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Bill Robson - The Seniors Price Index is an Election Promise Worth Breaking

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From: Bill Robson

To: Filomena Tassi, federal Minister of Seniors

Date: September 10, 2018

Re: The Seniors Price Index is an Election Promise Worth Breaking

Congratulations on your elevation to cabinet as Minister of Seniors. Your new portfolio looms increasingly large for the country. Growth in the senior population is outpacing growth of younger Canadians. And they have expectations, reflected in the Prime Minister’s mandate letter to you, that will be challenging to meet without imposing an undue fiscal burden on the rest of the population.

In seeking to balance seniors’ demands against the interests of those who are still working and saving, we need to address genuine needs while avoiding arbitrary favouritism. Unfortunately, your mandate letter referenced a 2015 election campaign promise – one that had appeared to have been set aside – to index seniors’ benefits to a new Seniors Price Index. What the letter did not mention, but the 2015 platform did promise, was indexing benefits to whichever of the new index or the Consumer Price Index (CPI) increased more in a given period – a completely arbitrary redistribution.

The premise behind the new price index is faulty to begin with. People notice more when prices of things they buy rise more, so we often hear complaints that the CPI isn’t reflecting the experience of particular groups – homeowners, say, or rural residents, or seniors. But over time, changes in the purchasing power of a dollar throughout the economy are very similar. Looking forward, a betting person would be wise to wager that prices for every group will rise at the same 2 percent rate as the total CPI.

Because prices of specific items do go up and down relative to each other over shorter periods, however, this “heads I win, tails you lose” indexing of seniors’ benefits to whichever of the new measure or the CPI rises more is a bad idea. It would ratchet up the real value of those benefits – even if, over time, seniors experienced exactly the same inflation as everyone else.

What if, 40 years ago, a government seeking votes from homeowners had announced a new homeowner’s benefit, to increase by whichever of the “owned accommodation” subindex of the CPI or the total CPI rose more each month? Since 1978, the owned accommodation subindex has risen, on average, 3.23 percent annually – almost identical (actually a tad below) the 3.26 annual increase in the total CPI. Yet bumping homeowners monthly by whichever index rose more would have pushed their benefit up 5.38 percent annually – more than doubling its real value over the period.

And what a terrible precedent! If seniors get such treatment, why not homeowners, rural residents or other groups? What if the federal government’s workers demand it in their pensions? Good luck working off that deficit!

The resurrection of this bad idea is all the more regrettable because it will distract from other measures that could do more, more fairly, for current and future seniors. Aside from the consumer protection issues that also figured in your mandate letter, the federal government could rationalize the clawback in the age credit that pushes seniors out of the workforce. It could make the tax treatment of medical expenses more generous. It could help seniors save for retirement by increasing age and dollar limits on tax-deferred saving, and it could help them conserve funds in retirement by reducing mandatory drawdowns from Registered Retirement Income Funds.

All these reforms are more sensible and fairer than arbitrarily linking benefits to whichever of two price indexes happens to rise more. You can make room for them in your mandate by dropping the Seniors Price Index. That is one election promise worth breaking.

 

Bill Robson is the President and CEO of the C.D. Howe Institute.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.

 

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Intelligence Memos: Bill Robson - The Seniors Price Index is an Election Promise Worth Breaking | C.D. Howe Institute

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