Stephen Harper, like any TV action hero worth his salt, can afford to ignore the cries of warning and wait a little longer before defusing the demographic time bomb in his lap.
Mr. Harper is trying to balance the budget in the next three to four years without derailing a fragile recovery. But many have noted that unlike the deficit-slaying era when Paul Martin was finance minister in the mid-1990s, Mr. Harper doesn't have demographics on his side.
The Parliamentary Budget Office warned last week that an aging population could lead Canada on a path to economic ruin. But many demographers say the panic raised by that report is premature. In the long run, Canada will certainly have to address rising health costs and a shrinking tax base, but the process is more glacial than explosive. It's unlikely to have an effect on the federal budget to be handed down next week, they say. The question is whether Mr. Harper will lay the groundwork for future prime ministers to tackle what portends to be a defining feature of the next 50 years.
“The worry is that with all the discussion of demographics there might be an alarmist reaction, that they might do something drastic, which I don't think they have to do at least based on demographics,” said Susan McDaniel, Prentice research chair in global population and economy at the University of Lethbridge.
Canada is still experiencing a demographic dividend, she said, and will continue do so, even when the first of the baby boomers hits age 65 in 2011.
“Those aged 43 to 64 – the baby boom – they're in the peak of their earnings. Ninety-nine per cent are still in the labour force, working, contributing taxes, doing everything they should do. So this notion that demographics are against us is a bit of an excuse.”
The Parliamentary Budget Office predicts that Canada will face a “fiscal gap” with annual deficits of an extra $20-billion to $40-billion over the next decade to cover the costs of a greying population.
Don Drummond, chief economist at TD Bank, said the analysis is useful, but shouldn't be taken as gospel. There are a lot of variables, such as productivity growth, that are very difficult to predict, he said. Health-care costs will rise, but the largest portion of health-care expenditures kick in around age 85. The first baby boomer won't turn 85 until 2031.
“It's a big cost, but it's not as though you wake up one day and all of a sudden your world has changed,” Mr. Drummond said. “The warning is don't dilly-dally for too long. Because it doesn't get any easier the longer you wait.”
As Prof. McDaniel notes, early retirement is a thing of the past. Many people are now working well past 65. That's due partly to the push of financial hardship, and partly to changing life patterns, she said. Some are retiring and then finding other jobs, which is difficult to track statistically, she said.
“The baby boomers are not retiring to the same extent that the cohort a little bit older did,” she said.
Although Canada maintains the highest per capita rate of immigration in the West, immigrants can do very little to stem the bulge in Canada's aging population. One study showed that if Canada had accepted no immigrants at all from 1951 to 2001, it would only have raised the median age by 0.8 years.
“Even at 250,000 or 500,000 [immigrants per year] it's hard to change the shape of the population,” said Roderic Beaujot, a demographer at the University of Western Ontario.
*****
WEIGHING THE COSTS AND THE SOLUTIONS
How to prepare for the squeeze As boomers age, governments will likely contend with rising costs at the same time as a shrinking tax base. Some solutions, such as reducing old age benefits or overhauling health care, are political hot potatoes. But a closer look reveals that the revenue crunch may not be as bad as feared.
