Canada’s healthcare system is poised to be strained even further in the coming years as the country’s baby boomer demographic continues to age, provincial governments are headed for a dire financial crisis ahead.
The C.D. Howe Institute, a top Canadian think tank, published a report called Another Day Older and Deeper in Debt: Fiscal Implications of Demographic Change for Canadian Governments on Thursday with a stark outlook for the country’s healthcare infrastructure.
The report estimates a coming financial shortfall of $2 trillion for Canada’s healthcare system, which has been struggling for some time now.
“The fiscal impact of demographic change – in particular, the costs of providing publicly funded healthcare to an aging population that will financially stress Canadian governments – is sometimes compared to a glacier,” reads the report.
“The implication is that the changes, being gradual, require no dramatic reforms to healthcare or public policies more generally. As these projections indicate, however, the cumulative impact of even modest annual changes over time is not small – especially when the impact of aging on the revenue side is factored in.”
The report was co-authored by institute president William B.P. Robson and senior policy analyst Parisa Mahboubi, who noted that healthcare costs as a percentage of GDP will likely double by 2067, citing Ontario’s costs as going from 7.7% to 12.6% over that period.
“The projected growth of healthcare and other demographically sensitive spending represents an implicit liability much larger than provincial debts – which themselves are, as they ought to be, sources of concern,” reads the report.
The think tank is calling for new measures to “raise economic growth and restrain spending,” however, it did advocate for “selective prefunding” as a means to stave off these future financial strains brought on by the impending demographic change.
Atlantic Canada and other regions where populations are older on average will naturally be affected by this shift the most, which the report said may need to increase taxes now in preparation.
The report noted that for Ontario, “the prospective increase in the aggregate tax rate needed to cover all these program outlays – which mainly reflects the rising cost of healthcare – over the next 45 years has a present value of $723 billion.”
“This figure is about 70% of Ontario’s GDP or about $48,000 per Ontarian – not far short of twice the level of Ontario’s net public debt,” it said.
The authors noted that while the idea may be tempting, they warned against provinces seeking subsidies from the federal government for these increased costs.
“While higher federal transfers will likely be part of our reaction to these pressures, the reality of a common tax base and the need for clear accountability mean that they cannot be our only reaction,” it said.
“The fundamental problem with that approach is that all senior governments in Canada tax essentially the same bases: personal incomes, corporate profits and consumption spending. Much of the money Ottawa already transfers to the provinces simply reflects differences in how the federal and provincial governments tax these bases,” reads the report.
“This imbalance blurs accountability: when citizens of a given province have concerns about their publicly funded healthcare, for example, each level of government can – and often does – blame the other.”
The report claims that utilizing this practice has “proved disappointing” in the past “with respect to information and enforcement.”
Another burgeoning issue is that the number of seniors drastically outpaces the working-age population over the projected period, even with immigration, ‘albeit at a slower pace during the 2030s and 2040s.”
“The ratio of people older than 64 to those ages 18-64 – rises from its recent value of about 30%, or fewer than one senior for every three potential workers, to 45%, or almost one senior for every two potential workers, by the end of the projection period despite relatively high immigration,” reads the report.
