10/23/2012 10:09 EDT | Updated 12/23/2012 05:12 EST

Old Age Security Changes Could Save Ottawa $10-Billion, Says Auditor General

The Centennial Flame burns on Parliament Hill in Ottawa, Ontario, on Thursday, May 3, 2012. (AP Photo/The Canadian Press, Sean Kilpatrick)

OTTAWA - Ottawa needs to consider the long-term impact of new programs or changes when it writes the federal budget — not after, auditor general Michael Ferguson said Tuesday.

The auditor general said the Finance Department regularly prepares long-term fiscal projections of the government's overall financial prospects, but they do not include decisions made in the budget until months after it is introduced.

"As they put the budget together, they know what the impact is on that particular year, but we felt it would be important to bring all of that information together and let everybody understand what's the impact moving forward and into the future years," Ferguson said Tuesday.

"If you just look out three or four years, the impact may be very small and it is not until you look out many years beyond that you see what some of the impact might be."

Ferguson noted that the department looks at the long-term impact of individual programs during the development of new policies or changes, but a big picture look at the financial situation is lacking.

"It is simply a matter of additional information that the taxpayers and parliamentarians should be aware of so that they understand not just what's the impact of these measures on the budget today or a four-year political cycle, but what's the impact moving deeper into the future," he said.

In response, the Finance Department said it would expand its analysis to provide the minister an assessment of the overall long-term fiscal implications of new budget measures before the budget is made final.

The auditor's report also noted that the 2007 budget included a commitment to publish a comprehensive analysis, but that none has ever been released, while many OECD countries regularly publish long-term fiscal projections, including the United States which releases 75-year projections.

The department now has agreed to do so starting in 2013 for the federal government, but Ferguson said it will not cover the provinces, something he thinks they should include at least on a periodic basis.

The auditor's report came the same day as a report by the Finance Department on the economic and fiscal implications of the country's aging population.

The department's report said returning to balanced budgets over the medium term was part of what needed to be done, but the government must also bring federal public sector compensation in line with that of other public and private sector employers and restrain growth in direct program spending.

"The projections contained in this document indicate that the actions the Harper government has taken are expected to ensure long-term fiscal sustainability based on current demographic and economic trends," Finance Minister Jim Flaherty said in a statement.

"However, given the current extent of global uncertainty, it is essential that we continue to manage spending in a responsible manner and keep the federal debt-to-gross domestic product level on a downward path in order to maintain the flexibility to respond effectively to unexpected shocks, if required."

New Democrat MP Jack Harris said there is a lack of transparency on the government's part.

"The government has repeatedly said it is going provide these background reports to ensure long-term fiscal stability," he said.

"It hasn't measured up to that. It is suppose to be delivered at budget time so we all understand where the budget fits in, we haven't seen that."

The auditor's report also estimated the move to increase the age of eligibility for seniors' benefits could end up saving government more than $10 billion a year by the time it's fully implemented.

The move in the 2012 budget gradually increases the age of eligibility for old age security and guaranteed income supplement benefits to 67 from 65 over a six-year period, starting in 2023.

The auditor general estimated that without the changes the cost of would rise from $35.6 billion in 2010-11 — or roughly 2.2 per cent of GDP — to just over $100 billion in 2029-30, or 2.9 per cent of GDP.

The changes to the OAS and GIS benefits came despite a consultant's report in 2009 commissioned by the department that said there was "no pressing financial or fiscal need to increase pension ages in the foreseeable future."

However, the department's own work found that the OAS spending was growing faster than the economy and was one factor that could cause financial trouble for the government. The analysis also suggested increasing the eligibility could keep older Canadians in the workforce and provide some fiscal flexibility in dealing with an aging population.

Ferguson's report looked at six recent measures and their impact on the long-term fiscal sustainability.

In addition to the OAS changes, the report examined the long-term fiscal impact of pension income splitting, reducing the GST, tax-free savings accounts and the Canada Health Transfer.

The cost of the TFSA program was estimated to be $220 million in 2011, while the Canada Health Transfer was estimated to significantly improve the government's fiscal sustainability.

The cost of pension income splitting in forgone revenue was estimated at $925 million in 2011, while the reduction of the GST while maintaining the current GST credit was determined to not have a long-term impact.

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