Demographic storm ahead
When a storm approaches on the horizon, most people take a few minutes to think about whether or not they're prepared - 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; unless things change.
Consider that over the next several decades, Canada's population will go through a shift of epic proportions due to our nation'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. That's not a criticism of senior citizens; it'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. After all, senior citizens tend to require more expensive health procedures; services like cataract surgery, hip replacements and nursing home care.
If you're wondering how this enormous shift will impact government finances, consider what the federal government'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. A 2011 report by the MacDonald-Laurier Institute calculated something twice as dire; they projected a $67-billion annual shortfall.
While it's difficult to say what exactly will happen, it's clear that our nation has a serious challenge on its hands.
So what have governments done to prepare for this situation? Sadly, the answer is not much at all. Despite knowing about the aging population challenge for decades, governments haven't saved up a penny to address it. In fact, nation-wide, total municipal, provincial and federal government net debt is approaching $1.3 trillion. That'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.
Raising taxes should be off the table. Not only is our tax burden already quite high, governments have proven more often than not they're just not responsible with the money we currently provide them.
One thing is for certain, more people need to know about the financial storm we'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 the Director of Strategic Communications for the Manning Centre
This column was published by the National Post on June 15, 2015