Finance Minister Jim Flaherty has brought down a federal budget containing a significant tweak to the country’s retirement income system along with major cuts to government programs and services. Today’s budget was the Tories’ first under a majority government, and also includes new spending to promote job growth.
“We will not raise taxes,” Flaherty pledged in his budget speech. “We will maintain our consistent, pragmatic and responsible approach to the economy, and take the necessary next steps to build confidence in our future.”
Here are some budget highlights:
The eligibility age for Old Age Security (OAS) will be gradually raised to age 67 from age 65, starting in 2023. The change will not affect Canadians who are 54 or older as of March 31, 2012. So, if you were born before March 31, 1958, you won’t be affected. If you were born between 1958 and 1962, you will be part of the phase-in period, and will be eligible for OAS somewhere between the ages of 65 and 67. If you were born after February 1, 1962, you won’t be eligible until you are 67.
You will now also have the option to defer your OAS payments (much as Canada Pension Plan payments can be deferred) for up to five years. This will allow you to receive an adjusted, higher rate in later years. For example, if you turn 65 in 2013 and opt to defer your OAS payments for one year, your annual pension would be $6,948 instead of $6,481. Ottawa notes that OAS payments are “actuarially neutral,” which means you’ll receive the same lifetime OAS amount whether you choose to defer or not.
The OAS program provides $38 billion in benefits to 4.9 million individuals, making it the largest government program. That amount is predicted to increase to $108 billion by 2030. There are no changes to Canada Pension Plan contribution rates in the budget and Ottawa says it is moving forward to implement Pooled Retirement Savings Plans.
Ottawa says it has found “modest” savings measures to reduce the federal deficit. These measures amount to $5.2 billion, about 7% of current government program spending. The cuts are expected to lead to the elimination of 12,000 government jobs, mostly in Ottawa. That’s a big number, but the government notes that there were 50,000 cuts in the last major government program review in the 1990s. Through the cuts, Ottawa expects to reduce the deficit significantly over the next four fiscal years, predicting that it will fall from $24.9 billion in 2011-12 to $1.3 billion by 2014-15.
The budget includes many spending initiatives, including $1 billion to support science and technology, $500 million to help grow start-up companies, $5.2 billion over 11 years for the Coast Guard and $275 million for schools on native reserves.
There’s new spending for small business, including $205 million to extend the Hiring Credit for Small Business and an additional $50 million for youth employment. Employment Insurance (EI) rate increases will be capped at no more than five cents per year until the EI account is balanced. Ottawa is also spending $74 million on a pilot project that will halve the clawback rate for people who work while collecting EI.
Pennies to disappear
It’s a long goodbye for the penny. As of this fall, the government says the Royal Canadian Mint will no longer distribute pennies, but the coins will be accepted as currency indefinitely. Ottawa suggests that we round off to the nearest five-cent mark in situations where pennies are not available and asks us to consider donating our pennies to charity.
The federal government’s spending plan affects individuals, families and businesses. For additional highlights read Budget 2012: A fiscal turning point from Sun Life Global Investments.
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