The Canadian Independent

The Deficit Fantasy

Posted in The Economy, The Public Sector by dave on March 21, 2010

The Canadian government has some difficult fiscal policy decisions to make, that the government simply isn’t interested in talking about. None of the opposition parties are interested in making these decisions, either. Politicians are too concerned about winning the battle of the day, be it about Rahim Jaffer’s coke habit or whether or not Canadian soldiers are complicit in maybe sometime sending Afghan detainees to be tortured by other Afghans.

Unfortunately there is a real fiscal problem coming in Canada – the aging crisis. The fundamental issue is this. In 2001 there was about 5 working Canadian taxpayers for every senior in Canada. As soon as 2020, that number will be down to 2 working taxpayers for every senior in Canada.

Seniors, use a disproportionate amount of healthcare, social assistance and collect from the Canada Pension old age retirement program and the Canada Pension disability program. What this effectively means is since we have socialized, made society responsible for the costs of individuals using these particular services, is that we’re going to have a glut of elderly people requiring more healthcare than they had needed before, requiring more long-term care service than they had needed before, requiring more in-home care services than they had needed before. Demand for healthcare in this country is going to rise simply because the amount of people, as a proportion of society, who require these services is going to rise dramatically. And that group expected to supply for the costs of healthcare in this country, the base of taxpayers, is going to reduce dramatically as a proportion of society.

The result of this trend is that healthcare, disability, long-term care and pension costs are going to continue to rise while the tax base to pay for these costs is going to continue to shrink. You don’t have to be a genius to see that such an arrangement is fiscally unsustainable.

Ontario Premier Dalton McGuinty has already said that in 12 years 70 per cent of the province’s operating budget will be needed just to sustain medicare. That’s not going to happen because otherwise education and other services would collapse, leaving us without the resources to sustain medicare.

The small changes that the Federal Tories are making in order to “reduce the deficit” is a fantasy in light of the changing demographic trends and the way we have set up healthcare and other services in this country.

Canada is facing a permanent structural deficit based on the services that it already has set up. The only way we can avoid this is by significant reform of the current system. The problem from a fiscal and ideological standpoint is that we’ve set up an upside down pyramid, where seniors and the elderly in our society are provided for by the young working taxpayer. Normally this arrangement shouldn’t have the fiscal problems that we are facing, because often times there are several taxpayers for every senior, and together they have the fiscal capacity to sustain the programs for the seniors.

However, in our current circumstance we are having an increasingly smaller population base to support a rapidly increasing base of seniors.

Without a change in the way we deliver healthcare and other seniors services, the deficit the government is facing can only be structural, and will be something that will be much more difficult to deal with 10-15 years down the road.