Old Age Policy in Canada: A Critical Look at the Partial Indexation of the Income Tax and Welfare Systems

Abstract

<p>One of the more interesting changes observed over the Twentieth Century has been the development of industrialized nations such as Canada into "welfare states", wherein there is some degree of a redistribution of national wealth, in the interest of creating a social safety net. While the Canadian welfare system grew and matured during the early and mid 20th Century, the larter quarter has been a time of stagnation and in some cases, retrenchment. A key rationale for proposals to reduce seniors' benefits has been the accelerated rate of population aging, and how current programs cannot be sustained in light of the increasing numbers of the elderly who will draw on them.</p> <p>In response to these concerns, the Progressive Conservative government made a number of structural changes to Old Age Security and the tax system in the 1980's, in the form of partial de-indexation, which would effectively decrease the number of people eligible for Old Age Security, and reduce tax credits available to seniors each year.</p> <p>This thesis uses time series national data to show how benefits and tax credits have declined over the last decade. From a political economy perspective, this process can be viewed as a gradual and stealthy transformation of the welfare state. Government maintained income security is gradually being dismantled and placed back into the hands of the market place. The tax system is being redefined in such a way that tax cuts that middle and lower income Canadians rely on are slowly losing value.</p> <p>While RRSP contribution levels have been increased and some Canadians invest to both prepare for retirement and to gain the tax exemption for the invested income, only those with higher incomes can gain the most from this option. The effects ofthis process are discussed and the implications are considered in terms of distributional equity.</p>