Are Older Canadians Getting Richer at Younger Canadians’ Expense?

Canada’s debt is more than a number. It’s a question of who pays, who benefits, and what we owe future generations.

Canada’s growing debt is raising a difficult question: are younger generations paying the bill for benefits that increasingly favour older Canadians?

Sabrina Maddeaux and Mike Moffatt unpack the economics of government debt, Old Age Security, and intergenerational wealth transfers, while explaining why borrowing for long-term infrastructure can be very different from borrowing to fund ongoing entitlements.

If you enjoy the show and would like to support our work, please consider subscribing to our YouTube channel. The pod is also available on various audio-only platforms, including:

Apple Podcasts

Spotify

Podbean

Below is an AI-generated transcript of the Missing Middle podcast, lightly edited.

Sabrina Maddeaux: The federal government of Canada currently spends almost 10% of revenues on servicing public debt, and I’m starting to worry that Canada’s increasing public debt is burdening future younger generations for the benefit of older Canadians.

Mike Moffatt: Yes, you’re not the only one.

Government spending, tax, and debt decisions transfer wealth from one generation to the next. The obvious example of this is when governments finance entitlements to current residents using debt. The interest on that debt is paid for by future residents who get no gain or direct benefit from that spending. It’s a transfer of wealth. When we give money to current residents, we are debt-financing it, and future generations have to pay for the interest. That’s a transfer of wealth from the future to the present.

In the case of Old Age Security, that’s a transfer of wealth to older, often richer Canadians from future generations. Many of those future generations might not get to experience that level of wealth that our current seniors have.

Sabrina Maddeaux: Old Age Security, or OAS, is basically the 800-pound gorilla in an easy chair on top of the Canadian federal budget. Because while many people think it’s a pension they personally contributed to, like the Canada Pension Plan, the reality is that it’s massive government spending funded by general tax revenue. It’s the single largest line item in the federal budget, currently costing more than the Canada Child Benefit, employment insurance, and the Canada Health Transfer combined. As the population continues to age, that price tag is set to skyrocket, with annual spending expected to hit over $100 billion in just a few years.

Mike Moffatt: There was an article in the Globe a few weeks ago. One of the things that struck me is that the authors did some math and found that a senior couple earning about $181,000 a year can each receive the full benefit from OAS. And a couple over 75, earning over $300,000 can still receive a partial benefit. That’s income. We should keep in mind that seniors aren’t working. They’re not earning labour income. You could have a senior couple earning $100,000 or $150,000, but they could have $10, $15, or $20 million in wealth. These aren’t people in deep need.

Sabrina Maddeaux: Not people in deep need at all. When you think about how we’re setting up Canada for the future, we’re sending all these entitlements to seniors. These aren’t something like a pension that they’ve paid into over the years. These are from general revenues versus young people, young families, and kids who are struggling and have skyrocketing poverty rates and aren’t getting the same type of entitlements. Not even close. They’re paying for the seniors’ entitlements, often wealthy seniors. The fact that we’re increasing our government debt levels to pay wealthy seniors while young Canadians are struggling to do things like paying rent is infuriating.

Mike Moffatt: It is infuriating. OAS is a great example of intergenerational wealth transfers through debt financing. But not using debt financing in certain circumstances can also be a form of wealth transfer.

For example, back in the 1920s, the government of Ontario invested in a massive hydroelectric plant in the Niagara Falls region that’s still in use today. This was a huge investment. Suppose the government of the day hadn’t debt-financed any of it and paid for the whole thing up front. This would mean the entire plant was paid for by a small cohort of Ontario taxpayers in the 1920s but is used by Ontarians for over 100 years, including today.

I certainly wasn’t around in the 1920s. I’m getting the benefits of this hydroelectric plant, but I didn’t pay for the capital cost of the project. If you don’t debt finance a project, you’re transferring wealth from the past to the future.

Sabrina Maddeaux: You don’t have to pay, but your grandparents and great-grandparents would have.

Mike Moffatt: That’s true for some people. But many of us didn’t pay either because we didn’t have relatives living in Ontario in the 1920s. In my case, most of my family was in Saskatchewan at the time. Most Ontarians are like me in that they are only partially or not at all descended from people who lived in Ontario in the 1920s.

It’s a different cohort of people who live here than had grandparents or great-grandparents here in the 1920s. It wouldn’t have been fair to ask people in the 20s to pay for the full construction cost so they could subsidize future generations, particularly when those future generations might not even be related to them because they moved here from Sweden or Saskatchewan.

