Canada's rising senior population strains provincial budgets, leading to potential tax hikes and reforms
Canada faces significant financial challenges due to its aging population, with a potential $2tn budget liability projected over the next four decades, according to a report by the CD Howe Institute, as cited by the Financial Post.
The report highlights that the rising number of seniors is outpacing the growth of the working-age population, putting pressure on provincial budgets as health-care costs rise and income tax revenues decline.
The report, authored by William Robson and Parisa Mahboubi, indicates that currently, Canada has fewer than one senior for every three potential workers.
By 2067, this ratio is expected to shift to one senior for every two workers, even when accounting for “relatively high immigration.” The 45-year period, starting in 2022 and ending in 2067, was chosen to reflect the average life expectancy of Canadians.
As the senior population increases, health-care spending as a share of gross domestic product (GDP) is expected to rise significantly. The report forecasts that by 2043, health-care expenditures will account for 10 percent of GDP, up from 7.6 percent in 2022.
This share is projected to grow further to 12.7 percent by 2067. Robson warns that Canada is on the brink of a “geriatric crunch,” with the aging population threatening to overwhelm provincial budgets.
The financial impact will vary across provinces, with some experiencing more severe effects based on their demographic trends. For example, Nova Scotia's health-care costs are projected to rise from 11.6 percent of GDP in 2022 to 20.5 percent by 2067.
Saskatchewan, on the other hand, is expected to see health-care costs reach 9.2 percent of GDP by 2067. Larger provinces like British Columbia, Ontario, and Quebec are also expected to see significant increases in health-care spending as a percentage of GDP.
To manage these rising costs, the report suggests that tax rates would need to increase dramatically. In Nova Scotia, taxes might need to rise by 56 percent to cover the increased costs of health care and other services such as education and benefits for the elderly.
British Columbia could face a 43 percent increase, while Ontario and Quebec may see tax rates rise by 34 percent.
In Ontario, the report estimates that an additional $723bn in taxes would be required, with the majority allocated to health-care services. The authors note that discussions about maintaining or enhancing public programs often do not address the need for higher taxes to sustain these services.
To mitigate these financial pressures, the report proposes several strategies, including federal policies aimed at boosting productivity to offset the slower growth of the workforce.
The authors also recommend shifting from income taxes to consumption taxes, which they argue would provide a more stable tax base as people continue to consume regardless of age.
Additional suggestions include liberalizing interprovincial and international trade, improving skills-matching in the labour market, and encouraging Canadians to work longer.
Robson and Mahboubi emphasize that the projected growth in healthcare and other demographically sensitive spending represents a significant liability for provinces, far greater than their current debts.
This looming financial burden requires proactive measures to prevent it from overwhelming provincial budgets in the future.
