Old Age Security Expansion

by Kevin Milligan

[PDF version of this letter]

My conflict disclosure is here.

This is a letter written by me to Liberal policy advisor Tyler Meredith.

Re: Old Age Security

Tyler Meredith
Liberal Party of Canada
tmeredith@liberal.ca

September 16, 2019

Dear Mr. Meredith,

I am writing about your request to provide information about the proposal by the Liberal Party of Canada to expand Old Age Security benefits. Under your proposal, basic Old Age Security benefits would increase by 10% for those age 75 and older starting in 2020. In this letter, I am happy to provide the information requested about your proposal.

As a professor at a public university, engaging with public policy is part of my job. In this role over the past four years, I have provided advice to a Member of Parliament (CPC) on his Private Members Bill, the Government of British Columbia (NDP) on tax policy and poverty initiatives, and to the Government of Canada (LPC) on several matters of public policy.

In this same spirit, I hope the analysis I provide will better inform the voting public as it considers policy options during the current election campaign. I invite you to quote this letter in your public communications, and I will make this letter available to the public on my website as well.

During this election cycle, the Parliamentary Budget Office is providing cost estimates for policy proposals. I fully support this development, but the PBO is limited to providing total cost estimates and is not providing estimates of the impacts on different populations of Canadians. I therefore view the information I am providing with this letter to be complementary to the fine work of the Parliamentary Budget Office.

My efforts here should not be interpreted as an endorsement of your party or its proposal by me, my employer, or any institution to which I am affiliated.

The main finding of my analysis is that the proposal to expand Old Age Security benefits by 10% for recipients age 75 and older will lead to a reduction in MBM poverty in this age group of 14.5%. In 2020 this corresponds to 10,500 individuals, growing to 21,000 by 2024. Approximately two thirds are women.

These estimates are offered with a moderate level of uncertainty. The uncertainty arises from assumptions about the future incomes of Canadian seniors out to 2024. More detail on the findings and the methodology are in the attached memo.

It has been my pleasure to assist you with this request. I sincerely hope it helps to inform the public debate during this election campaign.

Yours truly,

Kevin Milligan
Professor of Economics
UBC Vancouver School of Economics

 

 

Details and Methodology

The policy is proposed to begin on July 1, 2020. Basic Old Age Security benefits will rise by 10% on that date for eligible Canadian recipients age 75 and higher. No other changes are contemplated.

My analysis makes use of three sources of information:

I project forward to future years the pattern of incomes using the Canadian Income Survey. Then, these incomes are processed through the Canadian Tax and Credit Simulator to generate an estimated tax liability, including all federal and provincial taxes and benefits. This process is repeated first under the status quo and then with the policy in place. The change in after-tax income is then used to assess each individual’s position relative to the poverty line.

The poverty concept used for this analysis is the Market Basket Measure, which has recently been adopted as the official poverty indicator for Canada.

The estimates do not account for behavioural response. Labour market participation at these ages is very low, so no impact on labour markets were modeled.

This 2020-2024 time period shows substantial population growth in the over-75 age group because the baby boom generation arrives at this age in this time period. I rely on CANSIM demographic projections (Table 17-10-0057-01, medium growth scenario) to obtain population estimates.

The results are below in Table 1.

 

Table 1: Impact on MBM poverty of a 10% increase to OAS from age 75
2019 2020 2021 2022 2023 2024
Change in poverty count 0 10,500 18,200 19,200 20,100 21,000
of which: women 0 7,700 11,700 12,300 12,900 13,500
of which: men 0 2,800 6,500 6,800 7,200 7,500
Percent decrease in over-75 poverty 0% 8.7% 14.4% 14.5% 14.5% 14.5%
Estimates by Kevin Milligan, Professor of Economics, University of British Columbia