Wednesday 29 July 1998

Liberals sound $8B retreat on pensions

Martin: Good fiscal times mean no need for reforms

Norma Greenaway
The Ottawa Citizen

In a stunning retreat, the ruling Liberals have ditched plans to revamp the government-financed pension system in a way that would have penalized future seniors living on middle-class incomes.

Finance Minister Paul Martin announced the about-face yesterday, saying the government's improved fiscal situation since the so-called Seniors' Benefit was formally proposed in the 1996 budget had eliminated the need to shave benefits to some seniors beginning in the year 2001. "We now have choices that were not available earlier," he said.

As proposed in 1996, the Seniors' Benefit would have replaced the Old Age Security and Guaranteed Income Supplement for all Canadians born after Dec. 31, 1935. The revised plan would have modestly raised payments to poor seniors and shaved or phased them out entirely for more affluent retirees.

The proposal was supposed to save the government $8 billion by the year 2030, reducing the predicted annual OAS costs by then to $69 billion from $77 billion. The government now spends about $21 billion on OAS payments.

Mr. Martin's move was seen by many as a political response to grey power, or near-grey power -- meaning the unrelenting two-year campaign against the new plan by lobby groups made up of a potent mix of aging baby boomers and senior citizens, most of whom vote.

They decried the benefit as an unfair hit on senior citizens. A major beef was that the plan would discourage people, especially upper- and middle-income Canadians, from saving. This was because every additional $1 in private retirement income would not only be taxed, but there also would be a 20-cent reduction in the government benefit.

Seniors' groups also were upset that benefits would be based on family income rather than individual income. That change would have hurt seniors who have little income of their own -- primarily women -- but who live with high-income spouses.

The retreat was applauded by opponents of the Seniors' Benefit, and by the Liberals' political opposition, who also had condemned what they called a flawed proposal.

New Democratic Party MP Michelle Dockrill said Mr. Martin had no choice but to abandon the proposal. "I don't think these Liberals could afford another hepatitis C," said Ms. Dockrill, the NDP's seniors' critic, "So I say, hats off to seniors for standing up to the government."

Peter Bleyer, executive director of the Council of Canadians, agreed the Liberal flip-flop was a "testament to the political voices of seniors." Bill Gleberzon, assistant executive director of the 370,000-member Canadian Association of Retired Persons, called the final decision "a victory for Paul Martin and all Canadians."

Mr. Martin's retreat means there will be no change in the existing OAS, which provides benefits to all seniors with incomes under $85,528, and the GIS, which provides additional money to the poorest seniors.

At the time, Mr. Martin argued pension reforms were necessary to prepare for a near-doubling to 8.8 million of the seniors' population by the year 2030; and to meet the economic challenges posed by a $38-billion budget deficit and burgeoning federal debt. "It is crucial that we take action now to make our public pension sustainable and affordable," the government said then.

Mr. Martin now sings a much different tune. He told reporters reform of the OAS and GIS is unnecessary because the budget is balanced; the $600-billion debt is being reduced; the Canada Pension Plan and the Quebec Pension Plan have been put on a sustainable footing; and productivity and investment are booming.

"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," said Mr. Martin.

The development was slightly reminiscent of the previous Tory government's brush with "grey power" when it proposed major revisions to Old Age Security in 1985. It too was forced to beat a retreat, which climaxed with Michael Wilson, then finance minister, rising in the Commons and admitting the government had been "wrong."

Ms. Dockrill said Mr. Martin, a potential successor to Prime Minister Jean Chretien, was clearly aiming to persuade Canadians that the government has moved into a more compassionate mode and is no longer deficit-obsessed.

"This confirms that their plan was to reduce the deficit on the backs of the old and the sick," said interim Tory Leader Elsie Wayne. "All the rhetoric about a scheme to help seniors was a sham."

While Mr. Martin sought to sell his turnaround as one of the benefits of having balanced the budget, Ms. Dockrill and other critics said said it proved the proposal was about cutting costs, not reforming pensions.