Can Trudeau’s budget restore ‘generational fairness’? Economists say don’t bet on it

“Everything that is created, built, served and sold in this country is increasingly being created, built, served and sold by Millennials and Gen Z,” said Prime Minister Justin Trudeau as he announced what he called a budget focused on a quest for “generational fairness.”

“Their success is Canada’s success in the future, sure, but also right now. But the economy isn’t rewarding them the way it used to reward their parents and grandparents.

“That’s not right. That’s not fair.”

The notion has gained a lot of traction in recent years — that an entire generation has behaved like selfish parents who, instead of bequeathing their house to their struggling offspring, trade it for a reverse mortgage and spend the money on cruises and country club memberships.

“If you look at [younger Canadians’] life prospects, I think it’s fair to say that they have had and will have a more difficult time of it than, say, my generation, who were quite lucky in the post-war period,” said economist Robin Boadway of Queens University.

That certainly seems to be the view of many who reached adulthood in an era when home ownership for those just starting out can seem like an unattainable dream. But the economic trends that skewed the balance of power between generations were decades in the making — and economists say one budget won’t be enough to restore that balance.

“I’m kind of a boomer hater,” said a participant in a focus group organized by the Macdonald-Laurier Institute in September. “They’re the people telling us to just walk in and hand in a resume… but they’re the people that could just walk into a business and they’d have a career for the rest of their life.”

“The boomers had the easiest life in human history,” said another participant, who cited pandemic restrictions as another example of governments prioritizing the needs of older generations over those of everyone else.

“Some people gave up half their high school experience so the older generation could live a few more years in their fully funded retirement. In school, tuition wasn’t lowered, but seniors got an Old Age Security bump.”

The pessimism of youth

Survey after survey has found that younger Canadians are more negative about the present and more pessimistic about the future than older demographics.

The problem for the Trudeau government is that this pessimism also expresses itself in low levels of support for the Liberals. Most polling suggests that the Liberal Party — which came to power in 2015 in part thanks to the support of younger voters — now trails the Conservatives by almost 2-1 among the under-40s. (The combined Liberal-NDP vote in the under-40 demographic remains larger than the Conservative share.)

The relentless focus of both opposition leader Pierre Poilievre and (lately) the Liberals on issues of affordability, especially housing, shows that both parties see them as key to winning over disaffected younger and first-time voters.

“Income matters less than it used to. Access to secure housing matters so much more,” said Paul Kershaw, a professor at the UBC School of Population and Public Health and founder of the group Generation Squeeze, which lobbies for what it calls “intergenerational equity.”

A sign that says for rent in French, on a staircase railing. A young woman walks on the street nearby.
Student housing in downtown Montreal on Apr. 11, 2023. (Ivanoh Demers/Radio-Canada)

Kershaw said his own Vancouver home is an example of how real estate consolidates wealth.

“I’ve gained about a million and a half in wealth in the last 20 years while I’ve been watching TV, cleaning in the kitchen and sleeping,” he said. “And that’s coming at the expense of a younger person being able to be just as smart as me, just as hardworking as me, but who now can’t live where I do.”

Kershaw said he’s seen his students struggle “to get the degrees that are necessary to compete for jobs that don’t pay as much as in the past. And then they face home prices that are up to a staggering level, which means they have to pay more for rent because they’re locked out of ownership.

“That demographic, in all honesty, we need to beg their forgiveness.”

Taking the best, leaving the rest

Kershaw said the housing shortage is just one example of “over-extraction” by the boomer generation.

“Climate change reflects the over-extraction of the atmosphere’s ability to absorb carbon,” he said. “We’ve done that over the last many decades. Now the legacy is extreme weather for those who follow in our footsteps.”

Many young people are despondent about environmental degradation and climate change. Those fears are compounded by anxiety about their own economic futures.

“The third example of over-extraction,” Kershaw told CBC News “is over-extraction of the revenue produced from economic growth.

