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Canada's Demographic Time Bomb?
Paul Vieira of the National Post reports, Canada's demographic time bomb (HT: Gary):
Lost
in the political drama over the 2011 federal budget was a spending
line item that starkly illustrates the fiscal squeeze posed by the
aging population — an issue yet to be addressed during the 41st
election campaign.
As laid out in the budget, government spending
on elderly benefits is set to surge 30% from 2010-11 levels to
2015-16, with annual increases of between 4.9% and 5.8%, well above
projected rates of Canadian economic growth.
Dig
a bit deeper and the fiscal noose around Ottawa gets tighter. During
the next five years it is expected the federal government, of whichever
political stripe, will need to find an extra $2-billion each year
either through program cuts or tax increases to finance payments
through the Old Age Security and Guaranteed Income Supplement schemes.
From 2015 to 2020, that figure climbs to $3-billion each and every
year.
“That money has to come from somewhere,” says Kevin
Milligan, economics professor at University of British Columbia, who
did the shortfall calculations based on actuarial reports compiled by
the Office of the Superintendent of Financial Institutions.
But
there has been little talk about this during the first week of the
campaign. Instead, Canadians have been promised roughly $4-billion in
annual goodies through income splitting, education and day care.
“By
emptying the fridge with all of these current promises, it is going to
make it harder for any future finance minister,” Prof. Milligan says.
The
aging population is among the big issues that policymakers must
confront, as the labour force shrinks, income tax receipts slow, and
the pressure builds on governments to fund health care and benefits for
the elderly who are living longer and longer. From here on, analysts
warn, the government’s budget-making process will incorporate annual
program and spending reviews, such as the one proposed in the 2011
federal budget, to find the needed money to pay for the rising price
tag for elderly benefits, drugs and doctors. Program cuts,
privatizations and outsourcing of back-office operations are all likely
to be on the table.
That’s just the
beginning. There’s also the issue of unfunded pension and benefits
liabilities governments face from the wave of retiring Baby Boomers
from the public service. The C.D. Howe Institute, a Toronto think-tank,
has warned the unfunded liability in the pension plan for federal
public-service workers is actually $65-billion larger than what Ottawa
has accounted for on its books.
Glen Hodgson, chief economist at
the Conference Board of Canada, said the demographic shift represents a
“game changer” for the Canadian economy, much like the soaring loonie
has altered the industrial landscape, forcing companies that survive to
ramp up capital spending and adjust production.
The greying of Canada means the country will go from a position of surplus labour to labour shortage.
“There
is a huge debate coming,” Mr. Hodgson says. “Provincial governments
are a little bit ahead of the game as they can see the consequences for
health care. But at the federal level it hasn’t become an issue yet —
but it is going to have to.”He cited aggressive moves by Quebec,
from spending cuts to a two-percentage-point jump in its provincial
sales tax, aimed at balancing the budget in just over two years — faster
than what the federal government is proposing. Demographics are a
factor driving Quebec’s policy decisions, as projections indicate the
province will be among the oldest in the industrialized world, with
people 65 and older making up more than 25% of the population by 2031.
“Quebec
knows that a revenue crunch is coming,” Mr. Hodgson said. “So now is
the time to get back to balance because, if you don’t do it now, the
province is going to be hard pressed to do it down the road.”
Under
population scenarios developed by Statistics Canada, the Canadian
population could exceed 40 million by 2036, with aging projected to
“accelerate rapidly” as the entire Baby Boom generation turns 65 in this
time frame. The data agency also warned that the number of senior
citizens could more than double by 2031, outnumbering children for the
first time.
In economic terms, this means slower potential
economic growth in the years ahead, which will ultimately translate into
slower growth in tax revenue for Ottawa — just as the provinces demand
more in transfers to finance an already stretched health-care regime
that has to tend to an increased elderly population.Kevin Page,
the parliamentary budget watchdog, has projected the economy’s potential
output — the level of goods and services the economy can produce
without triggering inflation pressures — will drop to 1.3% by 2020 from
2.1% in 2010 and 3.7% in 2000.
He has
cited demographics as a key factor in sticking to his forecast for a
$10-billion deficit in 2015, whereas Jim Flaherty, the Minister of
Finance, expects a surplus.
In a paper published for Policy
Options magazine, Christopher Ragan, economics professor at McGill
University, said the Baby Boomers’ exit from the labour force would
pose a “significant drag” on growth. Given population trends and
assuming productivity growth of 1% to 2% a year, real GDP per capita is
set to grow only 1% annually over the next three decades — half the
pace recorded in the previous 40 years.
