Canada’s aging population could pose serious financial problems for provincial governments, culminating in a budget liability of more than $2 trillion as the growth rate of seniors outpaces working-age individuals, according to a new report.
A combination of slower revenue growth from a smaller workforce and the escalating costs of providing health care for seniors will place Canadian governments in a financial squeeze, according to the report from the C.D. Howe Institute.
The cost is expected to add up to $2.03 trillion over the next four decades.
“The financial sustainability of Canada’s provincial governments is at a critical juncture,” report authors William B.P. Robson and Parisa Mahboubi said in a press release.
“Without strategic policy interventions, the mounting costs driven by an aging population threaten to outpace revenue growth, leaving provinces with difficult choices about service levels and tax rates.”
Canada currently has a ratio of less than one senior for every three potential workers, the authors estimate. They are predicting this ratio will change to one senior for every two workers by 2067, despite the influence of “relatively high immigration.”
Health-care costs as a percentage of GDP are expected to nearly double in some provinces by 2067, the report said.
“Canada is facing a looming geriatric crunch, where the rapid growth of the aging population risks overwhelming provincial budgets,” Robson said.
“Funding these increases from their own taxes will strain the finances of some jurisdictions. The territories would need to double or even triple their own-source revenues.”
Ontario health-care costs are expected to rise from 7.7 percent in 2022 to 12.6 percent of GDP in 2067 and Quebec’s will jump from 9.3 percent to 15.2 percent. The tax rate would need to rise by 34 percent in both provinces to cover the increased cost. That would amount to a nearly $723 billion tax increase in Ontario—roughly $48,000 per resident.
In British Columbia costs are estimated to rise from 7.7 percent to 13.5 percent while Nova Scotia’s costs will increase from 11.6 percent to 20.5 percent. That means the tax rate would need to go up 43 percent in B.C. and 56 percent in Nova Scotia.
The authors said federal policy changes were key to improving productivity to help address the impending budget deficit.
The authors are also calling for modifications to the tax system, suggesting a shift from income taxation to consumption taxes.
“Taxation changes that boost productivity offer a bonus,” they said. “Taxes on personal incomes and corporate profits tend to discourage work effort and investment.”
They are also pushing for the liberalization of interprovincial and international trade, the implementation of skills-matching initiatives within the labour market, and the establishment of strategies aimed at motivating Canadians to extend their working years.
