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What have governments done to prepare for the aging demographic problem?
Monday, 15 June 2015 - 10:45am
When a storm approaches on the horizon, most people take a few minutes to think about whether or not theyâ€™re prepared â€” are their car windows closed? Does anything need to be brought inside the house?
Those basic questions are simply responsible planning. Unfortunately, large financial storm clouds are facing government bodies across Canada, yet most governments have failed to prepare for them. As a result, your tax bill will keep rising â€¦ unless things change.
Consider that over the next several decades, Canadaâ€™s population will go through a shift of epic proportions due to our nationâ€™s aging population. Note that in 2010, there were 4.9 people working for every retiree in the country. By 2030, that ratio is expected to shrink to a mere 2.7 workers per retiree. Every province in the country will face this challenge and it will put tremendous pressure on government revenues and expenditures.
As the percentage of retired people in Canada increases, governments will face a revenue squeeze. This is due to the fact that people who are working tend to earn more money and pay more in taxes than senior citizens getting by on fixed incomes. Whether weâ€™re talking income taxes, sales taxes, gas taxes or other government fees, working people are a cash cow for governments. Thatâ€™s not a criticism of senior citizens; itâ€™s just a fact of life.
On the expense side of the ledger, an aging population will put tremendous pressure on our health-care system. Itâ€™s a well-known fact that senior citizens tend to require more expensive health procedures than younger people. The latter tend to receive less costly health care procedures such as annual check-ups from their doctor rather than cataract surgery, hip replacements and nursing home services.
If youâ€™re wondering how this enormous shift will impact government finances, consider what the federal governmentâ€™s 2014 Fiscal Sustainability Report notes. The report estimated the gap between future provincial and municipal government revenues and expenditures will grow to a deficit of $34 billion per year nation-wide. (Federal finances were expected to be sustainable in the long-term).
To put $34 billion in perspective, the federal government budgeted $31 billion in GST revenues for 2014-15. Just imagine if municipalities and provincial governments had to raise taxes by the equivalent of another GST to meet this challenge.
If that sounds painful for your pocket book, a 2011 report by the Macdonald-Laurier Institute calculated something twice as dire â€” they projected a $67 billion annual shortfall.
While itâ€™s difficult to say who is right â€” so much could change over the next few decades â€” itâ€™s clear that our nation has a serious challenge on its hands.
That brings us back to the question, what have governments done to prepare for this situation?
Sadly, the answer is not much at all. Despite knowing about the aging population problem for decades, governments havenâ€™t saved up a penny to address the problem. In fact, nation-wide, total municipal, provincial and federal government net debt is approaching $1.3 trillion. Thatâ€™s more than $35,000 for every man, woman and child in the country.
With debt levels already high, governments have three options to address the aging population challenge; raise taxes, cut spending or a combination of the two.
Forking over even more money to the government each year is hardly palatable. Not only is our tax burden already quite high, stories about wasteful government spending in Canada are a dime a dozen. Why should taxpayers give more money to governments when many are irresponsible with the funds we currently provide?
What needs to happen is for taxpayers to hound their politicians and tell them to focus on cutting wasteful and luxurious spending rather than raising taxes.
But before that happens, more people need to know about the financial storm weâ€™re facing. Governments may not care to prepare for such problems, but most taxpayers certainly do.
Colin Craig is the author of The Government Wears Prada, and is a director with the Manning Centre.
* This column was published by the National Post on June 15, 2015