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.
EXPENSES ARE RISING
Elderly benefits The elderly are expensive. Today the federal government spends $33-billion a year on old age security and the guaranteed income supplement, its largest direct payment to individuals. The program will eat up 3.3 per cent of GDP by 2031 as people live longer and draw benefits down for longer periods. The value of payments, in that model, would drop from 14 per cent of the average annual wage to between 10 and 11 per cent of the average annual wage, leaving recipients worse off.
Health care These costs won't jump instantly. The burden of health-care costs is highest in the last six months of a person's life, typically when they're in their 80s, and the first boomers won't get there for another 15 years at least. Demographers say although the boomers are overweight, they didn't smoke at the same rate and appear to be in better shape than their parents at the same age.
In 2007 the federal government provided $21-billion of the $104-billion spent by provinces on health care. If health-care spending continues to rise at 6 per cent a year, governments will struggle to pay for anything else.
REVENUE IS FALLING
Consumer spending The assumption is old people buy less because they've already accumulated so much. It's not true, economists say. Consumer spending drops a little at retirement, but the boomers will likely keep up their acquisitive ways, TD economist Don Drummond says. Most have been told to aim for a retirement income of 70 per cent of their wage-earning days. Many will also be buying houses for children who can't afford them, and paying tuition for grandchildren, so the government's take on consumption taxes shouldn't suffer too much.
Taxes Fewer wage earners means a smaller tax-take, naturally. But this is a generation with gold-plated pensions, so they'll be rich enough to pay a chunk of it back. They'll also be paying taxes on the RRSPs they socked away from the taxman in their earning years. The number of 55- to 65-year-olds working has recently jumped 10 per cent, and Mr. Drummond anticipates a rise of another 10 per cent to come. "It's a mini-revolution," he said. The same trend holds true for the over-65s, he added. All that work adds up to a tax base that's thinning more slowly than many expect.
HOW CAN WE FIX IT?
Elderly Benefits Demographer Roderic Beaujot suggests clawing back the old-age supplement completely when a person's income reaches the average annual wage. He also suggests cutting back on RRSP deductions, which mostly benefit the well-off.
Feasibility: No one wants to make seniors angry. They vote. As do those with RRSPs.
Health Care Prof. Beaujot suggests a mechanism to save for our own future health-care costs that wouldn't place the burden on younger generations. A focus on prevention rather than expensive cures could also prove effective.
Feasibility: Debating health care is so far a non-starter for Canadians. And there's no easy way to address the issue of exorbitant costs of late-life care.
Immigration Could mass immigration move our population pyramid? Yes, but it would have to be unusually massive. Just to keep the labour force growing at its current 1 per cent annual rate, Canada would have to treble immigration levels to 750,000 a year, Mr. Drummond said. With immigrants today making only 55 per cent of the pay of their Canadian-born counterparts after five years, such a level would be beyond Canada's ability to integrate, he said.
Feasibility: Could cause chaos.
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