Canada’s aging population will put significant stress on government spending programs, which will result in large deficits and mounting debt in the future, warns new a new study from the Fraser Institute, a Vancouver-based think tank.
According to the study, the proportion of the Canadian population that’s over 65 years old will exceed 25% in 2063, up from less than 15% in 2010. This demographic shift will, in turn, place added stress on the government programs such as healthcare and social security.
For example, the study projects that government healthcare costs will be 57% higher in 2045 than they were in 2016, after adjusting for inflation. Similarly, retirement security programs, such as Old Age Security and the Guaranteed Income Supplement, are forecast to increase by 47% over the same period, the study says. In total, increased spending on healthcare and retirement security could rise by $107 billion from this year’s total.
These increased spending demands will come at a time when the labour force participation rate is projected to decline, meaning that economic growth is likely to slow, which would “make it harder for governments to raise the revenue required to pay for the increased program costs,” the Fraser Institute says in an announcement.
As a result of these increasing spending pressures, the organization warns that government debt and deficits are likely to rise. It projects that the impact of the aging population will increase federal and provincial government deficits to an estimated $143 billion by 2045, which is three and a half times larger than current government deficits.
“The population is getting older, but governments across Canada are doing very little to prepare for the major spending increases and reduced revenues that are coming as a result,” says Jason Clemens, executive vice-president of the think tank, in a statement. “We are already starting to see a growing fiscal imbalance between government spending and revenues as a result of Canada’s aging population.”
“Governments will have a stark choice to make — either reform spending programs, enact policies to improve economic growth, run deficits and accumulate debt, and/or raise taxes. The simple math tells us there are no other options,” he says.