Yahoo Finance Tax credit for older workers could blunt grey retirement wave, ease labour shortages
Skilled labour shortages could be the focus of at least one measure in the federal budget dropping later today, with one demographic in particular having a good chance of being targeted: older workers.
Canada’s aging population is hitting retirement age, and baby boomers have started exiting the workforce en masse, taking their valuable skills and knowledge with them while leaving vacancies that few younger people are available to fill. So far, the federal government hasn’t done much to stem the retirement tide, but that could change if a “career extension tax credit” promised in the Liberals’ last election campaign finally comes to fruition.
The proposed credit designed to keep older workers on the job was part of Prime Minister Justin Trudeau’s mandate letter to Finance Minister Chrystia Freeland in December 2021. The credit, described in the Liberal platform as for seniors 65 and older earning $5,000 or more, with a deduction valued at up to $1,650 a year, and which would also remove tax payable on a part of income, was one of two credits floated in the letter to tackle labour shortages. The other, a “labour mobility tax credit” to help relocate construction workers and other tradespeople, was introduced in the 2022 budget and has since received royal assent.
The credit for older workers likely won’t come soon enough for employers. An aging population has been a cloud looming over the labour market for decades, and now the storm has arrived. Canada’s workers have never been so old, with more than one in five aged 55 to 64, according to Statistics Canada. Furthermore, more Canadians than ever jumped into retirement during the COVID-19 pandemic, and a record number of those aged 55 to 64 left the workforce in August 2022, data show. At the same time, more than a million job vacancies were waiting to be filled.
Vacancies have since eased, and some older people have found their way back to work, but the grey wave of retirements is by no means over. TD Economics predicts 900,000 workers will retire in the next three years as another one million people turn 65 by 2025. Economists at the Royal Bank of Canada estimate we’re only halfway through the number of expected retirements set to rock the labour market and economy. “By the end of this decade, labour force participation is expected to fall to levels not seen since the 1970s,” RBC economists said in an October 2022 note. “The lower the labour force participation rate, the more severe the economic and fiscal strains will be.”
The effects of more knowledgeable workers retiring are already playing out in some industries. Vacancies remain high in sectors such as health care, construction, transportation and finance, Statistics Canada data show, and are adding to the burdens of small-business owners, many of whom are still trying to dig themselves out of COVID-19-induced fiscal holes. The Canadian Federation of Independent Business (CFIB) estimates 59 per cent of small- and medium-sized enterprises can’t find staff to fill roles, with skilled and semi-skilled workers especially hard to find.
A tax credit that keeps older workers on the job for longer could ease some of that pressure. Such a measure will also likely be welcomed by those who want to keep working beyond the traditional retirement age. In February, employment of women aged 55 to 64 reached a record high on a month-over-month basis, Statistics Canada said, and employment of both sexes is also up on a year-over-year basis. Perhaps it’s no surprise that some of the sectors benefiting the most are those that rely on skilled labour, with manufacturing, agriculture, and professional, scientific and technical services all drawing more workers aged 55 to 64. Statistics Canada said retirement intentions have also ticked down from 2022 levels.
Elevated inflation, high interest rates and a volatile stock market could all be driving older people to keep earning a paycheque to make ends meet. Higher rental costs may also play a role, especially for single seniors forced to pay higher taxes compared to their married peers.
But even before rising inflation squeezed expenses, people were expressing a desire to keep working into their golden years, albeit on their terms. A majority of Canadians want a semi-retirement option to keep them connected to the workforce, though they’re looking for flexible schedules, consulting or working fewer hours, according to a survey by Express Employment Professionals in January 2022.
Keeping older people in the labour force longer won’t solve shortages completely, since the population will continue to age and drop out of the workforce. That means the government — and employers — will need to find other ways to address any gaps. Groups, such as CFIB and the Canadian Manufacturing Coalition, are calling on Ottawa to bring in more skilled workers via immigration, while also earmarking funds to improve training programs in this year’s budget. “We’re looking for some kind of commitment to real training,” Dennis Darby, chief executive of the Canadian Manufacturers and Exporters, told the CBC. “You can buy equipment, you can buy robots, but you have to train people and develop the software.”
It’s clear that more needs to be done to train people in the skills that employers need. But until immigration and training programs catch up to labour shortages, encouraging older people to keep their jobs makes sense. Beyond the material benefits for seniors, younger employees also stand to gain as older colleagues pass down their knowledge and expertise. A federal tax credit that helps facilitate that seems like an obvious win for Ottawa, employers, workers and the economy.
• Email: vwells@postmedia.com | Twitter: vwells80
A version of this story was first published in the FP Work newsletter, a curated look at the changing world of work. Sign up to receive it in your inbox every Tuesday.
