Tuesday, April 12, 2011

Canada's demographic time bomb

Lost in the political drama over the 2011 federal budget was a spending line item that starkly illustrates the fiscal squeeze posed by the aging population — an issue yet to be addressed during the 41st election campaign.

As laid out in the budget, government spending on elderly benefits is set to surge 30% from 2010-11 levels to 2015-16, with annual increases of between 4.9% and 5.8%, well above projected rates of Canadian economic growth.

Dig a bit deeper and the fiscal noose around Ottawa gets tighter. During the next five years it is expected the federal government, of whichever political stripe, will need to find an extra $2-billion each year either through program cuts or tax increases to finance payments through the Old Age Security and Guaranteed Income Supplement schemes. From 2015 to 2020, that figure climbs to $3-billion each and every year.

“That money has to come from somewhere,” says Kevin Milligan, economics professor at University of British Columbia, who did the shortfall calculations based on actuarial reports compiled by the Office of the Superintendent of Financial Institutions. (read more)