Child & Family Policy Context

Source: — Authors: – RoB/economy/economylab/theeconomists
Posted on Saturday, April 2, 2011.   Armine Yalnizyan

The Conservatives promised to help Canada’s poorest seniors with a $300-million boost to the Guaranteed Income Supplement program in their last budget.

The Liberals and the NDP, the two other federal alternatives, both upped the ante, to $700-million.

Seems everyone is concerned about rising poverty among seniors in the wake of the recession.

Indeed, Canadians aged 65 and older experienced the fastest rise in poverty rates of any age group between 2007 and 2008. Investment incomes were hammered by the global economic meltdown. Surprisingly, a bigger factor may have been job loss. More people in that age group are working to supplement their pensions today than at any time since the Second World War. Many lost their jobs, and that pushed them over the line into poverty.

Today 5.8 per cent of Canadians aged 65 and older are living in poverty. With rising energy and food prices, a little more cash would be very welcome in these households.

The shocking truth is we could get rid of poverty among seniors, if we want.

That’s not a utopian statement. We are in striking range of that goal. And it needn’t cost us an extra cent.

Poverty rates for the elderly plunged from one in three people aged 65 or more in the late 1970s to one in twenty (4.9 per cent) by 2007.

[The standard measure of poverty in Canada is Statistics Canada’s after-tax low-income cut-off, but any other measure shows the same dramatic trend.

In some provinces, like Alberta, poverty rates were hovering around 2 per cent. That is roughly similar to levels in Sweden and a handful of other advanced economies.]

The Alternative Federal Budget estimates that an increase of 15 per cent in the Guaranteed Income Supplement — targeting another $100 a month to those seniors with very low incomes — would be enough to lift most Canadians aged 65 and older above the poverty line. That would cost $1.164-billion.

Sound like a lot? Since 2007, public policy initiatives that impact seniors total considerably more than $1.2-billion a year. The government of Stephen Harper could have handily eliminated poverty among the elderly if that had been an objective. It was not.

True, the latest budget has a measure that targets Canada’s poorest seniors. But for every small step forward there are three costly steps back.

In 2007, the Harper government introduced income splitting of pensions. Estimated by the Library of Parliament to cost $687-million that year, the annual tax expenditures report from the Department of Finance shows it actually cost the public treasury $920-million in 2010.

About a third (32 per cent) of that pot of money went to households with incomes over $90,000. In 2007, fewer than 10 per cent of all seniors’ households made more than $90,000. About three quarters (74 per cent) went to households making more than $60,000. In 2007, less than a quarter of all seniors’ households had incomes above $60,000.

Roughly 40 per cent of seniors live in households with incomes below $30,000. However, they only get 5.8 per cent of the benefits from the new tax treatment of pension splitting. The poorest households — usually those who live alone, mostly elderly women — get nothing from this $920-million initiative.

If we took that money and targeted it to Canada’s 634,000 poorest seniors, they would each get $1,450 more a year. Enough to make a huge difference in their daily lives. Enough to get rid of poverty.

Instead, the government chose to put more money into the pockets of the most well-off seniors.

It’s hard to imagine more ineffective public policy. Without doubt, we could do better. Sadly, we did even worse.

The government has given the most affluent seniors yet another break via the Tax Free Savings Account. This major tax reform was announced in Budget 2008 and introduced right on schedule in January, 2009 – despite a massive economic downturn that called for public policies to stimulate spending, rather than to give incentive to the well-off to save more.

Budget 2008 estimated that the TFSA would cost the public purse $920-million in its first five years, and drain more than $3-billion annually upon full implementation. Unlike other budgetary measures, there is no way to track how much this measure actually ended up costing the public purse, as it is neither a spending program nor a tax expenditure.

Fewer than five million Canadians – not quite one in five eligible Canadians – have opened a Tax Free Savings Account. By the end of 2010, these accounts held about $19 billion-in assets. Reports indicate that it primarily benefits the elderly and the affluent, with highest take-up among those over 65.

The program has reduced federal revenues by hundreds of millions of dollars each year compared to just two years ago, despite economic recovery.

In a nation as affluent as ours, seniors’ poverty doesn’t have to exist at all. Based on what seniors already get out of public policy, we can afford to help. We don’t have to spend more. We just have to spend it differently.

Armine Yalnizyan is a senior economist with theCanadian Centre for Policy Alternatives

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