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This article was published 14/12/2012 (1231 days ago), so information in it may no longer be current.
VANCOUVER — There is a generational imbalance in Canada’s policy priorities. While Canadians under 45 face a precipitous drop in their standard of living, government spending prioritizes Canadians over 55 – the very generations that benefited the most from a national economy that more than doubled in size since 1976.
It’s time to adapt policy to find better balance.
Gen X’ers came of age when wages were falling and housing prices skyrocketing. As a result, the average 35 to 44 year old reported debt levels that reached 95 per cent of household income in 2005. This is nearly three times higher than the average debt reported by Baby Boomers when they were the same age in 1984. The harmful trend for Gen X shows little sign of diminishing for Gen Y.
By contrast, Baby Boomers age 55 to 67 approach retirement today with average wealth that is up nearly 200 per cent compared to Canadians of the same age in the mid-1970s. This in itself isn’t a problem. If high housing prices are going to crush dreams for many young Canadians, it’s good the associated economic growth has benefitted our parents and grandparents – not just the One Per Cent.
As a generation of retiring parents risk watching their kids and grandkids fall behind, what do we make of current policy priorities in Canada?
Far higher debt levels make starting families less affordable for generations in their prime child bearing years. Under 45’s have adapted, in part by delaying having kids until they are older, and devoting more hours to employment once they have kids. But their adaptations don’t change the fact that the typical couple loses the equivalent of another mortgage from their income when parents split time at home with a newborn – even when they take advantage of parental leave benefits. And they will often fork out the equivalent of multiple years of post-secondary tuition to pay for 12 months of child care so they can spend enough time in employment to cope with wages that are down and housing debt that is up.
Starting a family doesn’t need to be so difficult. Canada could save new dads and moms $14,000 when they split 18 months at home with a baby by improving parental leave; and save young families $6,000 a year per preschooler if we reduced child care fees to no more than $10 a day.
To do this, Canadian priorities need to change. Federal and provincial governments (outside of Quebec) spend as much subsidizing livestock and agriculture as they do subsidizing parents to spend time with a new baby, and subsidizing child care services.
Why do we spend so little on generations under age 45? Part of the answer is that we are spending more elsewhere – including on older generations.
In 1976, Canadian governments spent just over 4 per cent of our economy each year on retirement income supports. Today, annual spending reaches at least 7.1 per cent of our economy – $115 billion. That is $45 billion more than we would have spent on retirement income support had we stuck with the practice in 1976. This impressive policy adaptation reduced poverty for a generation of retirees from an unacceptable level of 30 per cent in the mid-70s to the lowest rate of poverty for any age group in the country today.
Public spending on medical care is even higher than pensions – and around half goes to the 15 per cent of Canadians age 65 and older. We spend 8.3 per cent of the national economy on medical care today, or $141 billion annually. This is $47 billion more than we would have allocated had we maintained medical spending at the proportion of the economy it took in 1975.
Spending on older Canadians doesn’t have to come at the expense of spending on younger generations.
But we can’t avoid this trade-off so long as we prioritize tax cuts along with increases to retirement security and medical care. This is what Canadians started doing a decade ago. We now collect 5 per cent less of our economy in taxes than we did in the year 2000. That’s a massive $80 billion annual tax cut. Yet data show that younger generations still struggle to bridge the gap between stagnant wages and high housing costs.
So long as we choose not to invest in these solutions, our current young generation will be left with no conclusion than that it is unaffordable to start a family.
Paul Kershaw is a policy professor at the University of British Columbia.