Sluggish Economic Outlook Forces Charities and Policymakers to Plan for a Looming Social Deficit

ThePhilanthropist.ca – 2016/10
October 18, 2016.   Brian Emmett

Canada’s charitable and non-profit sector has grown more rapidly than the economy as a whole over the last 20 years, creating jobs and growth, and expanding services and supports available to Canadians. Two factors have fueled the expansion of the sector. First, demand for what charities and non-profits provide has increased as the population has aged and changed. Second, the expansion of the sector has occurred in the context of an economy that has been performing well, generating income and wealth that have enabled individuals, businesses, and governments to support the sector.

The relationship between charities, non-profits, and the economy is a healthy and synergistic one, in which charities and non-profits create jobs and growth. In turn, revenues from donations, from government transfers, and from earned income support them, all underwritten by revenues originating in an expanding broader economy.

But the world is changing. While demands for services from the charitable and non-profit sector continue to expand with ongoing demographic and cultural change, Canada is facing a future characterized by slower economic growth in the long term (20 years or more). The convergence of slowing productivity growth, declining labour force participation rates, soft commodity prices, and an aging population will significantly affect the growth of the Canadian economy. Putting demand and revenue projections together creates a daunting picture for all sectors – charities and non-profits, governments, and businesses. There will be an emerging structural fiscal deficit, most pronounced at the provincial level, which will have worrying consequences for the ability of governments to finance programs that Canadians value.

Canada will face a growing, long-term, structural social deficit, analogous in many ways to a structural fiscal deficit. This structural social deficit will be the result of interactions between the needs for charities and non-profits to expand to meet ever-rising demand (driven by demographic, cultural, and social trends) and the slowing rate of growth in the broader economy. Unlike a fiscal deficit, a social deficit will not reveal itself in red numbers on a balance sheet. Instead, it will appear as an accumulation of unmet needs, in growing waiting lists for social services, and in increasingly overburdened charities and overworked staff and volunteers. In short, a social deficit will appear as an inability of charities to meet the social, cultural, and environmental needs of Canadians and as a slow but perceptible erosion of Canadians’ quality of life.

Charities and non-profits will feel the impact of slower economic growth from at least three different directions:

1. Policymakers will feel the effect of slower growth and demographic change. Experts forecast that governments (especially provincial governments) will experience persistent and growing deficits, creating the need for difficult decisions: either to raise taxes or to reduce program spending (including perhaps downloading responsibilities to charities and non-profits).

2. Slower growth will reduce disposable income of consumers (and the revenues of the private sector) and affect their ability to spend, including the spending that makes up earned income for charities and non-profits.

3. Slower growth in disposable income (and business profits) will influence the ability of households and businesses to donate to charities and non-profits.

Using data from the period of 1998 to 2007, and making realistic assumptions about the impact of slower economic growth on revenue streams for a sector facing growing social and cultural demands, Imagine Canada has forecast a social deficit of up to $23 billion in 2026 (based on slightly accelerated growth in demand and lower assumed revenue from governments). This is a measure of how much faster the sector will need to run in 2026 to stay in the same place.

This analysis has four broad implications for charities and governments:

1. It is past time for governments (along with charities and non-profits) to recognize the sector’s importance as an economic force and treat it as an important solution in policies designed to stimulate smart growth, productivity, and employment.

2. Under all reasonable assumptions, there will be a growing gap between what is expected from charities and non-profits and what they can do with reasonable projections of trends in revenue. Canadians and the charitable and non-profit sector face a structural social deficit ranging up to $23 billion in 2026 – a number that implies either substantial unmet social, cultural, and environmental demands in 2026 or a significant increase in revenue generation. A significant increase in revenue implies broad structural reforms both in the way governments fund and regulate the sector and in the tools charities and non-profits use to fund themselves.

3. Charities and non-profits, too, need to pay attention to broader economic issues and policy. Lagging economic performance will in part generate the projected structural social deficit. Charities and non-profits have a vital interest in policies and programs that address fundamental economic issues of productivity and growth.

3. Charities and non-profits should be concerned not just in the amount of economic growth, but also its quality. The overlap between the smart growth agenda (growth that is equitable, inclusive, and environmentally responsible) and the mission-driven charitable and non-profit sector is significant.

The challenge of financial sustainability for the mission-driven sector is not just a problem for charities and non-profits. It is an all-of-society problem arising from the impact of demographics and economics on the ability of governments, charities, and non-profits to meet the social objectives of Canadians. The question is of the broadest nature: how can the non-profit sector, government and the private sector, all of whom face a similar problem of ends and means, work to achieve the prosperous, equitable, and environmentally responsible society that Canadians want? There is no magic bullet remedy for challenges of this scope. It will require broad structural reforms in the way governments think of, fund, and regulate the charitable and non-profit sector.

Full report (English):  < http://www.imaginecanada.ca/sites/default/files/imaginecanada_charities_sustainability_smart_growth_2016_10_18.pdf >

Le rapport complet (en Français):  < http://www.imaginecanada.ca/sites/default/files/imaginecanada_organismes_bienfaisance_financement_durable_croissance_intelligente_2016_10_18.pdf >

Brian Emmett is chief economist for Canada’s charitable and non-profit sector. He was Canada’s first Commissioner of the Environment and Sustainable Development in the late 1990s and worked extensively on Canada’s Green Plan. He also served as Vice-President of the Canadian International Development Agency (CIDA) in the early 2000s and has been an assistant deputy minister in a number of federal government departments.

< http://thephilanthropist.ca/2016/10/sluggish-economic-outlook-forces-charities-and-policymakers-to-plan-for-a-looming-social-deficit/ >

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