“The fastest-growing part of the federal budget is spending on Old Age Security. The second-fastest part is the Canada Health Transfer, half of which goes to the 20 per cent of the population that’s over 65.”

WATCH | Federal budget buy-in and blowback 

At Issue | Federal budget buy-in and blowback

2 days ago

Duration 21:42

At Issue this week: The Liberals work to sell their multibillion-dollar spending plan and capital gains tax hike. Pierre Poilievre tells Radio-Canada what he thinks of the federal budget. And another province pushes back on the carbon tax.

Boadway said federal spending is even more skewed than provincial spending, which at least pays to educate the young.

“We used to do what we called ‘generational accounting,’ which looked at the budgets of the different levels of government and found out which generations were net beneficiaries and which generations were net payers,” he said. “Some of those studies were done in the 1990s and they showed that government budgets at that time were very pro-old people, very anti-young people.”

Billions of dollars in debt governments took on to deal with events such as pandemic and the 2008 financial crisis have simply been added to the ledger as a problem for future generations.

“One of the rules of government is to try and smooth over differences that generations face simply because of when they were born,” said Boadway. “We introduced unemployment insurance after the [1930s] because of the calamitous Great Depression. And when people were coming back from the war, we created special opportunities for them. We financed both the First and Second World War through borrowing and the government borrowing was meant to spread the burden across generations.”

People use social distancing circles at Trinity-Bellwoods park in Toronto, on Thursday, May 13, 2021.
People use social distancing circles at Trinity-Bellwoods park in Toronto, on Thursday, May 13, 2021. (Cole Burston/Canadian Press)

That’s no longer happening, he said.

“Governments are building up debt for reasons that have nothing to do with spreading burdens across generations, but have more to do with providing current services to existing generations,” said Boadway, “transferring burdens to future generations.”

Housing gap too big to close quickly

Since the lack of housing is the most visible and urgent symptom of generational unfairness, the budget was heavily focused on that issue.

“We will build more homes faster than we’ve seen in generations,” Trudeau promised on budget day. “We don’t think it’s fair that a teacher or electrician pays taxes on 100 per cent of their income, while a multimillionaire pays taxes only on 50 per cent of the passive income they make on capital gains. So we’re going to make them pay a little more.”

A group of people stand behind a podium
Prime Minister Justin Trudeau makes a housing announcement with B.C. Premier David Eby and Vancouver Mayor Ken Sim in Vancouver on Feb. 20, 2024. ( Jennifer Gauthier/Reuters)

But the economists CBC spoke to said they’re not convinced the housing gap can be closed so easily.

“We’ve allowed that dream to really slip away,” said Kershaw. “We can’t restore that dream tomorrow. No single budget will do that because it took decades for the problem to unfold.

“Under Prime Minister Harper, average home prices went up 60 per cent, according to the Canadian Real Estate Association. Under Prime Minister Trudeau, they’ve gone up another 54 per cent.

“That’s just like years of the problem accumulating, and now we need to turn it around. But it’s going to take some patience, and you can understand why a younger demographic doesn’t feel patient.”

Step one: admit we have a problem

Kershaw said he welcomes the fact that the budget at least acknowledges generational unfairness and represents “a shift from talking about a strong middle class to fairness for every generation.”

“The first step in solving the problem is admitting we have one,” he said. “And I think we may look back on the 2024 budget and recognize it was a game-changer. Our senior government in Ottawa is saying, ‘Oh, class is distorted of late, and it has everything to do with how age is interacting with the housing system.'”

Kershaw said the government’s progress on creating cheap day care is one area where things have started to turn around. “You don’t protect children without protecting the generation raising them,” he said.

But he said the shifts in spending fall far short of reversing the overall trend.

Generation Squeeze has calculated that federal transfers for Old Age Security, including transfers for health care for over-65s, will add $38 billion in new annual spending by 2028.

