Why parties ignore the arithmetic of aging

Theglobeandmail.com
Aug. 27, 2015
By Jeffrey Simpson

Election campaigns are about the short term: four years, maybe fewer. Campaigns are therefore mostly about today and a little bit about tomorrow. Large, difficult, long-term trends that will shape our society tend to get ignored.

Two of these trends are evident for those who look at demography. Canada’s population is aging fast. Partly as a consequence, future economic growth will be slower. Government revenues at existing tax rates will rise less slowly than the cost of demands for certain types of government spending - regardless of who wins the election.

Seniors are Canada’s fastest-growing age group. Today, the over-65s account for about 15 per cent of the population, or about five million people. By 2036, Statistics Canada projects the share will be about 25 per cent, or around 10.5 million.

The five easternmost provinces will all have more than a quarter of their populations over 65 years of age, with Newfoundland at more than 30 per cent. They already have the weakest economies. Aging will weaken them further.

Canada’s median age is now about 40, and heading upward. It was 26 in 1971. The median age could be worse; it’s 46 in Germany, and higher still in Japan.

The total fertility rate (TFR) is about 1.6 children per woman. Population replacement rate is 2 per woman. As a result, and even after accounting for immigration, the annual population growth rate for the next half-century will be the lowest in Canadian history.

More seniors means fewer people in the labour force, even if a few seniors keep working into their late 60s. The ratio therefore between those in the work force and those outside of it will change dramatically over time. What used to be a 5-to-1 ratio will slip to something like 2.5 to 1.

Both the federal Department of Finance and the Parliamentary Budget Office have alerted us to what lies ahead: economic growth will be slower, the burden of expenditures on government for seniors programs will increase, and government revenues will be stretched. It’s arithmetic not politics.

The arithmetic of aging is politically uncomfortable. It’s especially uncomfortable for provinces, the level of government that delivers labour-intensive services such as health, education, policing and welfare. The provinces’ burden will also rise because, unless a new federal government changes the decision, Ottawa’s yearly transfers to provinces for health care will increase less rapidly past 2017. The result will be a hole of some billions of dollars.

Aging with its higher costs and lower growth is the context by which the electoral promises of every party might usefully be judged. They are all catering to today’s middle class, fighting over which cares the most about their “anxieties.” And they are fixated on seniors, too, since seniors vote.

You could say that the NDP day-care promise is future-oriented, in that if fully implemented it would encourage more women to work, which in turn would ease the ratio of those adults working to those who are not. It might up the fertility rate, which would help, as it has in Quebec.
You could say that the Conservatives’ decision to raise the age level for receipt of the Old Age Supplement to 67 from 65 recognizes that people are living much longer than when the OAS was implemented. (Women in the next decade are expected to have a life expectancy of 87.)

All parties pledge to stoke up the engines of economic growth: in the NDP’s case by lowering the small-business tax rate by two points. Except that the party then proposes to raise the tax for large companies by two points, an impediment to creating more large companies of the kind Canada needs in a global economy.

Pledges to increase manufacturing are not worth much, since manufacturing has been more or less in decline in North American and Europe (except Germany) for a long time, for reasons rather outside the capacity of governments to influence, except by subsidies and other forms of direct or indirect help.

Promises predictably have been pouring forth from every party, without any of them yet providing some sort of overall accounting for how they will be financed.

Even when (if?) this accounting is provided, the chances are excellent it will be based on falsely optimistic assumptions about economic growth and the revenues it will provide. The demographic shift now beginning will likely mock those assumptions.