By not debt financing that infrastructure, current generations are subsidizing future ones. If they have to pay for it upfront, they may not make that investment at all, and we’re worse off for it. But if we debt finance that power plant over the useful life of the asset, we can better align who gets the benefit from that asset and who pays for it.

Sabrina Maddeaux: That would apply equally well today to the Gordie Howe Bridge, that new bridge connecting Windsor to Detroit which will cost Canada over $6 billion. That’s another asset that Canada is buying and is something that future generations will get the benefit of.

Mike Moffatt: Exactly. There’s no reason why you and I should pay for the full cost of this bridge. The people of 50 or 60 years from now can benefit from that; those people should pay some of the capital costs as well. You and I might have kids or grandkids that live here in 50 or 60 years, but they could live somewhere else, and a lot of the folks who live in Canada 50 or 60 years from now might not have ancestors living here today.

Sabrina Maddeaux: Right. But if we debt finance it, then those future generations will have to pay off that debt.

Mike Moffatt: I wouldn’t say that. Our political class and media tend to mislead Canadians on this either willingly or in an attempt to simplify a complex issue.

Before I start with an explanation, I have to give an apology to any of my Ivy students [who might be listening]. I’ve taught this subject to about 3,000 students, and they’re probably hearing it again.

The reality is it’s rare for debt to be paid off in any meaningful sense. That happened a little bit in the 1990s and 2000s, and our debt went down. But that’s the exception, not the rule.

When we look at government debt, it’s mostly in the form of bonds. The most common ones are a contract that says if you lend the Government of Canada $100 right now, it’ll pay you $5 every year for the next ten years. At the end of those ten years, it’ll give you your hundred bucks back. When that ten-year period is over, those bonds expire, and the government needs to pay back that $100. They’re going to have to borrow to get that $100. They borrow by selling another bond. That debt isn’t repaid in any real sense. It’s a new bond replacing an old bond. Government debts are rarely paid off in a literal sense. Instead, they exist through this rolling-over effect that will outlive all of us. It’ll live through a never-ending series of bonds, like the circle of life from The Lion King.

Sabrina Maddeaux: You’re speaking to my childhood, but are you saying that the increasing debt levels of Canada are no big deal?

Mike Moffatt: No. That debt still matters. Every year governments make interest payments on that debt to debt holders, and that interest is money we could be spending on education, health care, or tax cuts. It’s easy to think we can just pay for those interest payments by issuing even more debt so we don’t have to worry about it.

But those people collecting those interest payments, those bondholders, go out and spend it. That raises the demand for goods and services faster than they’re produced, causing inflation. Governments don’t have a get out of jail free card here. The bigger these debts get, the bigger the interest payments, the more they have to worry about inflation.

Historically speaking, when those pressures get too big, a couple of things happen. Either they start printing money to pay off those debts, or they simply default on those debts. They refuse to pay them. When those debts start to get large, investors start worrying about whether they’ll get paid back. They’re less likely to loan governments that money.

This isn’t a theoretical concern. In the late 1980s and early 1990s, there were concerns that the province of Saskatchewan might default on their debts because the debts had gotten so large. There was a collapse in product prices. The government was in trouble. Investors were reluctant to lend the province of Saskatchewan money, which forced the province to pay higher interest rates. Debt still matters, even if it’s not paid off in a literal sense.

Sabrina Maddeaux: I want to hone in on something you just said because it’s been contentious in the media: Through this process, the government can essentially print money without printing physical money.

Mike Moffatt: Absolutely. Most of the money supply is not pieces of paper. This is only a small portion of Canada’s money supply. Most of our money is digital. There is a process of money creation involving the central banks and other banks. That would be a good topic for another episode.

We shouldn’t take this too literally. When we talk about printing money, it’s not necessarily some guy at the mint printing out sheets. It’s more digital than that.

Sabrina Maddeaux: Debts and deficits do matter then?

Mike Moffatt: They absolutely do. They’re problematic when used to finance entitlements for current generations, like Old Age Security. It matters a lot. Ultimately, this is a political decision. How do we get governments to start to reduce this intergenerational wealth transfer?

Sabrina Maddeaux: Canada does need to rethink Old Age Security. It’s not just a question of fairness between generations. Younger Canadians are already facing huge costs. At the same time, the federal government has committed to major increases in military spending and the need to fund major infrastructure upgrades. The average worker is at, if not past, their limit with income and sales taxes. It’s not an option to add extra taxes right now.

