Grey wave to hit provinces’ bottom line by mid decade

NationalPost.com – news
Tuesday, Mar. 8, 2011.   Paul Vieira, Financial Post

The aging population is set to put the squeeze on government finances sooner than expected, economists at National Bank Financial warn, pushing health care costs up 11.3% over the next five years in Ontario when factored with population growth.

This funding challenge further muddies the outlook for provinces that face sizable deficits and the inevitable prospect of higher interest rates down the road.

While the greying population has been tagged a long-term challenge, NBF said in a note to clients it is actually going to hit provincial bottom lines by mid-decade – when, as it happens, a federal-provincial deal on health-care transfers comes up for renegotiation.

“On the path to restoring fiscal balance, provinces will have to deal with the implications of demographic trends for both revenue and program spending,” said Paul–André Pinsonnault, senior fixed-income economist at NBF. “The provinces are approaching a critical point and credible policies needs to be put in place to address this issue head on.”

NBF attempted to measure the spending impact under modeling that incorporated the latest Statistics Canada data on demographics and inter-provincial migration, as well as figures from the Canadian Institute for Health Information on spending trends. It assumed spending trends would remain constant, even though it recognized health-care spending is influenced by a variety of factors, from price inflation on medical equipment, more costly drugs, and wage demands from doctors and nurses.

Here are NBF’s key findings:

• The headwinds of population aging will begin to be felt in the next five years. In Ontario, this factor alone will push health-care costs up 5% over the next five years; in Quebec, 6.3%; and British Columbia, 3.2%. By 2030, the increases for the three big provinces come in at 22%, 30% and 15%, respectively. NBF said seniors are projected to grow faster in Quebec, and Quebec spends more per capita for the over-69 age group than British Columbia does.

• When population growth and population aging are combined, the projected increases catapult. In the next five years, Ontario faces an 11.3% increase in health-care costs; Quebec, 10.4%; and British Columbia 11.7%. By 2030, health-care spending in British Columbia is projected to grow 53.4% under the combined effect of aging and demographic growth, compared to 50.3% in Ontario and 46.8% in Quebec.

On this latter measure, Quebec’s better showing is due to slower population growth. “This could be a mixed blessing,” Mr. Pinsonnault said. “Indeed, it could imply slower potential GDP growth as well. Hence, public health-care expenditure as a share of provincial GDP could still prove more of a burden in Quebec than in British Columbia down the road.”

Of the three provinces NBF looked at, Ontario faces a budget shortfall this fiscal year $19.7-billion budget shortfall for the fiscal year ending March 31; Quebec, $4.6-billion; and British Columbia, $1.7-billion.

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