Thursday, December 20, 2007

Time to Rethink what we expect from the Government

Canadians Face $1.4 Trillion Tab for Public Programs Due to Demographic Change: C.D. Howe Institute

Toronto, Dec. 20 — Canadian governments are unprepared for the fiscal impact of demographic change as babyboomers move closer to retirement, and face a net liability of $1.4 trillion to pay for the current package of public programs, according to a report released today by the C.D. Howe Institute.

The study, Time and Money: The Challenge of Demographic Change and Government Finances in Canada, by William B. P. Robson, President and CEO of the C.D. Howe Institute, says that demographic change, combined with unchanged patterns of age-specific spending, will put enormous pressure on government budgets in Canada.

One major result: today’s younger populace will have to pay higher taxes for their lifetime package of public programs than did their parents or grandparents.

Robson finds that implicit liabilities from healthcare are the biggest long-term fiscal challenge, with an implicit liability of some $1.9 trillion facing the provinces. By contrast, seniors’ benefits will likely have a relatively small impact on government budgets, and a projected decline in the draw of education and child benefits on Canadian incomes will partially offset the rising cost of healthcare. The total fiscal burden is unevenly spread, he notes, with the provinces facing massive increases in healthcare spending, and Ottawa enjoying a net asset position thanks mainly to prospective declines in spending on children.

Meeting the fiscal challenge, says Robson, will require fiscal discipline and budget surpluses, partial prefunding for some healthcare obligations, and growth-friendly policies that will boost Canadians’ incomes – the base on which Canada’s social programs ultimately rest.

The study is available at: http://www.cdhowe.org/pdf/backgrounder_109.pdf.

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