Indexation to inflation turns out to be a myth for all
With higher inflation, increases in indexed benefits have been more noticeable lately.
For example, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) -which are indexed quarterly – have been increasing far faster than the cost of living as measured by the Consumer Price Index (CPI) over the past ten years.
But other benefits have been lagging behind such as Ontario Works (OW) and the Ontario Disability Support Program (ODSP) payments. Still others appear to be increasing faster than the rate of inflation.
We decided to delve a bit further into the numbers.
That’s easy to do because the Bank of Canada provides a service to the public in the form of its Consumer Price Index (CPI) calculator . It shows that from 2012 -2022, the cost of goods or service that cost $100 in 2012 would now cost $126.32. In other words, inflation as calculated by the CPI moved up by 26.32% in that time period.
Most of us may believe that this would mean that programs like OAS or benchmarks like minimum wages are actually indexed to inflation. If that is so in concrete terms, it would stand to reason that if we looked back ten years, these program benefits or benchmarks would have increased by about 26%, give or take a percent or two.
We may also think that non-indexed programs and benchmarks likely did less well even though they might be periodically reviewed by governments to keep them up to date.
But if these statements represent what you thought, you thought wrong.
Figure 1 Program and benchmark increases: 2012-2022
In fact, in combing through a number of different benefits and benchmarks, we couldn’t find a single benchmark or benefit that rose by an amount close to 26.32% over the last 10 years. What we did find was that certain programs had increased by much more than inflation, some by less and some not at all.
For example, the OAS and the Guaranteed income Supplement (GIS) for seniors increased by 33.5% and by 39% for seniors 75 and over. Maximum GIS is $1,027 a month in early 2023. Ten years ago, maximum GIS was $739 a month.
Minimum wages in Ontario that were only recently indexed, increased by double the rate of inflation over ten years by 52% from $10.25 to $15.50.
But the CPP maximum retirement benefit at age 60 had only increased by 21.1% even though it is an ‘indexed’ benefit. And the maximum EI benefit which is not indexed stood at $485 a week in 2012 and is now $650 a week, an increase of 34%.
Ontario Works payments for a single person – that are not indexed – rose by 22.3% from $599 to $733 a month but the newly indexed Ontario Disability Support Program (ODSP) has only increased by 14.5% from $1,075 a month to $1,228.
No wonder low-income people with disabilities have been vocal about lack of increases.
But then there are benefits that don’t get increased at all, neither indexed nor subject to periodic review. The CPP death benefit which stood at $2,500 in 2012 was exactly $2,500 in 2022. And it remains the same in 2023.
A bizarre example is the Ontario Provincial program called the Guaranteed Annual Income System for seniors (GAINS). It was pegged at $83 a month in 1985 and would now be $198 a month had it been indexed to inflation. Instead, the Ontario government doubled GAINS during the height of the pandemic to $166 a month and now is going to do so again, but once again temporarily. One assumes GAINS will go back to $83 and stay there for awhile.
All in all, it appears that indexation to the cost of living is nothing more than a myth. And program and benefit increases are not even consistently inconsistent.
Perhaps we were rocked to sleep during a long period when CPI inflation was running low and prices increased slowly. Now may be the time to take a long look at how programs and benchmarks are both constructed and increased over time.
Clearly, benefit rates and benchmarks like the minimum wage were not perfect in 2012 and extraordinary increases higher than inflation were required, especially to minimum wages. But do other benefits deserve to lag well behind inflation while some go unchanged?
The cost of living along with indexation, benefit and benchmark increases are matters of serious business. They should not form the basis of a modern mythology.
JSYY Mar 9/2022