Winnipeg Free Press

Winnipeg Free Press (Newspaper) - July 24, 2015, Winnipeg, Manitoba C M Y K PAGE A9 IDEAS �o ISSUES �o INSIGHTS THINK- TANK A 9 Winnipeg Free Press Friday, July 24, 2015 W HEN universal health care was adopted in 1966 with the passage of the Medical Care Act, it signified a profound moment in Canadian political history. Rarely before had an alliance of ideologically opposed figures - the socialist Tommy Douglas, Progressive Conservative John Diefenbaker and Liberal prime minister Lester Pearson - delivered legislation that would enshrine in collective consciousness the universal values of health and dignity; touchstones that still define this country and its society today. Indeed, medicare is a fundamental pillar of Canadian identity. It projects our national values onto the world stage, delivers positive outcomes to patients and supports a vast infrastructure of globally recognized caregivers, physicians, researchers and front- line workers. It is also a system that relies heavily on federal funding and cash transfers. In 2004, the Health Accord was established as an agreement between the government and each province and territory. It provided all regions with stable funding to deliver adequate medical care that met national standards. The $ 41- billion pact was a response to deep cuts throughout the 1990s and aimed to address issues around wait times, pharmaceuticals and term care. For much of the past 10 years, federal support hovered around 23 per cent. The accord rightly placed the government in a position of leadership on health care, one from which it could co- ordinate medical delivery and uphold common principles for all Canadians. Under the Harper government, however, the agreement began to erode. In 2011, three years before its expiry, the Conservatives announced major cuts to the Canada Health Transfer of $ 36 billion over a decade beginning in 2017. Instead of the traditional annual rise of six per cent, funding would now be based on the rate of growth of Canada's GDP. Then, in 2012, after agreeing to extend monopoly drug patents to European countries in a farreaching trade agreement, the government increased pharmaceutical costs to Canadians by an estimated $ 1 billion. Two years later, the Health Accord was not renewed; every province and territory was left on its own to determine how it will fund growing and aging populations into the uncertain future. The retreat of the federal government from its position of authority on national health care is a troubling trend, one made all the more distressing in light of recent projections outlined in a report compiled by the Canadian Federation of Nurses Unions. In the document, The Canada Health Transfer Disconnect , economist Hugh Mackenzie argues lower GDP growth estimates mean federal support for medicare will drop from 23 to 19 per cent by 2025. This represents a shortfall of $ 44 billion. Based solely on GDP and distributed by population, the platform is " insensitive to the differences in the drivers of the costs of health care," Mackenzie writes. Most importantly, this includes an aging population. Within the next 25 years, the number of Canadians aged 65 and older will double, reaching a staggering 10 million. The premiers want the Health Transfer increased to at least 25 per cent of all health- care spending. Without it, the provinces and territories will face insurmountable financial pressure. In real terms, this means fewer nurses, home care visits, primary care centres and long- term beds. Since the election of a Conservative majority government, taxes are at their lowest levels in more than half a century. In its myopic vision of deficit reduction and austerity, Ottawa now collects $ 45 billion less in revenue. It is no wonder the Canadian public is being told it cannot " afford" adequate levels of health- care funding. Without negotiations in place to renew the Health Accord, Canada's most cherished public institution is at risk of crumbling at an inopportune historical moment of generational change. At worst, these changes signal the advent of a for- profit, two- tier system that favours the wealthy while driving up costs and delivering poorer outcomes for the rest. From the perspective of the private sector, after all, access to essential care is not based on need, but the ability to pay. Hyper- partisanship is a symptom of an ailing democracy and should not be responsible for the erosion of an institution that protects basic human rights. It is therefore the responsibility of all Canadians to recall our shared history and uphold a just standard of public morality. Together we may continue to see our nation as Tommy Douglas envisaged it, " like a little jewel sitting at the top of the continent." Harrison Samphir is an editor at Canadian Dimension Magazine and a graduate student preparing to study International Relations at the University of Sussex, Brighton, UK. hsamphir@ gmail. com. By Harrison Samphir Resist the silent war on Canadian medicare I N recent years, there's been a strong push to expand the Canada Pension Plan, and Ontario intends to launch an additional mandatory pension plan in January 2017. Yet the debate about expanding mandatory government- run pensions has largely overlooked the unintended effect on private savings. Increasing mandatory retirement savings can reduce the amount households save voluntarily. After all, Canadians choose how much they save and spend based on their income and preferred lifestyle. If their income and preferences don't change, and the government mandates higher contributions to government- run pension plans, they will simply reduce their private savings in RRSPs, TFSAs and other investments. The result: overall savings won't change much, or at all, but there will be a reshuffling, with more money going to forced ( government) savings and less to voluntary ( private) savings. This " substitution effect" has been highlighted by standard economic theory and in international studies. But surprisingly, few in Canada are talking about it. In a recent Fraser Institute study, we examined the effect on private savings when Canadians were forced to contribute more to the CPP in the past. Our analysis focused on