Money for nothing

The tsunami continues. Atop the universal tax cut, the goosed-up shared-equity mortgage, the guaranteed income for new moms, the fatter kiddie cheques, swelled RESP grants, the free startup money and the flood of new child care spaces comes more wrinklie pogey. The latest big promise from Mr. Socks is a 10% boost to OAS payments for the 75+ set, and a huge 25% bump in CPP for old people who lose their spouses. The cost of this: about $3 billion more a year.

The spending is breathtaking. Especially in a nation where there’s no extra money to spend. It’s all borrowed. And today’s deficits are tomorrow’s taxes. Surprise, kids!

Well, let’s deep dive into elderly welfare for a minute.

Nobody pays directly into OAS. Unlike the Canada Pension, which is funded by employers (mostly) and employees, the Old Age Security behemoth comes right out of general government revenues. It is monstrous, and growing all on its own – thanks to demographics. This year OAS will cost more than $51 billion (more than twice what the child cheques total), and it’s growing at the rate of 6% a year – far faster than the economy or government revenues.

How do you earn OAS?

No work is required. No job. No contributions. You just need to live in Canada. Twenty years of residency starts to qualify you. After 40 years of living here, you get the max, currently $607 a month. That’s $7,200 a year, or $14,500 for a couple.

Payments start at age 65, but you can roll the dice and delay them until age 70, when payments grow by 36% (unless the rules change). OAS is clawed back, or subject to a “recovery tax”, at an income of $76,000. It disappears completely at $121,000.

Now that life expectancy in Canada has soared past 82 years, we have a problem. Today 15% of the population qualifies for OAS. In a dozen years it jumps to 23%. That equals a 53% increase in pogey going to this cohort. So if you lament the size of the government deficit today, just wait. And imagine what marginal tax rates will be in 2030.

This is why the Harper Cons pushed out the age for collecting OAS – a move which was reversed by the Libs. And now this. Finally, as we all know, a social program can never be ended, reduced, eliminated or diddled with.

So here’s the question: should people receive money just because they get old? Or because they have a kid? Both OAS and the Child Benefit are non-contributory programs. Nobody pays into them – unlike CPP or EI.  As more and more people are removed from the tax rolls by politicians looking for votes (Andrew Scheer just proposed the same), the revenue base narrows. More spending. Fewer taxpayers. Higher rates. And endless deficits.

What does this tell us?

Nothing good. This election isn’t about big ideas – trade policy, tax fairness, climate change, economic growth, national destiny, demographics or democratic reform. Instead the government is wiggling in people’s mortgages and buying them Huggies and Depends. Leaders aren’t inspiring or visionary. They want you to be myopic and selfish. Canada can wait.

In that spirit, remember to top up your TFSA and keep it brimming and fully invested. This vehicle can throw off lots of income in the future, none of which is counted on your tax return. That means a lower reported income and more old people’s pogey in your pocket. Of course utilize the RRSP fully. Its greatest benefit is to high income-earners, allowing taxes to be deferred and shifted. You can loan your spouse money to invest at a ridiculously low (and deductible) interest rate with none of the gains attributed back. You can split pensions or CPP with your squeeze to lower overall taxes. Or use a spousal RRSP to put money in the lands of a less-taxed partner while still reaping the credit. Plus, investment portfolios in retirement turning out dividends and capital gains have a huge advantage over the tax treatment of working schmucks.

If everyone’s in it for themselves, you might as well join. And isn’t that a disappointing thing to read?