A greying nation

A greying nation:
Rudyard Griffiths, National Post Published: Wednesday, February 11, 2009


How much is too much? Just days after the passage of a federal budget that will add $85-billion to the deficit in the next four years, opposition MPs, the unions and some Bay Street economists are urging the Prime Minister to consider even more stimulus spending. Their reason: the staggering 127,000 in seasonably adjusted job losses this past month.

Before rushing headlong to embrace deficits on the scale being contemplated in the U. S., our policymakers should reflect on a key difference between the country today versus when we clawed our way out of previous recessions -- Canada is a rapidly ageing society with ballooning financial obligations.

Economists estimate that as the percentage of the Canadian population over the age of 65 increases from an already high 13% to around 18% by the end of the next decade, the resulting demographic shift could cost taxpayers as much as $50-billion annually in today's dollars.

Senior citizens generate, on average, five times the health care-related expenditures of younger adults. Canada's federal and provincial governments currently spend $120-billion a year on health care of which seniors' share is $55-billion. If seniors made up 18% of the population today, they would be responsible for $76-billion in expenditures -- an additional $20-billion annual drawdown of public funds.

This number does not factor in the ongoing medical advances, which are extending Canadians' life-span in the final -- and from a health care perspective most expensive -- years of their lives. In British Columbia, for example, the government spends approximately $2,000 per year on health care for every citizen aged 50-55, compared with a whopping $22,074 annually for each senior 90 and older. In short, the $20-billion per year could well prove to be a low-end estimate of the new health care spending that our ageing population will require in next decade.

As more Canadians retire, and as those already in their later years continue to live longer, financial demands on the Canada Pension Plan and old-age security will necessarily increase. If an additional 5% of the population were over the age of 65 today, the federal government would have to shell out $10-billion more in pension-related payments.

Canada will also soon confront the financial consequences of a shrinking workforce: On Jan. 1, 2012, the first Baby Boomer born in Canada will retire. In subsequent years, the exodus of Boomers from the workforce will steadily accelerate.

Today, Canadian women are giving birth, on average to 1.5 babies each -- half a child short of population replacement. Thus, over the course of the next decade the whipsaw of ever more retirees and ever fewer people entering the workforce will begin to bite. More precisely, when Canada celebrates its 150th birthday eight years from now, 4% fewer Canadian adults will be paying taxes, which translates into a loss to government treasuries of as much as $20-billion per year.

Add the $30-billion or more in new spending on health care and pensions to $20-billion in lost taxes and you have a $50-billion annual bill -- in today's dollars -- to pay for the rapid ageing of our society by the year 2020 or sooner.

The reality is that we simply cannot afford debt levels such as those we sustained when Canada was a 'younger' nation. We have to make good, as best we can, with the existing stimulus and avoid, at all costs, a structural deficit. Otherwise, the greying of Canada could become a financial crisis that makes our current economic woes look downright trivial. - Rudyard Griffiths is the co-founder of the Dominion Institute. His forthcoming book Who We Are: A Citizen's Manifesto will be published next month by Douglas and McIntyre."