Blogs & Comment

Not so gold-plated after all

The defined-benefit pension plans of federal-government employees have a $65 billion shortfall, according to a study by Alexandre Laurin and William Robsonof the C.D. Howe Institute. This represents a rather huge tax liability for Canadian citizens, in addition to the current liabilities implied in official deficits at all level of government in Canada.
The authors used fair-value accounting principles to come up with the estimate of the shortfall. This method values assets and liabilities using current market prices and interest rates.
On this basis, the federal governments “net pension obligation stands at almost $208 billion, which is about $65 billion bigger than reported in the Public Accounts.” In addition, the gap has grown prodigiously over time and to keep it from growing further, contributions in the latest fiscal year would have had to be almost double what was actually paid in.
It is also possible that the cutbacks to civil service pension plans now being implemented in Europe may be a harbinger of whats in store for Canadian civil servants. And then there is the hidden cost of elevated levels of government borrowing to fundthese official and unofficial deficits. One will be upward pressures on interest rates, which, in turn, raises the cost of capital to the productive sectors of the economy and cuts into their ability to generate wealth.