Canada lags in addressing cost of aging society: budget watchdog

TheGlobeandMail.com – News/Politics – As international economies face looming strain head on, Ottawa fails to deliver report it promised two years ago
Published on Thursday, Feb. 18, 2010. Last updated on Friday, Feb. 19, 2010.   Steven Chase

The Canadian government is lagging other major economies in confronting the fiscal squeeze that aging populations will place on state finances worldwide, parliamentary budget watchdog Kevin Page warns.

Ottawa has not only failed to deliver on a two-year-old promise to release a major report on the subject but also has gone largely silent on the matter even while international peers regularly publish long-term fiscal forecasts.

In a new report Thursday, Canada’s Parliamentary Budget Officer warned of hard choices ahead over the next seven decades. During this period, the work force will shrink in proportion to a growing pool of retirees – and demands for health spending and elderly benefits will rise.

This means a whole other headache for Ottawa on top of short-term efforts to balance its deficit-soaked books.

Mr. Page says the demographic crunch will require Canada to hike taxes or chop spending by at least $20-billion annually over the coming decade – merely to ensure the national debt remains constant in relation to economic output. Failing to act will compound the problem and widen this “fiscal gap” so that $40-billion of action is later needed to avoid mounting debt.

< http://www2.parl.gc.ca/Sites/PBO-DPB/index.aspx?Language=E >

He led off his 42-page report – in the fourth paragraph – by noting that the Finance Department has yet to produce a 2007 report it pledged would offer Canadians a long-term look at their fiscal future and sketch out the impact of demographic change on budgets.

“Why haven’t we seen this before? I think that’s a question you need to put to the Minister of Finance,” Mr. Page told reporters.

“We know that other countries do this type of analysis. The U.S. does it annually. The U.K. does it annually. Scandinavians do it annually. Other countries do it every three years. This … needs to become a regular pattern in Canada.”

Finance Minister Jim Flaherty’s office suggested Mr. Page’s report is speculative. Spokesman Chisholm Pothier said the government is concerned with immediate challenges.

“Making assumptions and calculations 75 years into the future may be an important academic exercise for some, but Canadians expect their government to focus on today’s economy and securing the fragile economic recovery,” Mr. Pothier said.

The Finance Department similarly offered up the demands of managing the economic downturn as a rationale to explain why it has not released the 2007 report on the fiscal implications of an aging population – a problem former Liberal finance minister Ralph Goodale called a “demographic time bomb.”

“The government has been examining the issue on an ongoing basis,” Finance Department spokesman David Barnabe said, adding a “longer-term focus” will return after Ottawa wraps up the second year of its stimulus plan.

Speculation about the 2007 report is that the Conservatives failed to release it because it would have contradicted the Harper government’s boast at the time that generous increases in transfers to the provinces had solved a so-called fiscal imbalance between Ottawa and provincial capitals.

“It’s certainly the end of the bickering. It’s the end of the discussion,” Mr. Flaherty declared in March 2007.

But demographic pressures will likely boost provincial demands for federal health cash and revive fractious relations.

Christopher Ragan, a visiting economist at the Department of Finance, predicted in a 2009 Policy Options article that the “coming fiscal squeeze will create new tensions” between Ottawa and the provinces and “significant pressures will be placed on the federal government to increase financial transfers. … in order to meet these growing demands.”

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