PORTAL ONES ASIN GANT NANA M2 SN AMARA ROOD MAGS RN ULSAN NH Rage SCRE YOGI eA EFT RM NUR Offspring wil [| pay for our fiscal crime INCE THE mid-1970s, an entire generation of Canadians has been involved in perpetrating a reprehensi- ble crime worthy of jail sen- tences if committed by indi- viduals. By Herbert Grubel Capilano-Howe Sound MP Oddly enough, many are unaware of the extent of their participation, or even their culpability in this act. The crime that this generation is guilty of committing seems benign enough. It involves borrowing to consume more than one’s income. What makes it less benign is who is stuck with the bills and the size of those bilis: their children, grandchildren _ and even great-grandchildren, ali of whom are doomed to a lifetime of low expectations, high taxes and a tattered social safety net. . The size of the bill is staggering: a federal debt of $600 billion and the provincial debt of around $200 bil- lion. But this visible debt is only one half of the story. The postwar gener- ation not only lived beyond its cur- rent means, it also took excellent care of itself in retirement. It has voted to get generous pay- ments through the Canada Pension Plan, the Old Age Security program and Medicare. "Actuaries have estimated that by ‘the year 2030 these programs will require payments equivalent to those needed to service $800 billion of - ‘debt. ‘The size of this hidden debt i is due partly to the retirement of the . , babyboomers. But it is also due to tie fact that the Canada Pension and Old Age Security systems are not backed by any investments and require that all benefits to pensioners have to be made out of taxes on those working. =. As the CPP system has been designed, some of the early benefi- ciaries receive as much as $6 for ~ every dollar they paid. Later pen- sioners can expect to receive only 50 cents per dollar contributed. Servicing a $1,400 billion debt would require about 60% of today’s federal tax revenue. Unalterable demographics guar- antee that Canadians working in 2030 will have much the same tax- base that we have today. Neither population growth, income gains nor inflation can be counted on to help much. The bottom line is that within a relatively few years, working Canadians will be on the short end of an unprecedented inter-genera- tional transfer of income and wealth. The federal government has made substantial cuts in spending on a wide range of programs and on transfers to the provinces. Not much more can be cut from these expendi- tures. The problem arises from the fact that there have been virtually no cuts in programs where the elderly are the main beneficiaries, and that Prime Minister Jean Chretien has ruled out such cuts in the future. From a political perspective, Chretien’s commitment is easy to understand. Pensioners and those about to retire represent a powerful lobby and voting block who believe they are owed every penny of what previous governments have promised them. After all, they paid taxes and paid CPP premiums during their working lives and any cut in their living stan- dards is considered to be outrageous- ly unfair. But Chretien’s commitment is also irresponsible. Being fair to the elderly necessarily means being decidedly unfair to future gencra- tions of Canadians, most of whom are too young to vote or not even -born yet. He should provide leadership and wh ae explain the nature and magnitude of this problem. He should offer plans for addressing this unprecedented inter-generational transfer of income and wealth. He should stop his rhetoric and stop saying that anyone who raises the issue plans to kill all social secu- rity for the elderly. My contacts with the elderly have made me aware that they do not understand completely how unfair they have been and are to their own children and grand-children. I have also learned that once they know the facts, they are more than willing to accept reductions to their own entitlements, as long as two conditions are met: other interest groups in society must share in the sactifices, and the safety net for the most needy must stay in place. Chretien’s lack of leadership on these issues is dangerous. Failure to cut spending promptly continues to tnake the problem worse. Over the next two years his gov- ernment wilt add $41 billion to the debt burden simply by refusing to recognize the urgency of swift and responsible action. Much inore wit! be added to the burden if there is a recession, anoth- er global financial crisis or Quebec referendum. More omitious, there are the first indications of coming inter-genera- tional conflicts. The young are beginning to talk about reneging on financial obliga- tions they had no vote in making. Using the political system to dispes- sess generaticns will not be pretty to " watch, but the figures above show that it can work. It is not too late to defuse the upcoming conflict between genera- tions by a budget that eliminates the pb. 26 - Mar.2 Re eee “LIFES TOO SHORT | TO DRINK BAD BEER & WINE” * 100% Guaranteed * Over 130 beer recipes * Plus 4 Unique Micro Brewery Series Beers * ¢ Over 50 varieties of wines ¢ Ciders & Wine Coolers 472 Harbour Avenue, North Vancouver deficit in two years. Young Canadians especially will be watching whether the government shows concern for them or whether winning the votes of the elderly and the next election dominates their actions. Herbert Grubel is the finance critic for the Reform party and a Professor of Economics. The views expressed are his own and not neces- sarily those of the Reform party. 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