Another ‘inconvenient truth’: We’re getting older

TheGlobeandMail.com – news/commentary/pinion
Published Saturday, Nov. 05, 2011.    Jeffrey Simpson

Canada has hit the tipping point, but we don’t know it. The effects are creeping up on us, inevitably, remorselessly, changing assumptions, causing decisions no one yet wants to contemplate.

The tipping point is this: In 2011, the oldest of the baby boomer generation reaches 65. From now on, Canada’s population profile will slowly age.

Fewer people will be working to support those who aren’t. The consequences will be twofold: Government revenue growth will fall, and government spending obligations will rise. Thus, there’ll be unavoidable pressure for higher taxes or spending cuts, or both. Pick your poison.

Today’s headlines are understandably all about the economic turmoil in Europe and the deficit in the United States. The G20 is floundering in trying to cope with what’s happened to the world economy since the 2008-2009 recession. The International Monetary Fund has lowered growth expectations for the world, the Federal Reserve for the U.S., private-sector economists for Canada.

These are short-term blows, to be sure, that are causing difficult decisions about taxing and spending. In Europe, these decisions have brought crisis meetings, bailout packages, street protests; in the U.S, these decisions have been delayed and delayed again. They now appear to have been pushed off until after the next election, meaning no action before 2014 at the earliest.

The short-term economic prospects, therefore, aren’t encouraging. Aging will test the long-term prospects.

Much academic and think tank literature has centred on the challenging of aging, but the debate has escaped public attention and political action. Politicians are elected for four years, or less. They respond to short-term stimulus – headlines, crises, microphones in their faces, the next budget. Aging, however, requires a long-term perspective, the opposite of the one demanded of elected politicians.

The latest academic to underscore the country’s challenge is Christopher Ragan, a public policy economist at McGill. His paper for the Macdonald-Laurier Institute has the virtue of clarity and rigour. He doesn’t prescribe, he describes, the first stage of wisdom.

The essence of the unfolding drama is simple: Aging will drive up costs for health care and income support for the elderly. At the same time, as more people leave the work force, national income generated by those working will slow. Costs will increase, revenue growth will decline. It’ll happen incrementally, but it’ll happen.

There are things governments could try to ease the dilemma. Increase immigration, but immigrants get old, too. Spend a lot to encourage larger families, but these measures usually produce only marginal results. Encourage people to retire later, by upping the age for the receipt of public pensions, for example. Somehow boost productivity, the vital key to coping with aging that has eluded the country for decades. Restrain the growth in health-care spending, something every government frets about but none can sustain.

Each of these options, even if pursued vigorously, could only help at the margin of the challenge. They don’t allow the country to avoid what Prof. Ragan calls (he stole the line, of course) an “inconvenient truth.”

He estimates that, if taxes were to remain the same, while government spending rises by the pressure of an aging population, an ever-widening yearly gap will grow between revenues and expenditures from today until at least 2040.

We could, of course, do nothing and borrow the money. That would mean no tax increases and no spending reductions. That course of action would mean shifting the burden of payment to tomorrow’s generation. It would produce more and more interest payments each year on the accumulating debt.

Borrowing is the easiest political option, but the least responsible. No matter how today’s economic turmoil in the world works out, the aging of the population will force us to talk about two options that make most Canadians nervous: higher taxes or significantly changed public programs. As Prof. Ragan correctly wrote: “There is nothing else.”

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