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Ottawa, July 28, 1998
1998-071

Finance Minister's Statement on the Seniors Benefit

Finance Minister Paul Martin today issued the following statement regarding Canada's retirement income system:

"Good morning. Canada's retirement income system is considered a model to the rest of the world.

Taken as a whole, it is a reflection of the values that underpin our nation.

Canada's retirement system represents a shared responsibility that reaches across generations to echo our history and herald our future as a caring and compassionate society.

In 1995, recognizing that demographic pressures stemming from an ageing population would begin to exert themselves forcefully on the public pension system, we began to take steps to guarantee its sustainability for future generations.

First, working as joint custodians with the provinces we undertook to return the Canada Pension Plan to a sustainable footing as did Quebec in the case of the Quebec Pension Plan (QPP).

Second, we proposed the restructuring of the OAS/GIS into a new integrated Seniors Benefit. It is this proposal that I wish to discuss this morning.

The reform of the OAS/GIS was launched at a time when our choices were restricted by the overwhelming constraint of a $38 billion deficit and, as importantly, a debt-to-GDP ratio that had risen virtually uninterrupted since the mid-1970s.

Because of these two very real fiscal factors, the proposal made in 1995 represented the best choice available at the time. That being said, any choice that depended on taking money out of the retirement income system was far from ideal.

Three years later, our prospects have changed for the better and a much wider set of choices is now available.

First, as mentioned, the federal and provincial governments acting jointly have implemented reforms that have succeeded in diminishing much of the structural pressure on the CPP and QPP.

In 1995, we projected that by the year 2030, the cost of maintaining our public pension system would rise by three percentage points relative to our GDP. Of that, fully two percentage points was attributed to the spending pressures associated with the CPP and QPP.

As a consequence of the reforms already implemented, therefore, the source of two-thirds of the long-term cost pressures has been addressed.

Second, our fiscal situation has undergone an unprecedented turnaround. Thanks to the determination of Canadians the budget is balanced for the first time in nearly thirty years, putting the nation's debt-to-GDP ratio on a steady downward track. This has happened much more quickly than anyone – in government, or in the private sector – had foreseen.

Furthermore, productivity growth is the strongest it has been since 1984. Investment is booming, and the prospects for long-term economic growth are very positive.

In 1995 debt servicing ate up thirty-six cents of every federal dollar in revenue. By 1998 that had fallen to thirty cents and in the future, it should continue to fall even further – creating greater flexibility to address core national priorities such as secure public pensions, when the baby boomers begin to retire.

Therefore, in light of the structural enhancements to the public pension system, the turnaround in the country's economic prospects, and because of our commitment to sound fiscal management, the government is today announcing that the proposed Seniors Benefit will not proceed. The existing OAS/GIS system will be fully maintained.

Quite bluntly, in 1995 the option to fully preserve the OAS/GIS by simply choosing to fund it for the future did not practically exist. Today it does. And we are taking that option because it represents the best possible choice – a choice that represents our values as a government, a society and a nation.

This decision is part of the long range benefit arising out of the balanced budget and a declining debt-to-GDP ratio.

I would stress however, that today's fiscal success will need to be matched by continued fiscal vigilance in the future — this on our part and indeed on the part of successor governments. This is an obligation we accept as a fundamental consequence of today's decision.

In the fourteen years between now and when the baby boomers begin to retire, we will no doubt experience a number of ups and downs in the economic cycle. It is only by dedicating ourselves to disciplined financial management that we will preserve our ability to fund Canadians' most valued priorities.

It would be a mistake to allow any discussion of the Seniors Benefit to pass without mentioning the many Canadians who came forward to share their views about the proposal during the public consultation process.

For well over two years my colleagues and I have met with individual Canadians, seniors groups, representatives of the pension industry, social groups and business associations from across the country. To all those who participated in this process let me extend our sincere appreciation for the time, effort and analysis given to this very serious issue.

The government conducted extensive consultations and we are grateful to those who took the time to share their analysis and views. Many of those we met raised concerns about the specific design and implementation of the Seniors Benefit. Some of these concerns we could have addressed, while others would have been more difficult to accommodate.

In the end, however, the inescapable conclusion was that to take money out of the future public pension system at a time when the federal government will be running balanced budgets and surpluses, simply seemed to be the wrong choice.

Where do we go from here?

In the future, work to further enhance and strengthen Canada's retirement income system will continue. So too, we will meet the full range of responsibilities presented by an ageing society. In particular, our commitment to those in need will continue unabated.

Indeed, from the dramatic changes that will occur in health and elder care to the challenge of how to best encourage private savings – virtually every aspect of public policy will feel the impact of the greying and retirement of the baby boomers.

By putting an end to nearly thirty years of deficits, we have not solved all of our problems. Far from it. But we have given ourselves the time and the resources to make a good system better.

Similarly, by ensuring the sustainability of the public pension system we have gained a head start on many of our peers. The structural reforms we have already implemented put us ahead of most other industrialized nations in coming to grips with this challenge – including the United States.

Throughout the very difficult struggle to balance the budget, we were always clear in saying that deficit elimination was not an end in itself but rather, was the means to a better end.

Today's announcement is a practical example of that better end.

Most importantly, it is the best means available to preserve a public pension system that is a reflection of the values Canadians cherish. "

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