Wednesday, 4 April 2012

Harper's deforming of OAS

Policy Fix takes down a lot of the OAS fear-mongering used by the Harper Government to weaken the program.

Changes to the OAS/GIS are completely unnecessary. There’s a lot of fearmongering around how OAS/GIS payments will increase, but spending will only increase from 2.3% of GDP in 2010 to 3.1% in 2030. After 2030, the ratio will go back down to 2.6%. This small, temporary increase is very manageable.  

Canada’s greatest success story on the poverty front has been the reduction of seniors’ poverty. Changing OAS/GIS access will begin to reverse that significant gain. This move will see healthcare costs increase: low-income seniors who have to choose between buying medicine or food will end up using the healthcare system more.
Harper's "reforming" of OAS is more an irrational deforming of it. Working class youth who will be the seniors of tomorrow are the most affected by this policy - as shown here. While in nominal dollars, rather than adjusted for some hypothetical future level of inflation - it's still a heavy cut and amounts to a mix of class and intergenerational warfare.

The whole "unsustainablility of state pension systems" is a scare tactic that's heavily used by rightwing government-wrecking crews in various English speaking countries. It is fundamentally unsound, as economist Dean Baker makes clear:

The debate over the demographic trends in the United States and other wealthy countries can be described a debate between those who care about our children and those who want more of them. This is apparent once a little logic is applied to the tales of demographic disaster being hawked by those concerned about declining birth rates and greater longevity.
The basic story is that we are seeing a declining ratio of workers to retirees. This is supposed to mean that our children and our grandchildren will have an unbearable burden supporting us in our old age. In the United States, the story is that we now have about three workers for each retiree. In 20 years' time, this ratio is supposed to drop to 2:1. In countries like Germany and Japan, the decline is somewhat greater, since they have lower birth rates, and in the case of Japan, less immigration. They also have somewhat more rapid gains in longevity.

This basic story has managed to make otherwise sane people seriously fearful about their country's and the world's future. A quick statistic that should alleviate the fears is that the ratio of workers to retirees in the United States was 5:1 back in the 1960s, far higher than the current 3:1 ratio.

That's right: ageing is not new. As a result of modern medical technology and high living standards, life expectancies have been increasing for a long time. And, just as no one now blames our current economic problems on the larger percentage of retirees in the population, there is no reason to believe that, in 30 or 40 years, that it will be an important factor depressing living standards.

The reason that we are on average much wealthier today, even though we have a much larger population of retirees is productivity growth. Productivity growth has averaged at over 2% annually for the last 50 years. (It has averaged 2.5% over the last 15 years.) If productivity growth averages 2% a year, then, in 20 years, workers will, on average, be producing almost 50% more in an hour of work. In 40 years, they will be producing 120% more in an hour of work. Such gains in output will allow our children and grandchildren to enjoy much higher living standards than workers today, even while supporting a larger population of retirees.

... no serious economist would doubt the basic arithmetic ..." 

Stephen Harper is either a lot less serious an economist than one would expect from his Master's Thesis, or he is shamelessly fear mongering. Harper uninhibited use of the "debt crisis" he says was caused by excessive public social investment - yet is probably more accurately a trade imbalance crisis unaided by an incompetent central bank - is just precious. 

And, yes, there will be another OAS post with more original content coming up.

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