Ralph Klein has gone and it is time to retire Ralph's World. Thanks to all of you who have supported this venture by contributing material and through your comments. It has been fun.

Should we get another blog underway? Let me know your thoughts by e-mailing me at johnnyslow@gmail.com.

John Slow
January 1, 2007

Tuesday, March 30, 2004

Freddie's Diary - Article 10 

Canada's old age pension system is a huge moneymaker for the federal and provincial governments, argues a new report commissioned by the Canadian Association of Retired Persons. (CARP). This flies in the face of government claims that the system must be overhauled to remain solvent and to avoid stiff tax increases in the future.

Walter Kelm, former director of policy development, prepared the report for the Treasury Board of Canada. "Ottawa has been warning us about the impending crisis in the publicly financed and tax assisted retirement income system." Kelm says. "We are told that immediate action must be taken to curtail the Old Age Security and Guaranteed Income Supplement, otherwise our children and grandchildren will inherit the heavy financial burden of sustaining the public system. But his report argues that Ottawa's position considers only the costs of the system and fails to look at the tax revenues it generates for governments. It says the system not only brings in enough cash to pay its way but actually earns a profit for Ottawa and the provincial governments.

Kelm calculates that for every $1 contributed in RRSPs, individuals get back an average of $2.94 while governments recovers more than seven times that much - $22.14. A finance Department official who spoke only on the condition that she not be identified says the department "doesn't agree with Carp's analysis that the retirement system generates a profit for the government." In fact Old Age Security and the Guaranteed Income Supplement account for more than 20% of federal program spending and is the largest federal program at a cost of $22 billion a year.

"On top of that tax assistance the government provides to savings and pension plans and RRSPs generates a net cost for government and a net benefit for Canadians." But the chairperson of the Calgary Chapter of CARP isn't persuaded the government's story is correct. He doesn't like anything about the government's plan to replace the present pension system.

"They are trying to say it's a fair redistribution of wealth, taking from wealthy seniors and giving to the lower income seniors. I could buy into that if it were true, but it's not the case," says John McIntosh. "It actually hurts the poorest more than the wealthy. It's a tax grab. They are taking from the middle income people and giving very little back to the low income people." McIntosh, 66, is a retired Syncrude Canada mining engineer who helped start the Calgary CARP chapter in 1995.

Under the current pension system, people over 65 receive about $4 800 a year in Old Age Security payments. Low-income seniors collect the Guaranteed Income Supplement that brings their income to about $10 600 for individuals and $17 000 for couples. In addition, the Canada Pension Plan pays a maximum of about $8 800 a year to people who have contributed. The average CPP payment is about $6 000.

The March 1996 federal budget proposed replacing OAS and GIS with a Seniors Benefit in 2001. The Seniors Benefit would provide a tax-free payment of $11 420 (in 2001 dollars) for single people or $18 440 for couples. These payments would be reduced by 20% for every dollar of income from all other sources, including company pensions, the CPP and earnings and investments of every kind.

The looming changes will create "a tax on prudence" because it will penalize those who save, says Michael Wise, the author of Canadian Asset Allocation Strategies and a Calgary financial planner with Portfolio Strategies Corp. Wise says couples with combined retirement incomes of less than $30 000 or more than $78 000 aren't going to be hurt, but everyone else will suffer. Kelm's report for CARP argues that Ottawa ignores revenues from specific taxes created to pay for the pension system.

When the OAS system was launched in 1952, income taxes, sales taxes and corporate taxes were introduced to pay for it. But in 1972 and 1975 new legislation bunched these taxes into the basic tax structure, making the specific taxes hidden items that are no longer shown separately in government accounts. This means that precise amount of revenue collected to support the pension system cannot be determined, but Kelm estimates the number of $13 billion for 2001.

"That New Bunching Legislation took away the collective knowledge that the OAS was a forced retirement plan for all contributing people. Therefore, the government feels it now has the right to CLAWBACK our own personal savings. This is the same as CLAWING money from our savings accounts."RMB

The government also ignores tax profits realized from private savings plans. It compares tax revenue it is losing on current RRSP contributions and Company pension plans with taxes now being collected on contributions made to these plans as long as 50 years ago. If taxes lost on current contributions were compared with taxes to be collected on them in the future (as Canada's auditor general has said they should be), by 2001 it would produce an $18 Billion profit for Ottawa.

So Kelm calculates Ottawa will collect $31 billion in pension tax revenue by 2001. The government estimates pension payments and administration will cost $26 billion, leaving a net surplus of $5 billion. And Kelm says the surplus will grow even bigger after 2001 as taxes increase faster than costs. CARP has made detailed suggestions for scrapping the planned Seniors' Benefit and improving the current system. And, while the government remains coy about its intentions CARP and others continue to press for changes. There has been enough of an uproar that I expect the 20% rule to be relaxed and implementation to be delayed. Wise says.

This article is an example of how all levels of governments openly and fraudulently take money from innocent citizens. We allow them to get away with it because they have convinced us that we are guilty of greed, and that the costs for governments goes up very fast but the citizen's costs stay the same? Then they convince us that the cost of any benefit is unsustainable. Examples: Health Care needs reform because it is unsustainable, Insurance rates need to be raised by 80%, Long term care facility rates must go up by 40/48%, we must deregulate the gas and electricity. We need to remember these things at the next election. Do we want a government in power that thinks everyone who might think differently than they has no brains except in their butt.

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