How far ahead do politicians usually think?
In a minority government, politicians think an hour ahead sometimes, a month more often, a year ahead occasionally. In a majority government, parties have the luxury of preparing for electoral combat in four or five years, and governments can plan for something other than tomorrow's survival.
But how many political men and women think a decade ahead? Most of those in Parliament won't be around in 10 years. So if a problem arises today that will manifest itself in a decade, the political instinct is to punt. Let somebody else catch the ball, later.
This year and next, courtesy of the recession and significant government stimulus, the federal government will be amassing about $100-billion in debt. Provincial indebtedness will also be large. The federal parties, predictably but sadly, are ruling out options to pay the bill: no tax increases, no cuts in transfer payments to provinces, no cuts in the defence budget, no cuts in big transfers to individuals. As such, they are politically punting, arguing that economic growth will bring the budget back into balance.
Alas, even if that fond hope were realized, Canada would still face a considerable fiscal challenge that cannot be punted: the aging of the population. Aging isn't a maybe or something that wise governance or chance can avoid. We've known about the fiscal impact of aging for a long time, and under the Chrétien-Martin government two terrific things were done, fiscally speaking, to prepare the country for it. (There were majority governments in those years, and far-sighted leadership.)
First, the government balanced the books and ran surpluses, so that when the future cost of an aging population began to bear down on federal finances, Ottawa would be in a better position to respond. Second, in co-operation with the provinces, contribution rates were raised for the Canada Pension Plan and an investment board was set up, so that the country is better positioned in public pensions than any G8 country for the aging boom.
What kind of pressure lies ahead?
Pierre Fortin of the University of Quebec at Montreal, one of the very best public finance economists in Canada, tried to tackle the question of how much aging will cost. His answer: about $40-billion a year (in 2008 dollars) by 2020. In other words, in about a decade, even if Ottawa balanced the budget today - let alone run $100-billion in deficits in coming years - it would still be heading into the fiscal hole.
By 2020, baby boomers will be departing the work force. Instead of 51 per cent of the population working today, only 49 per cent will be. That's a 4-per-cent decline. Since Canadians pay about $520-billion in taxes, a 4-per-cent decline would deprive Ottawa of about $21-billion.
To that $21-billion, Prof. Fortin tacks on about $17-billion for additional health care and $12-billion for higher payments to seniors, especially pensions. Perhaps $10-billion would be subtracted for lower children's benefits, child care and education, he says - although he is likely being Pollyannaish, since what politician would ever cut in these areas?
But assume that $10-billion is subtracted. That still means about $40-billion more in government spending, not because of a single new program, but for outlays on existing programs that will grow because of an older population.
Who in politics is talking seriously about this demographic fact? Which politicians have you noticed saying: We need to get the federal budget balanced, and then run surpluses as fast as we can after the recession ends, so that our country will be ready for what Prof. Fortin properly calls the "fiscal squeeze?"
The answer is obvious, because 2010 in the electoral life of today's politicians is over the horizon. Not many voters would like higher taxes or lower government spending today so as to prepare the country better for the pressures of a decade from now. So which politician, thinking about re-election, is going to ask for serious measures today that might cost political support to allow Canada to be better governed a decade from now?
The long-term options include going into long-term debt, raising taxes or cutting spending. Today's political leaders say they will contemplate none of the above. They are punting for their political lives. But Prof. Fortin is right: "Procrastination conceals a trap. It will only make the problem bigger over time."