A warning for the provinces
The Gazette (Montreal)
Tue 10 Oct 2006
Page: A18

Section: Editorial / Op-ed
Byline:
Source: The Gazette

It's a prediction guaranteed to make any provincial
finance minister break out in a cold sweat.

A leading research institute has taken a close look at what the greying of
Canada's population will mean for different levels of government. The rich
federal government, it turns out, gets richer, while the 13 poor provincial and
territorial governments get poorer.

The conclusion will certainly lead many provincial politicians to renew their
whining about the "fiscal imbalance." What this study should lead to, however,
is rather different: It should propel the provinces to get their financial
houses in order.

The premise is simple: As the population ages, the federal government is
actually a net gainer financially, because "prospective declines in spending on
children outweigh increases in its pension obligations."

But provinces, on the other hand, "face sizeable increases in health-care
spending, only partially offset by falling education budgets, with the outlook
generally worsening as one moves from west to east across the country." That's
because young people are moving from east to west in Canada.

Economist William Robson, president of the C.D. Howe Institute, finds
that the total net liability of governments due to demographic change will total
an eye-opening $810 billion over the next 50 years.

Even over half a century, it's a figure that obviously cannot be covered by
increasing transfers from Ottawa to the provinces.

In his bloodless economist's way, Robson offers proposals to defuse this time
bomb. He calls on governments to improve the balance of benefits and costs in
health and education programs - which means requiring people to pay more. He
also suggests governments pay down existing debt, and also perhaps build up
balances to pre-fund "foreseeable expenses such as drug programs during the
breathing space of the next decade."

Finally, he wants governments to follow "growth-friendly policies," saying if
our economy can raise "growth in output per working-age person to 1.9 per cent
annually, while holding growth in service intensity to 1.5 per cent" the whole
$810-billion problem just vanishes. (Oddly, Robson omitted at least one other
partial solution: keeping more people at work past 65.)

Readers will have noticed that his proposals are classic small-c conservative
economic doctrine, now dressed up as a solution to our demographic problem. Many
will find this unpalatable. But assuming that Robson's math holds up, critics of
his proposals will have to come up with an alternative solution to the problem
of a greying population. And immigration is not that solution: The C.D. Howe people demonstrated that in a separate paper last
month.

The math there is unrelenting: at present there is about one Canadian over 65
for each five Canadians of working age. By 2050, there will be more than two
seniors per every five workers. To maintain the current ratio, Canada would have
to increase its population at an unheard-of rate.

Canada's provincial governments need to get on the straight and narrow path
to fiscal discipline right now, these economic studies tell us, before the jaws
of the demographic trap close down upon us and our children.

Both studies can be found at: www.cdhowe.org

Edition: Final
Story Type: Editorial
Length:
516 words