Such
a scenario may explain why Bank of Canada officials, led by governor
Mark Carney, have urged policymakers and the private sector to confront
the country’s “abysmal” productivity record.
“The implications
for government tax revenue are clear: in the absence of changes to the
governments’ various tax rates, the slowing of the growth in per-capita
income will lead to a slowing of Canadian governments’ per-capita tax
revenue,” Mr. Ragan said.
Slowing revenue, meanwhile, is on a
collision course with increased expenditures on health care and elderly
benefits. Mr. Ragan’s calculates the increase in those costs between
2020 and 2040 as people age will be equivalent to 3.5% of Canada’s GDP
on an annual basis — or $56-billion in today’s economy, or more than 10%
of federal and provincial spending, combined.
“As
population aging drives the increase in age-related spending,
provinces will demand greater financial transfers from the federal
government,” Mr. Ragan said. “Based on the past experience, these
heightened demands will create significant political tensions, the
resolution of which will depend on the personalities and the political
landscape in the place at the time.”
That political battle will
take shape when the federal government and the provinces, which are
responsible for delivering medical services, begin renegotiating the
health-care transfer deal that expires in 2014. The Canada Health
Transfer is the single largest expense item on the government books,
accounting for $27-billion this fiscal year and more than $30-billion
by the time the federal-provincial deal runs out in 2014.
Under
the last deal, negotiated in 2004, the provinces were guaranteed 6%
annual increases in health transfers. The federal government has said
there are no plans to cut transfer payments as part of its
deficit-reduction effort, but experts suggest the increases in
transfers may be limited to between 3% and 4%.
“What we have is a
classic zero sum, in which the provinces, which are at the front-line
of the demographic time bomb, will be seeking more money from the
federal government, and the federal government seeking to reduce its
liabilities,” said Joshua Hjartarson, policy director at the Mowat
Centre, a Toronto think-tank.
His concern is that the future of
health-care funding will garner little discussion on the election
campaign, because of the difficult policy dilemma it raises. In
addition, Mr. Hjartarson said, the political leaders may simply resort
to the old debate about how much transfers should increase as opposed to
looking at new and radical ideas to address the funding crunch that
the aging population presents. Issues that should be up for discussion
include possibly handing over a chunk of GST revenue to the provinces,
and some form of “tax swap” that would give provinces additional
capacity to raise revenue.
“It would be a shame if the election
doesn’t begin to highlight the problems in the transfer system. If not,
our heads are in the sands,” Mr. Hjartarson said.
Will the "greying of Canada" mean the country will suffer huge deficits
as soon as 2015? I'm not so sure. When I read articles on "demographic
time bombs," I take them with a grain of salt. Why? First, more and more
people are choosing to work past 65 years old. Why not? If they're
healthy enough to work, why retire early?
More importantly, it's worth noting that Quebec's recent budget introduced significant pension changes:
larger penalties for workers who retire under age 65, but more
generous pensions and tax breaks for those who continue working past
that age (smart move). The province will also be hoping to collect from
tax evaders. It has hired 1,000 more employees to crack down on such
chronically problematic fields as illegal tobacco sales and the
construction industry (when it comes to tax evasion, there are bigger
fish to fry).
All this to say that while demographics will impact the country
long-term, in the near-term, I'm more worried about bigger problems
like Canada's mortgage monster fueling the Canada bubble.
When that pops -- and it ultimately will burst -- it will blow a
massive hole in government revenues, forcing many Canadians to retire
well past the age of 65.
***UPDATE***
Dan Braniff of CARP sent me these comments:
These
scary numbers seem to ignore the reality that those over 50 hold 80%
of the country's wealth that is growing and subject to ever-increasing
tax at all levels. Then there is the final tax of the estate.
The
pundits seem to assume that seniors stop paying taxes, just using up
air, food and water while blocking medical facilities and basking in
government handouts.
At 80 I pay more tax than I ever did even in my final salary years.
How do these factors play in the projections of doom and gloom?
I thank Dan for sending me his comments. These are all excellent points that were not discussed in the article above.
»
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"The province will also be hoping to collect from tax evaders. It has hired 1,000 more employees to crack down ......"
Oh sure, Leo, the time bomb will be solved by forcibly sucking further the fruits of labor out of the productive to hand it over to the unproductive, via armies of regulating bureaucrats. On top of that seeing elderly people work until disease or decline makes them inoperable will be a huge motivator for the youthful to produce more children!
Or, you could shrink the state massively, getting it out of canadians' way, thereby restoring their hopes for a rosy future, into which they will insert more children.
