Fiscal Impact of an Aging Population on Canada

Business News

Business NewsVANCOUVER – An update on Canada’s demographic future from Statistics Canada confirms what is readily discernable through casual observation: our population is growing modestly and becoming greyer at an accelerating pace.

Under three different scenarios modelled by Statistics Canada’s researchers – slow growth, medium growth and high growth – the country’s population is on track to exceed 40 million by 2063 (up from 35.2 million in 2013).

The slow-growth scenario puts the population at 40 million in 50 years’ time.

Under the medium-growth scenario, the population reaches 51 million in 2063.

And a high-growth scenario sees the number of Canadians swelling to 63.5 million.

The scenarios differ in their assumptions about future immigration levels, fertility rates and longevity. For planning purposes, the most sensible approach is to use the medium-growth scenario, which points to a national population of roughly 50 million a half century from now.

In all scenarios, the proportions of senior citizens within the population – defined as people aged 65 and over – edges higher. From 15.3 per cent today, the ranks of Canadian seniors will expand to comprise 22 to 24 per cent of the population by the early 2030s.

A smaller working age population, coupled with a relatively larger number of elderly “dependents” as the large baby-boom generation moves into retirement, will lead to slower economic growth in the future at the same time as society faces added fiscal stress from an aging demographic. As noted in a recent report from the C.D. Howe Institute, the escalating cost of providing long-term care to frail seniors is one area where aging-related costs are set to rise dramatically.

For British Columbia, the province’s population increases and ages under all of the scenarios modelled by Statistics Canada. By the late 2030s, B.C. is expected to have between 5.2 and 6.7 million people, up from 4.6 million today. The share of the population aged 65 and over is projected to increase to 24 to 27 per cent by the end of the 2030s, up significantly from today’s level and higher than the Canadian average. According to B.C. government forecasts, the province’s “elderly dependency ratio” – the population aged 65 and over as a share of that aged 18 to 64 – will climb from 26 today to more than 40 by 2030. Because British Columbia will be home to proportionately more seniors than most other provinces, healthcare and other aging-related costs can be expected to come under stronger upward pressure here.

Two conclusions follow from the above. First, we need to start preparing today for a different demographic future, one that provides less impetus for economic growth. There are things that can be done to mitigate the growth-inhibiting consequences of population aging. Ways must be found to encourage more people to stay in the workforce beyond the “normal” retirement age of 63 or 65. There is still some room to boost labour force participation rates among women, and lots of scope to do the same with the aboriginal population. It is important to ensure that new immigrants quickly transition into the workforce after they arrive. And as the median voter gets older and consumes a greater volume of health services, it is crucial that policy-makers not succumb to the temptation to shortchange investments in education and skills development aimed at equipping young people with the knowledge and tools needed to build a more productive economy.

Second, the existing system of federal-provincial transfer programs requires a fresh look, given the Canada’s shifting demographic backdrop. For example, the B.C. government should be pressing Ottawa to modify the formula used to calculate federal transfers for healthcare in order to account for the higher per capita costs incurred by provinces with larger concentrations of older residents.

More generally, as emphasized by the Parliamentary Budget Office, the fiscal impacts of an aging population differ between the two main levels of government. While the federal government’s long-term financial position looks favourable, that is not the case for the provinces, which bear more of the costs stemming from burgeoning number of retirees. It is in all of the provinces’ interests to collaborate to persuade Ottawa to assume more of the economic and fiscal burden that is destined to come as the population ages and Canada’s potential economic growth rate gently but inevitably declines.

Jock Finlayson is Executive Vice President of the Business Council of British Columbia.

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