The Demographic Crunch

***Warning: Idle Speculation Ahead***

Is is me or is there a lot of older people around?  There must be since the government is subtly changing the Canada Pension Plan (CPP) to help encourage people to work longer.  After all it’s going to be very painful very quickly with a large number of higher income tax payers dropping off the tax rolls as the baby boomers retire.  Not just because they are all paying less tax, but rather the costs associated with their health care as well.

So with all this future strain on the balance sheet of the federal government how long do you think it will take them to look at Old Age Security (OAS)?  After all they already adjusted the rules about the CPP.  This is where things will get interesting.  Adjusting OAS is politically not very palatable and we are in a phase where majority governments at the federal level are turning into a endangered species.  Hence I can see most politicians being very careful not to piss off all of the baby boomers in one go and pulling a Kyoto (if we ignore it perhaps the problem will go away?).

Which taken in a longer context would sort of work, only the problem will be a massive structural deficit for decades while the politicians wait for boomers to die off.  So that is likely out in any practical sense.  So that leaves four main options: raise taxes, cut other services,  cut benefits to everyone on OAS or cut benefits to all the new people who will use OAS in the future.  I’m guessing cutting benefits to everyone on OAS is going to be off the table very quickly leaving raise taxes (but not for seniors), cutting other services and cutting future OAS benefits.

So in the end, the younger generations will be picking up the tab for the boomers in one way or another.  Of course I could be completely wrong, this is all just idle speculation.  What do you think the federal government will do in the future to OAS?