Same goes for the zeropeans BTW. Their giovernments have taxed them massively to take away young couples disposable income here in the present, crammed them into tiny apartments in compact cities stacked six to ten apartments high along streets with no parking for their tiny high priced cars, forcing them to take strikable union controlled mass transportation, crushing most dreams of open spaces and plentiful room at home to raise their own kids in. Of course the north african immigrants have a special culture that keeps the kids popping out, powered by welfare, powered by the crushing taxes on the native population.
And so it goes. The west, except for the U.S.A., has been dying this death for a couple of decades, and the U.S. just the last two, suddenly and violently, precisely correlating with the "Hope and Change" and the "fundamentally transform the United States of America" programs. Freedom is under threat, including economic freedom, throughout the western world, and the lack thereof does not bode well for your pensions every being paid back in anything other than funny money. Suck on that, Leo.
In the U.S. it isn't about aging. It's about transfering the most wealth possible to the healthcare and paharmaceutical industries. Western nations need to make the same decisions that Norway made i.e. spending small public fortunes on people in their eighties to increase lifespan a few months is ridiculous. If people want to spend their own money , fine, but not the public's money. It costs nearly $200K to die in the United States. That's the cost of 30 days of ICU time. Personally, I'd rather be at home in bed watching re-runs!
Thank you for your sane post.
When it comes to health care, Americans are completely psychotic lunatics devoid of even a smidgen of reason.
Death is part of life. Everybody dies.
This natural and inevitable end for each one of us will not be changed by the medical industry.
But as a nation we have meekly stood by and ignored (or maybe, in our insane desire to avoid death, insisted upon) a boundless treatment system which uselessly seeks to deny the Grim Reaper his due.
Unless we can escape what we apparently desire, we are relentlessly marching in lock-step to the point where we will spend our entire lives in abject poverty subsidizing our medical providers via taxes and insurance payments, and then die anyway.
No national balanced budget can be honestly put together that does not ration medical care based upon a real cost/benefit analysis that will include denying medical care to some segments of our society, most likely the very elderly.
We have "death panels" already, composed of unelected utilization review committees, and doctors and family members whispering in doorways.
If you want to extend your miserable, painful life by a few months, you should be free to do so, but keep your feeble bony fingers out of any government or insurance pot to which I have contributed. Pay for it yourself and deny your own children their inheritance.
Then my contributions can be spent on wage earners and children who have a future.
" It costs nearly $200K to die in the United States. That's the cost of 30 days of ICU time."
Those are old numbers. The cost is now around $400K/month.
Bend the cost curve...together we thrive...
In the US, Obama's marxist czars are very well versed in Eugenics, especially those espoused by the Nazis. Already the inflation that isn't is having an adverse effect on seniors, and the "death panels" are very transparent in Masscare (the template for Obamacare) as seniors are being denied life extending procedures. I'm sure that Obama's 2nd term will provide policy measures that ensure some version of soylent green, if only to offset quadrupling food prices. /sarc
That's fine, let them print money. There won't be any COLA of any meaningful use to place against the recieved benefits.
Even lotus land (BC) isn't doing anymore than a nominal 2% increase.
http://www.pensions.ubc.ca/staff/cola.html
When the real cost index is in double digit territory. Stats can even admits to the fact oil and increased costs related to energy price increases (food, hydro, tires, plastic bottles, medicine) are never calculated into the end tally.
http://www.statcan.gc.ca/subjects-sujets/cpi-ipc/cpi-ipc-eng.htm
I would love to see what is included, but that always seems to be a very well guarded secret. So far the only things I can see included if reviewing the adjustments are rents, cost averaged against an entire province as the total COLA adjustment.
Shit even in Ontario the "minimum" wage isn't livable for anyone living in a metro area. 20k a year, or 15,650 after total deductions including CPP, UI, Provincial and Federal taxes. Then average rent in say Ottawa right now just scanning Kijiji, is $750 for a bachelor . Even the Ottawa municipal government refuses to track real estate prices after 2003 because it decreases the "friendliness" of the city.
So 15.5k after tax net. Minus 9000 for basic housing with no heat, hydro, food, furniture, phone, internet. In Canada it goes in that order.
The COLA during the minimum wage increases didn't even match each other. How is it so disconnected? Easy. The morons running it know it's never going to work so they throw a bone, understand 99% of the population is bad at math and will enjoy being boiled in a pot slowly with the other frogs.
Besides there are a dozen other things to worry about other than a ponzi scheme that furnished a small percentage of the population a comfortable end of life. The population bomb has been a known vector (and poorly planned derivative with the BoC) for years. When the bubble pops again, none of this will matter.
