The aging of Canada’s population will cost provincial budgets $2 trillion over the next 45 years, according to a new report by the C.D. Howe Institute.In “Another Day Older and Deeper in Debt: Fiscal Implications of Demographic Change for Canadian Governments,” William B.P. Robson and Parisa Mahboubi say Canada’s growing ratio of older adults to working-age Canadians has major implications provincial budgets. They find that with a smaller share of people in the workforce and more requiring healthcare and income support, provinces face the dual challenge of rising expenditures and stagnant or shrinking tax revenues.“The financial sustainability of Canada’s provincial governments is at a critical juncture,” Robson and Mahboubi say. “Without strategic policy interventions, the mounting costs driven by an aging population threaten to outpace revenue growth, leaving provinces with difficult choices about service levels and tax rates.”Currently, the ratio of those over age 64 to those aged 18 to 64 is about 30%. By 2067, it is expected to rise to 45%.The report highlights that by 2067, healthcare costs as a percentage of GDP are expected to nearly double in some provinces. For instance, B.C. could see healthcare costs rise from 7.7% to 13.5% of GDP, while Alberta’s would rise from 5.6% to 9.8%.Funding this burden will strain the finances of some jurisdictions. The territories would need to double or even triple their own-source revenues. Only in Saskatchewan, where it is one-sixth, is the required increase in provincial tax rates less than one-third.Further, economic growth is expected to slow due to the decline in the working-age population relative to older adults, which will further restrict provincial revenue streams.Provinces with older populations, such as those in Atlantic Canada, will also experience more severe fiscal pressures, necessitating substantial adjustments to tax policies or spending programs.“Nova Scotia would need to raise its aggregate tax rate by one-half, while Alberta and Newfoundland and Labrador would need to raise theirs by two-thirds to meet these demands,” Mahboubi says.The commentary offers detailed projections and policy recommendations to guide provincial and federal governments in navigating this complex issue.In addition, the report explores the potential for increased federal transfers to alleviate provincial fiscal stress but cautions against over-reliance on federal support. It advocates for enhanced provincial autonomy in managing finances, particularly by increasing consumption taxes and improving spending efficiency.Robson and Mahboubi suggest that provinces consider prefunding certain future liabilities, particularly in healthcare, to spread the financial burden more evenly across generations. Like the reforms to the Canada and Quebec Pension Plans in the 1990s, this approach could mitigate the long-term impact of an aging population on provincial budgets and address concerns about intergenerational unfairness—young people paying far more for a given package of services and transfers than their predecessors did.“Canada is facing a looming geriatric crunch, where the rapid growth of the aging population risks overwhelming provincial budgets,” Robson says.The study expects that life expectancy will rise for men from the 2022 level of 79.1 years up to 86.8 years by 2067, while women’s lifespans will grow from 83.6 up to 89.9.
The aging of Canada’s population will cost provincial budgets $2 trillion over the next 45 years, according to a new report by the C.D. Howe Institute.In “Another Day Older and Deeper in Debt: Fiscal Implications of Demographic Change for Canadian Governments,” William B.P. Robson and Parisa Mahboubi say Canada’s growing ratio of older adults to working-age Canadians has major implications provincial budgets. They find that with a smaller share of people in the workforce and more requiring healthcare and income support, provinces face the dual challenge of rising expenditures and stagnant or shrinking tax revenues.“The financial sustainability of Canada’s provincial governments is at a critical juncture,” Robson and Mahboubi say. “Without strategic policy interventions, the mounting costs driven by an aging population threaten to outpace revenue growth, leaving provinces with difficult choices about service levels and tax rates.”Currently, the ratio of those over age 64 to those aged 18 to 64 is about 30%. By 2067, it is expected to rise to 45%.The report highlights that by 2067, healthcare costs as a percentage of GDP are expected to nearly double in some provinces. For instance, B.C. could see healthcare costs rise from 7.7% to 13.5% of GDP, while Alberta’s would rise from 5.6% to 9.8%.Funding this burden will strain the finances of some jurisdictions. The territories would need to double or even triple their own-source revenues. Only in Saskatchewan, where it is one-sixth, is the required increase in provincial tax rates less than one-third.Further, economic growth is expected to slow due to the decline in the working-age population relative to older adults, which will further restrict provincial revenue streams.Provinces with older populations, such as those in Atlantic Canada, will also experience more severe fiscal pressures, necessitating substantial adjustments to tax policies or spending programs.“Nova Scotia would need to raise its aggregate tax rate by one-half, while Alberta and Newfoundland and Labrador would need to raise theirs by two-thirds to meet these demands,” Mahboubi says.The commentary offers detailed projections and policy recommendations to guide provincial and federal governments in navigating this complex issue.In addition, the report explores the potential for increased federal transfers to alleviate provincial fiscal stress but cautions against over-reliance on federal support. It advocates for enhanced provincial autonomy in managing finances, particularly by increasing consumption taxes and improving spending efficiency.Robson and Mahboubi suggest that provinces consider prefunding certain future liabilities, particularly in healthcare, to spread the financial burden more evenly across generations. Like the reforms to the Canada and Quebec Pension Plans in the 1990s, this approach could mitigate the long-term impact of an aging population on provincial budgets and address concerns about intergenerational unfairness—young people paying far more for a given package of services and transfers than their predecessors did.“Canada is facing a looming geriatric crunch, where the rapid growth of the aging population risks overwhelming provincial budgets,” Robson says.The study expects that life expectancy will rise for men from the 2022 level of 79.1 years up to 86.8 years by 2067, while women’s lifespans will grow from 83.6 up to 89.9.
