Harper’s pension-cutting plan has Canada on edge

TORONTO, Canada — A new political season has kicked off with Canadians nervously digesting Prime Minister Stephen Harper’s double-edged message at the World Economic Forum in Davos.

Harper’s Davos speech dominated the first House of Commons session of the New Year Monday, with rival politicians accusing him of deceitful braggadocio overseas.

His address last Thursday to the Davos illuminati began with now-familiar boasts: Canada’s banking system is “the soundest in the world,” the country has recouped all the jobs lost during the global recession, and its net debt-to-GDP ratio is the lowest in the G7.

Read more: Toronto is the new Dubai

“Canada has economically outperformed most industrialized countries during these recent difficult years for the global economy,” Harper told the gathering. “Forbes magazine ranks Canada as the best place on the planet for businesses to grow and create jobs.”

A confident Harper then scolded European countries for being “complacent” about economic growth, and for living beyond their means.

Harper saved for last what in Canada turned out to be a bombshell: Canada’s aging population threatens economic stability, he said, forcing the government to make cuts to the program that provides income to retired Canadians. Here was a major domestic policy being announced overseas.

It was a curious performance: On the one hand, Harper bragged about Canada’s economic strength; on the other, he targeted for cutbacks one of the most economically vulnerable groups in society — retired Canadians.

Read more: Canada's pension fight

He was vague on details, except to make clear he had Old Age Security in his sights. Many speculate that OAS payments — a portion of the government income pensioners receive — would start at 67 rather than 65. Harper said current pensioners won’t be affected.

Harper’s targeting of pension payments flies in the face of studies – including one commissioned by his government – that describe Canada’s pension system as financially sustainable. 

In Parliament Monday, Bob Rae, leader of the opposition Liberal Party, accused Harper of practicing “the politics of deceit and abandonment,” noting the prime minister never mentioned pension cutbacks in last year’s election, which gave him his first majority Conservative government after several years of minority ones.

“This government campaigns promising to maintain (an income) structure in place for senior citizens and then it goes to Davos and announces that they were only kidding in the last election,” Rae said.

The pension cuts will be detailed in the next federal budget, due in February or March, along with expected cuts of up to 10 percent to all government departments.

The cuts are sure to add to the gloomy mood of Canadians. A poll this month found them more pessimistic about the economy than they’ve been in two decades. And why wouldn’t they be?

Household debt — the ratio of debt to personal disposable income — has hit a record high of 153 percent. That’s higher than the household debt burden in the United States and the United Kingdom.

Mark Carney, the respected Bank of Canada Governor, has described household debt as “our greatest domestic risk.” In an interview with CBC radio last December, he said one in 10 Canadians is financially vulnerable because more than 40 percent of their income goes to servicing their debt. “That, historically, is where people start to have issues in making their debt service payments,” he said.

The fear is that interests rates will at some point creep upwards, forcing many to default on mortgages. Adding to the worries are growing predictions of an imminent downward “correction” in Canada’s hot housing market.

The income gap between rich and poor is also on the rise, due largely to government cuts in income support programs for those on lower incomes, and cuts to tax rates for the rich, according to a December report by the OECD. The top 10 percent of Canadians earned 10 times as much as the bottom 10 percent in 2008. In the 1990s, the ratio was 8 to 1. 

“The social contract is starting to unravel in many countries,” warned OECD Secretary General Angel Gurría.

A report this month found that Canada’s top 100 CEOs were paid an average of $8.4 million in 2010 — a 27 percent increase over the previous year. The average Canadian, on the other hand, earned $44,366, just 1.1 percent more than the year before. 

A widely-feared omen of things to come is a labor dispute in the southern Ontario city of London. Electro-Motive Diesel, owned by highly-profitable, US-based Caterpillar Inc., locked out 481 unionized employees on Jan. 1 after they rejected wage cuts of between 43 and 50 percent. A welder in the train plant would see his wages drop from about $33 an hour to $18. On Friday, the company announced it was closing the plant.

Meanwhile, the Harper government has shown no reluctance to spend billions on its political agenda. When it first came to power in 2006, the previous Liberal government had left a $13 billion surplus. It was gone within two years, as Harper cut taxes and increased spending in a bid to win a majority. Then the recession hit, forcing the government into job-creation programs and today’s $30 billion deficit.

The deficit hasn’t stopped the government from purchasing 65 US fighter planes, a controversial deal Canada’s parliamentary budget watchdog, Kevin Page, estimates will cost some $30 billion over 30 years. It also hasn’t stopped a “tough on crime” bill that will result in more prisons — $19 billion worth, according to one estimate — despite crime rates being at their lowest since 1973.

Canadian pensioners, it seems, don’t warrant that kind of priority.