We will have sold every inch of our country.
The markets will be destroyed.
There will be zero faith in government offerings.
The medical establishment will lose a lot of people very quickly, count how many Canuck born doctors/nurses are in the system. If it goes sour and taxes go crazy, the landed immigrants will split, fast...even looking at my own situation. My doctor is Indian (and excellent at his job) and the nurses I deal with in his office are Phillipinas, only the receptionist is local. My chiropractor is Chinese. My podiatrist is Thai.
On the lighter side.
Won't pay taxes anymore.
You can actually have a say on how you purchase services and local leadership.
Don't sweat it. You Canadians will join the Mexicans as our newest territories when you're annexed by the Empire for "security" reasons. Play your cards right and you might even earn statehood in a decade or two.
Texas would like to annex Alberta if they'll have us, and you can bet your ass albertans would be pleased to live under Texas' constitution rather than the ginormous lifesucking PC namby pampy whiny bureaucracy from Ottawa. Oh, and there's being rid of the smug, ridiculous province of Quebec. It's all good.
Quebec is simply different; it's a kind of communism system. For example, the bureaucrats come in the morning and they go for years with your children. In 2006, they got 6697 kids like that (no kidding).
Also the healthcare system is incredible; you can count sometimes 400 cars in an hospital parking lot, and, hard to believe, while you wait for 24 hours, you realize there's no doctor in the place. Not a single one. They are mostly bureaucrats.
It's also the place in America that got the most very small car, because they are all divorced. Many are drunk all day long. Nobody buy firearms, and most think it's a dumb move to get one.
We are the proud dumb sheeple of America.
I have seen many articles that clearly show the effects of bad demographics on consumption habits which hurts an economy. In the US many older workers have been prematurely retired when companies have trimmed payroll. I think the only real growth job for 60+ age seniors is as a Wal-Mart greeter or something like that and some have to do it just to survive. This is a ticking time bomb in many countries. Look at Japan's slow growth the past 2 decades due to bad demographics even while much of the rest of the world was growing real fast giving them an advantage most countries won't have this time.
"The province will also be hoping to collect from tax evaders. It has hired 1,000 more employees to crack down on such chronically problematic fields as illegal tobacco sales and the construction industry"
Hahahaha. Only an insolvent government would think of hiring 1,000 more people to solve its financial woes.
edit: duplicate: deleted
the only province that has it all figured out is Quebec. They tried to secede a few times and were prevented to do so by the rest of Canada. so what do they do? Become parasites leeching the rest of Canada, collect and enjoy their benefits and hope that it kills the host so they are cut loose. Smart strategy, imo.
I have a better plan for Alberta. They should secede for real but also declare war on the the USA, a la The Mouse That Roared, so as to get invaded and occupied. That was a huge win for Germany and Japan in the long run, taking on the USA. Look at them now versus back then.
Please come invade us before the Chinese do it. We need big mac to be good slaves.
Canada, Japan, and the European nations are going to be fucked royally by the demographics.
Yes, a lot of people will work beyond 65- by necessity, eventually, since there is still no solution to the age old problem of trying to get resources from anyone not working, or that have deferred consumption through their working lives.
2 min video.....Wrong Side Up....
http://goodthoughtsgoodwordsgooddeeds.blogspot.com/2011/03/wrong-side-up...
And your blog is blocked to foreigh comment, ass so, I will post it here, so Tyler can see :
They are coming to get (your?) ass by the Alaska, dumbo. Palin been sodomized too. No gold in a hole? They are using your bed to fuck already, blind goldless sheeple.
Western Canada will soon be declared a highly radioactive quarantine zone.
Those who are fool enough to not leave in time will be left to rot. Smart money has been dumping real estate at full speed.
Wow, you (really) have a job!
(And you're not full of shit).
We suggest you a visit in Quebec, where you can find some of the cheapest chicks in the world.
West side women are just (expensive fat) funny whales, just like your... nevermind. You can't leave Quebec without trying at (the very) least 3 of our (skinny or slim) chicks. They like your dolla, even American.
SIMPLY PUT : THE BEST BLOW JOB IN AMERICA
(Unusual, hey, fatty?)
(We wil be back next Saturday with our special report : Is a black monkey betting on Muslims rioters with your tax money?)
Dan Braniff of CARP sent me these comments:
I thank Dan for sending me his comments. These are all excellent points that were not discussed in the article above.
Yes, and 5% own 95% of that.+/-
In other words, the seniors will pay their own way, and not try to parasitize the younger workers? You wish!