major changes to the CPP between 1996 and 2004, when the total contribution rate rose from 5.6 per cent to 9.9 per cent of insurable earnings, as part of reforms to improve the program's longterm outlook. We found past increases in the mandatory CPP contribution rate were followed by decreases in the private savings rate of Canadian households. ( The analysis accounted for interest rate changes and demographic shifts in age, income and home ownership.) Specifically, with each percentage- point increase in the total CPP contribution rate, we found a 0.895- percentagepoint drop in the private savings rate of the average Canadian household. The results suggest for every one dollar increase in CPP contributions, the average Canadian household reduced private savings by around one dollar. Again, that means they didn't necessarily save more overall- they just saved differently. Interestingly, the substitution effect was stronger among younger ( under 30) and midcareer households ( ages 30- 49) and weaker among Canadians approaching retirement ( age 50- 64). It was also more dramatic among lowerand middle- income households than those with higher incomes. The debate about mandatory expansion of the CPP, or any new provincial plan such as the upcoming Ontario Retirement Pension Plan, should address the consequences of reduced private savings- namely the loss in choice and flexibility available with this type of saving. For example, with private voluntary RRSP savings, Canadians can tailor their investments, pull money out for a down payment on a home or to upgrade education, transfer the money to a beneficiary in the event of death or withdraw money in case of emergency. Not so with the CPP. The key to providing retirement income through savings is a set of rules that allows for an optimal mix of savings for different people in different stages of life and with different preferences. The benefits of a mandatory expansion of the CPP, or of similar provincial policies in Ontario or any other province, should be weighed against the costs, which as our analysis suggests will include a reduction in voluntary private savings. This reality needs to be front and centre in the ongoing pension- policy debate. Otherwise, we risk overstating the gains from expanding government- run pensions. Charles Lammam and Ian Herzog are co- authors of the Fraser Institute study Compulsory Government Pensions vs. Private Savings: the Effect of Previous Expansion to the Canada Pension Plan available at www. fraserinstitute. org. A RECENT study from the Fraser Institute claims boosting premiums to pay for higher Canada Pension Plan benefits would not work, since individuals would simply save less in RRSPs and other individual savings vehicles. Thus there would be no overall increase in retirement income, and individuals would have less flexible access to their savings because CPP contributions are effectively locked in. The study is flawed on a number of fronts and fails to consider the many advantages of saving for retirement through the CPP. The key advantage of the CPP is premiums pay for a defined retirement benefit from age 65 that will last as long as an individual lives and is fully indexed to inflation. For employees, one- half of the premium cost is paid by the employer. The main flaw of the CPP is the maximum benefit is just 25 per cent of average earnings, not enough in itself to pay for a decent retirement. That is why many pension experts and several provincial governments have called for a significant increase in CPP pension benefits, paid for through a modest premium increase. RRSPs, by contrast, provide an uncertain return to savers. Investment returns are generally much lower than for the CPP, whose investment fund has made average annual returns of eight per cent over the past 10 years. The vast majority of people who do not belong to an employer pension plan fail to contribute the maximum amount to RRSPs, and there is a big risk of not saving enough for an inadequate retirement income. The CPP has higher investment returns because management fees are much lower than for most mutual funds, and because big funds like the CPP can invest in assets such as infrastructure, which are not realistic options for individual savers. The Fraser Institute claims CPP premium increases reduce household savings, leaving people no better off. But they completely ignore the fact investment returns in the CPP are much higher than for RRSPs. The stock of retirement savings is a function not just of the annual flow of savings looked at by the Fraser Institute, but also of the rate of return on retirement savings, which they ignore. Thus even the same overall annual retirement savings rate will result in a higher stock of retirement funds if the system is tilted toward the CPP. The Fraser Institute claim that past CPP premium increases reduced RRSP and other savings is not plausible. While a perfectly rational and informed individual might well save less in RRSPs if CPP benefits were increased, the fact is the basic CPP pension of 25 per cent of average earnings has not been changed since the plan was introduced. Premiums were increased to make up for the fact early retirees under the CPP paid less in premiums than they received in benefits. The Fraser Institute also claims, with some reason, the CPP is less flexible than RRSPs. While this is true, the downside of flexibility is many individuals save only very intermittently and have insufficient savings for retirement. The fact CPP contributions are locked in also allows for long- term investments. If the Fraser Institute was right, there would be no retirement income problem. But we know RRSP savings have not increased as private pension plan coverage has dropped sharply, and we know RRSPs come at a high cost and provide very uncertain returns. Canada's best retirement option is to build on what already works well, the Canada Pension Plan. Andrew Jackson is a senior policy adviser at the Broadbent Institute. Changing plan won't increase retirement cash Allow Canadians to add to fund - it works By Charles Lammam and Ian Herzog By Andrew Jackson CPP DEBATE GETTY IMAGES A_ 11_ Jul- 24- 15_ FP_ 01. indd A9 7/ 23/ 15 5: 45: 36 PM ;