Originally published in The Winnipeg Free Press, Saturday, April 7, 2012.

At a time of continued concern about the federal deficit, it may seem strange to suggest the way to deal with rising retirement costs and looming labour shortages in Canada is for the federal government to collect less tax from workers.
But unless we undertake a major overhaul of Canada’s progressive income tax system to bring tax policy more in line with public policy, a growing number of older Canadians are going to leave the workforce, taking their skills with them and reducing their ability to save for a more secure retirement in their later years.
In the last election, Prime Minister Stephen Harper signalled labour shortages would emerge as a major issue in future.
With unemployment at the time at nine per cent, his comments probably gave his campaign advisers heartache.
But Harper was looking ahead in a way most conventional politicians wouldn’t have dared.
Indeed, a report issued by the Canadian Chamber of Commerce in February predicts that, over the next decade, there will be job shortfalls of 163,000 in construction, 130,000 in oil and gas, 60,000 in nursing, 37,000 in trucking, 22,000 in the hotel industry and 10,000 in the steel trades.
The March 29 federal budget barely mentioned labour shortages, but that’s understandable given Canada’s disparate labour situation.
In a budget firmly focused on growth, the government had to do what it could to help solve short-term acute labour shortages in the fast-growing West without drawing attention to continued levels of high unemployment in the East.
The measures it took, while not explicitly packaged as ways to address labour shortages, were the first real efforts by a federal government to align public policy to labour shortages.
The most obvious change was to increase the age of eligibility for the OAS and guaranteed supplementary benefits for retirees from 65 to 67, starting in 2023.
Having people work longer keeps valuable skills in the labour force, takes pressure off the social welfare system and forces Canadians to pay tax longer.
Changes to employment insurance will better inform EI claimants of job openings out west and incentivize claimants to move there.
Atlantic Canadians have been working in the oil patch for years. It’s time workers in Ontario and Quebec, who have seen high-paying unionized manufacturing jobs disappear, consider doing the same.
The temporary foreign-workers program is being streamlined to make it easier for employers to bring foreign workers into Canada when there isn’t sufficient labour supply.
This measure is a direct response to the skills shortage in Canada’s natural resource industry that has reached almost crisis level.
Canada’s immigration system will be increasingly focused on recruiting English- and French-speaking people with business skills who are immediately employable.
Finally, there will be a further focus on providing access to training and new employment for displaced older workers.
What a change from the politics of the last 50 years, which were all about finding jobs for baby boomers!
That said, with birth rates currently hovering around 1.67 children per woman, well below the minimum needed for natural population replacement, these measures probably won’t be enough to offset the problem of labour shortages in our increasingly aging society.
Right now, defined pension plans that kick in at age 55 are a major deterrent to working longer. With high levels of income tax, it doesn’t make a lot of sense for people who have such plans to continue to work.
But relaxing income taxes on a declining basis from age 55 will encourage a broader cross-section of Canadians to continue to work longer.
No budget can include every possible measure to tackle important issues, especially those that may not be immediately apparent.
And such tax reform may prove difficult to implement in today’s environment with continued concerns about the deficit. But in a few years, as Canada’s budget moves into surplus and those predicted labour shortages come to pass, expect this idea to gain traction.
Just like saving for retirement, the best time to start preparing for such a change is now.
Authored by: Mike Coates