Ottawa’s total debt is projected to climb from 2.3 trillion, about 72% of the economy, to more than 3 trillion, or roughly 78% of GDP. We could raise the age at which you can start receiving OAS, or we could reduce the benefit. Canada needs to keep its spending in check, and doling out money to rich seniors isn’t sustainable. We don’t have that luxury. If we continue to do it at the expense of younger generations, that’s only going to lead to more generational resentment and anger.

Mike Moffatt: Yeah, I worry about that anger and younger Canadians giving up on the country because they’re not getting as much from Canada as older generations did. To deal with the transfer element, either old age security could be made less generous or programs that benefit younger generations could be made more generous, spending on higher education or child benefits, but that starts to get expensive quickly.

Sabrina Maddeaux: It’s all still a lot of spending. But if we leave OAS the way it is and increase benefits to younger Canadians, how would we pay for that? Plus the military spending, infrastructure, health care, and housing? There’s a never-ending list.

Mike Moffatt: There aren’t many great options. The first option is we spend less on something else. But we’re running out of options there because you listed everything the federal government spends money on. The second thing is we allow deficits to increase, but that doesn’t solve the intergenerational equity problem because those debts and deficits have to be financed, and future generations pay for those interest rates. It doesn’t address the core problem. The third one is that taxes go up. There’s no free lunch here. Everything has a trade-off. We’re looking at a series of uncomfortable options.

How well do you think the general public, particularly younger people, understand these trade-offs and the intergenerational wealth transfers going on?

Sabrina Maddeaux: Younger people get it more than ever before because they’re living the consequences. I don’t think older generations always get it because they’ve been allowed to have their cake and eat it too. Yes, they did work hard, but they tend not to see how many advantages are given to them by the government.

Sabrina Maddeaux: Younger people don’t feel well served by the system and would likely prefer fewer entitlements and lower taxes because they don’t believe they’re ever going to see a return on those taxes. They see it being funnelled to older generations and programs that don’t benefit them. They say, “Why can’t I keep more of my hard-earned paycheck and maybe I can buy a house one day?”

It’s difficult for any political party to offer this proposition because of the Baby Boomers. It’s such a toxic thing when they are a huge voting cohort to suggest, even though it would be a naturally conservative position to say, “let’s make major tax cuts.” Instead, we see tinkering around the edges. But there hasn’t been any proposal from any leader to have major income or sales tax reform in a way that doesn’t result in an extra $42 a month in your bank account, but something that would result in tens of thousands more.

Mike Moffatt: Even when there is a tax cut or tax tweak, more often than not it is structured to disproportionately benefit seniors. It doesn’t necessarily solve this intergenerational equity problem if those tax changes aren’t targeted to younger people who are struggling the most.

Sabrina Maddeaux: To sum up: Not all debt is bad debt. Countries can carry more debt than the average household. Borrowing can make sense when it’s used to invest in things that create long-term value for future generations. Taking on debt to build roads, bridges, transit systems, or housing means future citizens will also benefit from what’s being paid for today.

The problem is when debt is used to preserve old spending commitments that may no longer fit today’s realities. Debt can be a tool to ensure that an asset that lasts for 75 or 100 years will be paid for by the people using it 50 years from now. But it becomes harder to justify when we’re borrowing money to spend extra checks to seniors who are already among the wealthiest groups in Canadian society. That’s something we need to see change soon.

Thank you, everyone, for watching and listening. And to our producer Meredith Martin and our editor, Sean Foreman.

Mike Moffatt: If you have any thoughts or questions about the economic history of Saskatchewan, please send us an email to [email protected].

Sabrina Maddeaux: We’ll see you next time.

Additional Reading/Listening that Helped Inform the Episode:

As Canada faces crippling debt, it must do the unpopular thing and cut elderly benefits

Scott Gallowy Short

Canadian taxpayers face up to $3,348 each in government debt interest

The Burdens of borrowing: Government debt and intergenerational fairness

G7 debt is now a pressure point for anxious markets

The evolution of federal debt interest costs in Canada

Canada’s combined federal-provincial government debt estimated to surpass $2.4 trillion in 2025/26

Intergenerational Injustice in Canadian Public Finance

Funded by the Neptis Foundation

Brought to you by the Missing Middle Initiative