Debate over Canada’s aging population set to heat up

Originally published in The Globe and Mail on August 12th, 2011. To go to the Globe and Mail website please click here

The debate over Canada’s demographics is poised to heat up this fall as the Parliamentary Budget Office prepares the release of a wide-ranging study of what an aging population means for Ottawa’s bottom line.

Parliamentary Budget Officer Kevin Page caused a stir in February 2010 when he first looked at the issue, warning that part of the federal deficit is structural — or permanent — and will not be erased over the long term unless Ottawa cuts more deeply or starts bringing in more tax revenue.

The Conservative government flatly rejected the notion of raising taxes to keep the books balanced over the long term, even though it faces rising health care costs from an aging population.

Finance Minister Jim Flaherty will soon have to tackle the expiring cash transfer deals to the provinces for health care and other social services, a debate with huge implications for the financial health of governments across Canada, not to mention the personal health of Canadians.

Mr. Page has repeatedly expressed concern that the government is not outlining its long term plans for covering the costs related to an aging population.

“The longer term analysis, which has been missing from the government, is essential to shape policy decisions,” said Mr. Page in an email. “The size of the fiscal gap is relatively modest, but it exists and sustainable actions (program cuts; tax increase) are required to achieve a stable debt relationship over the longer term. Given the pending debates on fiscal transfers and the importance of fiscal federalism in Canada, our 2011 fiscal sustainability study will be expanded to include a provincial-territorial dimension.”

The Globe and Mail reported Thursday that an internal government report warned senior federal officials last fall that with baby boomers starting to hit 65 in 2011, “the dependency ratio will start to increase significantly in a matter of months.”

There is concern now being expressed that policy planners are relying on the dependency ratio — a yardstick that essentially assumes all citizens 65 and over are dependent on others — which is usually calculated by taking the number of people aged 65 and over divided by the number of people of working age.

Susan Eng, vice-president of the retired persons advocacy group CARP, said that statistic ignores the fact that older Canadians are a lot healthier — and use less health services — than earlier generations of retirees.

Ms. Eng points to a 2010 article in Science magazine that makes the statistical case against using the dependency ratio.

“If instead, the dependent population is defined by the projected incidence of ill health and other causes of disability, then the ratios are much more optimistic,” said Ms. Eng in an email to the Globe. “Instead of escalating, the trend lines are nearly flat in North America. So no need for ‘hair on fire’ stories about the workforce or the health care system.”

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