Financial Time Bomb Lurks

It's time for everyone to wake up to the massive problem facing Canadians, whether you are a boomer or a child or grandchild of boomers. The boomers have to worry about having enough to retire on. The heirs of the boomers have to worry about paying for their parents' and grandparents' care AND their own future.

A spokesperson for the Harper government was asked recently what the Conservative party's strategy was to deal with this issue.

The dismissive reply was "Canadians are more concerned with the recovery of today's economy."

My interpretation of that remark is that they have no long range plan but are more concerned with putting out fires. It's time to start thinking long term - the chickens will come home to roost.

Finally the issue is gaining attention in the media. Here is an edited article from the Vancouver Province:
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By Ray Turchansky

Christopher Ragan, associate economics professor at Montreal's McGill University and senior adviser to the federal finance minister, says an aging workforce foreshadows reduced tax revenues and skyrocketing health-care spending, from 2020 to 2040 in particular.

"We have to recognize there is a need to adjust," said Ragan. "We have to either raise taxes or lower spending or come up with ways health care is less expensive. Or we increase debt so we put problems on future generations. This challenge is completely solvable, but we have to take action soon."

The issue is that the retirement of baby boomers - those born between 1946 and 1962 -begins in two or three years, and for the next 30 years we'll see massive declines in two labour forces - the percentage of women having children, and the percentage of our population that's working.

"As we get older we get sicker, and health care costs a lot of money; and we have benefits like Canada Pension Plan and Old Age Security.

He said the average spending in health care currently is $2,500 a year for each person up to age 65; $5,000 a year per person age 65 to 74; $11,000 a year per person 75 to 84; and $23,000 a year per person over 85.

"One-third of health-care spending per capita happens in the last year of life."

In addition to needs from an aging population, health care is a rising cost due to technological advances. From 2020 to 2040, Ragan said, health care and elderly benefits will cost $56 billion a year more than now, accounting for a 10-percent increase in government spending by 2040.

So do we increase tax revenue, decrease spending, or borrow and go into more debt? [Ragan says there are some options:]

• You could entice people to work longer, by delaying access to CPP until age 67 or 69.
• You could increase the productivity growth rate, but that's tough to do with a declining labour force.
• You could increase taxes.
• You could cut health-care spending but that "opens up a Pandora's box."
• You could cut spending other than health care, but "it's very difficult politically to cut anything."

Ragan declined to suggest which solutions he would choose.

"You probably need a suite of unsexy policies that together work to produce an environment where there is competition, innovation and drive, with quality labour force, incentives to invest, and low corporate-tax rates."