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Okay, a 75-year time horizon is a bit more than I usually like to deal with, but I had to like this week's report from the Parliamentary Budget Officer (PBO). They are hammering away at something that doesn't get discussed enough: Canada's population is aging and there is not going to be enough people working to pay for all the stuff we are used to having the government provide.
I've written about demographics before-often actually. Day-to-day I get caught up in the indicators that move the markets and the outlook for the next six months or a year or whatever. Still, I also force myself to look at the bigger picture, and that means looking at population growth.
The PBO report tells us some stuff we already know: that population aging means slower labour force growth means slower economic growth. They go further though, and talk about what that means in terms of government revenues. Without going into the number, let's just say that there will be a lot less revenue growth - just when we will actually need more.
Thing is, an older population needs less spent on education and children's services and all that, but more spent on health care. A lot more actually. Here is the one statistic to think about: to maintain the level of government services we have (let alone improve them) would mean finding 2.7 percent of the value of gross domestic product. Or, alternatively, you could cut the level of services. But however you look at it, we have a 'sustainability gap' looming.
What happens if we do not make the adjustments? Well, the level of government spending would grow more quickly than the economy, which means the Debt-to-GDP ratio would rise sharply, then even more sharply over time. If you want to know how that tends to turn out, check out Greece, which has a Debt-to-GDP ratio of somewhere about 150 percent, compared to under 35 percent in Canada. The options for everyone get squeezed when the fiscal picture isn't in check.
We have some time to debate all this - things are not going to get really dire for a few more decades. But they are going to get just a little bit dire in ten years, and a little more dire in fifteen years, and so on.
It isn't going to be a pretty debate as we confront our choices, but it is one we are going to have to have.