Testimony for the House of Commons Standing Committee on Finance (FINA)

by Kevin Milligan

Kevin Milligan
Professor of Economics, University of British Columbia
Testimony to the House of Commons Standing Committee on Finance: Bill C-97
Opening Statement, via video conference
May 9, 2019

Merci pour m’avoir invité.  Je m’appelle Kevin Milligan, et je suis professeur d’économie a l’Université de la Colombie-Britannique ici à Vancouver.

I am going to direct my remarks to changes to the Guaranteed Income Supplement that are proposed in Bill C-97.

The GIS was introduced in 1967 and has grown into a vital part of Canada’s income security system for seniors. The GIS is focused on lower-income seniors, with over two million now receiving this benefit—about one third of all seniors.

The GIS is vital to poverty alleviation among seniors. Some arrive at retirement with too little income—maybe unemployment or health problems made it difficult to save while younger. Others start retirement on a solid footing, but end up outliving their savings and risk falling into poverty at older ages. In both these cases, the GIS tops up the incomes of low-income seniors and allows them to afford a dignified retirement.

A challenge for the GIS arises from how it is phased out with income. As someone earns more income, the GIS is reduced at rates of 50 and even 75 cents on the dollar. For low-income seniors who want to work after age 65, these phase-out rates impose a very high effective tax rate on earned income.

Many seniors are happy to retire from the workplace; others are unable to work because of health or family needs. For those Canadians, the GIS is there for them to top up their incomes.

However, some older Canadians want to continue working. Perhaps a new Canadian who arrived in Canada at middle age and wants to build more savings before retiring. Perhaps someone who wants to continue to ply a trade part-time. For those Canadians who want to work, the phase out rates in the GIS can present a barrier to work.

In Budget 2008, Finance Minister Jim Flaherty established an exemption of $3,500 for earned income in the GIS. This exemption currently allows seniors to earn up to $3,500 per year before starting to lose their GIS payments through the phaseout.

In Budget 2019 and here in Bill C-97, Finance Minister Bill Morneau has proposed to extend and enhance this GIS exemption in three important ways.

  • The basic exemption is proposed to move to $5,000 per person.
  • A partial exemption will be applied on the next $10,000 of earnings
  • Self-employment earnings will now qualify for the exemption.

Combined, this means that a senior earning around $20,000 will now be further ahead by almost $3,000 per year.

In my assessment, this measure is well designed and should be supported for two main reasons.

First, the GIS is left in place for those who need it most—seniors at highest risk for poverty, and this proposal leaves every dollar now going to needy seniors in place.

Second, for those able to work, this measure allows them to keep more of their earnings and build a more secure income base for their own future retirement.

Thank you for this opportunity to testify, and I look forward to your questions.