Dr. Paul Kershaw is a policy professor at the University of British Columbia and the founder of Generation Squeeze, Canada’s leading voice for generational fairness. He offers policy advice to governments of all party stripes, including the current federal cabinet.
The income taxes paid by Canadian millennials are being squeezed by population aging. The typical 35-year-old now pays approximately 20-per-cent to 40-per-cent more for boomers’ healthy retirements than boomers paid as young people to support the smaller number of seniors in their day.
This extra tax burden will only get heavier in the years ahead as Ottawa enacts planned increases for Old Age Security (OAS) and the Canada Health Transfer, and provinces increase medical spending for their aging populations.
It is time to admit that Canada’s plans for population aging run afoul of the “intergenerational golden rule.” As Statistic Canada’s former assistant chief statistician, Michael Wolfson, famously wrote: “One generation, when it becomes old and frail, should not expect to be treated any better by its children than it treated its parents’ generation in their old age.”
Unfortunately, this is exactly what is now expected of Gen X, millennials and Gen Z – because governments decades ago didn’t plan adequately for boomers’ retirement.
We can estimate how much bigger young people’s tax burden is by examining federal and provincial income taxes owed by 35-year-olds in 2022 (the most recent data) compared with 1976. I use Statistics Canada’s Social Policy Simulation Database to calculate taxes paid by individuals with identical incomes in both eras, after adjusting for inflation. (Full results are available on the Generation Squeeze website.)
Income tax rates are generally lower now than half a century ago. A middle-earner in Ontario making $54,000 in 2022 paid 15.2 per cent of that income in federal and provincial income taxes; back in 1976, they paid 17.6 per cent, or $1,260 more. A high earner with $240,000 in income pays 36.9 per cent today; in 1976, they paid 38.1 per cent, or $2,800 more. Similar trends exist in other provinces.
Despite today’s lower overall tax rates, millennials still contribute more income taxes to pay for retirees’ medical care and OAS than young boomers paid to support the same programs for seniors in the 1970s.
This may seem counterintuitive, but the reason is simple: The percentage of Canada’s population above the age of 65 increased to 19 per cent today from 8 per cent in 1976. Whereas 5 per cent of total government revenue was used to pay for seniors’ medical care in 1976, 9.5 per cent was spent in 2022. The share of revenue allocated to OAS rose more modestly, but still increased to 5.9 per cent from 5.4 per cent.
These fiscal shifts reveal that “many hands made light work” half a century ago. In the 1970s, there were seven working-age Canadians to support every retiree, thanks to the postwar baby boom. But as boomers began to retire, the share of working-age residents contributing tax dollars to these programs also began shrinking. Now there are just three per retiree. With fewer hands, the tax burden on each younger person grows heavier.
The middle-earning millennial in Ontario pays $276 more in income taxes each year toward healthy retirements than did boomers with comparable incomes in 1976 – a 28-per-cent increase. A high-earning young Ontarian pays an extra $4,124 today – up 43 per cent. Again, similar patterns exist in other provinces. And this tax bill will increase still further, as Canada approaches peak population aging in the years ahead.
Conversely, lower overall tax rates permit many retired boomers to contribute less in support of their offspring’s generation than the parents of boomers paid on their behalf a half century ago.
These two trends help explain why undergraduate tuition is more expensive than when boomers were young (after adjusting for inflation), and why child care and housing receive a small fraction of new federal spending by comparison with OAS.
If we are to remedy this problem, governments must speak frankly with voters about the trade-offs between three options: changing taxes, reducing benefits for affluent boomers or increasing immigration to shore up Canada’s working-age population.
Recent debate in Ottawa revealed the exact opposite. The Bloc Quebecois proposed OAS increases for rich and poor seniors alike, and Ottawa ratcheted down immigration targets – all without mention of the tax implications for the three younger Canadians who already pay more for every retired boomer.
This needs to change if Canada cares at all about intergenerational solidarity.