Kershaw contrasts that enormous increase with the amount of new spending budgeted for housing — about $2 billion per year by 2028.

“It’s like one-fifteenth of just Old Age Security alone. You know, the spending on child care is $3 billion, employment insurance is $8 billion. The spending on NATO was about $2 billion.”

Storing up future debt

Some economists have suggested that the budget’s new spending will do more harm than good to the young by saddling them with even more debt.

Scotiabank VP and head of capital markets Derek Holt savaged the budget’s claim of generational fairness in a Globe and Mail op-ed.

“Trudeau and Freeland are ripping off Canada’s youth who will be the ones left to face the bills for many years to come,” he wrote.

Concordia University is seen in Montreal, Friday, Feb. 23, 2024. McGill and Concordia Universities are suing the Quebec government over its decision to hike tuition for out-of-province students by 30 per cent.
Concordia University in Montreal on Friday, Feb. 23, 2024. (Christinne Muschi/Canadian Press)

He argued that the reduction in the proportion of capital gains that are tax-exempt (from half to one-third) will slow business investment, thereby reducing future opportunities for the young.

Boadway agreed that a key way to help young people is to create an economy with better jobs that pay more.

“I take with a grain of salt the argument that it was a budget addressing generational issues,” he said. “Productivity is as much a generational issue as housing or pensions is. Productivity is what determines how well-off we are in the future. And if we don’t do anything about the productivity agenda, we’re going to burden the next generation with a much lower standard of living than we have now.”

He also said he doesn’t buy the idea that a hike in capital gains tax means business investment will suddenly dry up. He pointed out that low business investment in Canada is a longstanding problem.

“If corporations were financing a lot of investment out of internal funds, and the federal government came along and started to take away some of those internal funds through taxation, I would worry more about it,” he said.”But that doesn’t seem to be the case.”

Corporate Canada’s reluctance to invest in itself is nothing new, he said, and he’s not concerned that the capital gains tax hikes will worsen it.

“I think they contribute toward fairness and I don’t think that they detract from the productivity and innovation agenda that we really should be worried about,” he said.

It didn’t have to be this way

Canada’s structural problems were decades in the making, economists say, and it will take time and sacrifice to unwind them.

It all could have been avoided, said Kershaw.

“We called Baby Boomers a ‘boom’ because we knew they were a large group. When they started out, there were seven workers for every retiree,” he said. “So that made it actually a relatively light load to pay taxes, to do retirement security and medical care for those who are older, when we draw on those things disproportionately.

“But now that boomers are retiring and have every reason to expect the same, if not better, services, there are just three workers for every retiree.

“We have to acknowledge that the poor planning decades ago to prepare for boomers’ retirement is hurting the bottom line of governments now.”

Canada took action in the 90s to ensure that the Canada Pension Plan would remain solvent. “If only we’d applied that logic to Old Age Security and medical care,” Kershaw said, governments would now have a surplus to help younger Canadians.

The sacred cow: the principal residence

Turning things around might require the sacrifice of some sacred cows, said Boadway.

A huge share of Canadians’ wealth is tied up in their homes, and the government was careful to reassure them that those properties would remain exempt from the capital gains tax.

“This tax will not apply to anyone’s primary residence,” Trudeau promised on Tuesday, adding that “99.87 per cent of Canadians will not pay a cent more tax.”

Although much of an entire generation has benefited from the system, the Trudeau government is not seeking to get revenue from that whole generation to fix the problem.

Instead, it is going after the one-percenters (in fact, the 0.13 percenters) who make capital gains over $250,000 on transactions other than the sale of their principal residence.

But generational fairness is not an issue that pits the “one-percenters” against the 99 per cent, said Boadway, and any government serious about fixing the problem may need to go after some of the wealth locked up in real estate. 

“This wouldn’t be very politically salable, I’m sure, but I think you could argue that capital gains on housing above some level should bear some tax, because these are capital gains that were generated out of pure luck,” he said.


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