Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Thursday, December 20, 2012

Flaherty's pay-later pension plan will put the burden on our kids and grandkids

Federal Finance Minister Jim Flaherty went into the meeting with his provincial colleagues firmly focused on the fiscal deficit and came out the same way.

The annual operating deficits Ottawa and the provinces have been running to get out of the global recession over the past few years while the economy has limped along have added billions to our cumulative debt.

Debts are taken on when governments, like individuals, decide to buy stuff now and pay for it later. We justify buy-now, pay-later budgeting by assessing our current needs as being greater than they will be in the future. We also hope we'll have more money to pay the bills.

That assessment may or may not be correct. What's certain, however, is that regardless of whether we or our children are in a better position to pay them in the future, the bills will come due. So government debts are often characterized as a nasty legacy we pass on to future generations of taxpayers. Flaherty says his priority is to stay on track to balance the budget to keep taxes affordable and services sustainable in years to come.

What's odd to me is that the same principle of not burdening our children to pay for stuff that we consume does not seem to be at play when Flaherty assesses how the current generation will support itself in retirement.

Flaherty says that if his provincial counterparts could reach a consensus on enhancing the Canada Pension Plan, he would be willing to discuss it. That's a change from his previous position, which was that while other aspects of Canada's retirement system can be enhanced, the CPP should be left as is.

But not much of a change, because Flaherty's support, such as it is, depends on the economy picking up. He argues that the economy is too weak now to raise premiums, which are shared by employers and employees. Coming out of the finance ministers' two-day meeting in Meech Lake on Monday, he said the ministers will meet again in June and consider at what point the economy can handle "the burden" of increasing CPP contributions.

The idea that CPP contributions are a drag on the economy is debatable.

It's not clear that when they were increased by about two-thirds between 1997 and 2003 in the last round of reforms, there was any measurable effect on the economy.

What's beyond debate is that Canadians who don't save enough one way or another during their working lives to support themselves in retirement will have to be supported by someone else.

Canadians save on their own; we save through taxpayer-supported savings plans, RRSPs and tax-free savings accounts, for example, and through a shrinking number of workplace pension plans.

The CPP is the only leg of Canada's public retirement savings system that is the equivalent of a mandatory savings plan. It is designed to replace a maximum of 25 per cent of working income up to an inflation-adjusted maximum that is $51,100 for 2013.

Labour unions and the federal Liberals and New Democrats have been advocating a doubling of the plan. The increases that might be considered by Flaherty and the provinces would be smaller, according to a briefing document obtained by The Globe and Mail.

If we can't afford even those modest increases now, what does that mean? It means future taxpayers will have to pay more later to support retirees through Old Age Security and the Guaranteed Income Supplement, both programs that provide income directly from the government's general revenues.

Demographers tell us that when those bills come due, for every retiree who needs supporting, there will be fewer people working to provide that support because the population is aging. Flaherty's government recognized that issue earlier this year when it raised the age at which Canadians can start collecting OAS/GIS to 67 from 65. That change doesn't fully kick in until 2023.

That's a long way off, but it reflects the kind of action we need to take today, not just when we think we can afford it, to avoid passing on a pension deficit to our kids that will be every bit as nasty as the budgetary version Flaherty has promised to work hard to avoid.

Original Article
Source: canada.com
Author: Craig McInnes

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