Not sure about Canada but I have seen charts that seem to show older Americans consume much less than the 40 - 55 year old crowd regardless of wealth level.
In the U.S. The vast majority of people never even pay a fraction of the amount that receive in Social Security and Medicare benefits. I have paid the maximum tax for the last 20 years and a good deal before that. Including employer matching funds I have "contributed" around $250K total. That is about the price of a triple bypass surgery. Even after they confiscate a portion of my estate upon my death it most likely will not cover the money I will receive in benefits. The programs are and have always been unsound on an actuarial bassis. Most of the bad assumptions lie in the myth of the trust fund. It is "invested" in special T-bills, which in essence are now more than an IOU. The money to funds current benefit liabilities and interest payments must be raised from current revenue. It is the third greatest ponzi ever perpetrated upon our citizens. Therein lies a moral conundrum. The trust fund was stolen by politicians and redirected to whatever constituency would keep them in power. We all stood around and watched while we while the robbery took place. The law would look unfavorably upon me if I replaced my stolen computer with my neighbors. Why should I be legally allowed to steal my neighbors money because mine was taken from me by con men?
"the reality that those over 50 hold 80% of the country's wealth"
Leo,
Do you know what the equivalent statistic is for the US?
A population reduction by natural means is the best thing that can happen and should be welcomed. The quality of life will improve as the demographic composition returns to a more normal state. This doesn't serve the Ponzi nature of our financial system so the inevitable contraction will be harsh to some but the young, and the planet, will breath easier. My fear is that our governments will use this type of fear mongering to ramp up needless immigration.
So the solution to our pension woes is now to have forced increased contributions, lower benefits, delay retirement, and to go after the little guy in construction taking cash jobs because he is being taxed to death and wants a little left over to spend on his own family. Chances are the small time tax evaders are doing work for the elderly who have tight budgets. Believe it or not, many of us do care about our community and do what we can to take care of those who are unable to do the heavy lifting anymore. It just might not include government intervention and pension specialists.
The old motherfuckers need to start leaving the workforce and let the young in Canada start working. Canada has a terrible unemployment crisis in the under-35 crowd. Top grads can send out thousands of resumes and get no responses. Baby boomers are overpaid and are expected to leech off of pensions like no tomorrow.
Young Canadians need to be put to work, and put to work at good jobs (like $100k+/year starting for university grads), not the current bullshit. The current system of age discrimination is a complete disaster. Civil service needs to be cut in at least half, if not more, to support the expansion of a robust private sector. Government pensions need to be abolished or severely capped.
Immigration needs to be cut to zero and some immigrants deported until the labour market can catch up with Canada's existing population. The productivity problem is largely because labour is just too darn cheap in Canada because of excess supply, largely immigration driven.
My friend, I understand your frustration. Mostly all of us are frustrated at some aspect of our collective finances. Don't take your eye off the con men. If it weren't for them this article would never need be written.
Cheers
Sounds like Canada needs some socialist Hope and Change. It's done wonders for the United States. (sarcasm off>
makes me want to goto canada. contrary to popular, a lobar shortage is wonderful for the economy.
http://covert2.wordpress.com
Yep.
This demographic timebomb stuff is fucking bullshit spun by the predatory class so they can have cheap workers and continue to pay people jack shit.
Fuck this sort of scare-mongering bullshit.
Europe was fed this hook line and sinker, now they have rampant unemployment and new arrivals who make up more than 10% of their population that will cut the oldies throats in their beds rather than pay off their precious pensions.
The entire argument of endless economic growth and importing cheap labour doesn't wash anymore.
With a Canadian birth rate of 1.5 vs a replacement rate of 2.1, the only bullshit here is being produced by those like you who can't do first grade math. And I can't believe Leo wrote an entire article on demographics without mentioning it. Canada will need a lot of immigration just to stay even, but heavy taxes on the few young workers will make that dubious.
Why would Canada need replacement anything? Population growth isn't necessary for a prosperous economy. Indeed, the economy would be better off with less people to support, especially in Canada where individuals consume a lot of resources to live in the cold and desolate place that Canada is.
Immigration is genocide.
How do you apply that to price discovery?
If you mean determining the price of labour in the marketplace through interactions and letting the market decide then i think you can look at most skilled migration programs and see they do well as long as policed properly.
i have no problem with that and think its good for a settler country and its new arrivals but what i'm wary of is the big business lobbyists wanting to open the floodgates to people who have attributes that can be easily found or nurtured at home. Have you noticed they are always griping for more engineers etc and threatening dire consequences of reduced growth because of it? fuck them.