Aging population to push federal deficit higher unless action taken: Page

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OTTAWA - Ottawa needs to make major changes if it's to counter the financial impact of an aging Canadian population, Parliament's budget watchdog warns in a major study released Thursday.
With a smaller portion of Canada's population of working age and paying taxes, the federal debt will keep increasing unless the government cuts spending or raises taxes, Parliamentary Budget Officer Kevin Page said.
Acting to fix the problem within a few years will be relatively painless, he says, amounting to finding about $20 billion in structural fiscal changes.
But waiting 10 years means the fix will cost close to $30 billion and it will cost $40 billion if the reform are put off for two decades.
And unlike the 1990s, when the Liberals eliminated the federal deficit within a few years by making deep spending cuts and raising taxes, the current challenge now will require sustained savings throughout most the century.
"We do not have a fiscal structure to deal with aging demographics. You have to make changes," Page said Thursday.
"It requires permanent actions over the long term not like the one-time actions of the 1990s."
Page said he doesn't expect Finance Minister Jim Flaherty to act as early as the upcoming budget to be released on March 4. But he said a "credible budget" would acknowledge the need to tackle the demographic problem.
In a nutshell, the generation of Canadians who were born following the Second World War is approaching retirement age. As a result, the so-called Baby Boomers will shift from contributing income taxes to Ottawa's coffers to drawing on programs like Old Age Security and health care.
In the next decade alone, Page says, the percentage of Canadians who are retired compared to those working will rise to 27 per cent from 20 per cent, equivalent to the gain of the last four decades combined.
By mid-century, he projects there will be one retired Canadian for every working Canadian.
Immigration can mitigate some of that reality, but not by much.
The government can credibly claim that it did not see the global recession coming, "but you cannot argue you do not see demographics coming," Page said.
Page said his is the first national report that looks at the long-term impact - 75 years - on federal finances due to aging, although he said he has no doubt the Finance Department has done an analysis.
The implication of not acting is that more and more of the government's revenues will be eaten by interest charges to service the mounting government debt, much the same scenario as occurred in the 1980s and early 1990s.
Ottawa is expected to record a $56 billion deficit this year, and has forecast the shortfall will shrink to about $5 billion in 2014-15.
Not according to Page's analysis, however. He suggests Ottawa's shortfall will be in the neighbourhood of $20 billion five years out, and with aging starting to really bite at that time, won't be coming down on its own.
Both the prime minister and Flaherty have repeatedly said they would not raise taxes to deal with ongoing deficits, saying spending cuts and economic growth would eventually do the trick.

Organizations: Old Age Security, Finance Department

Geographic location: OTTAWA, Canada

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