In Maximum Canada: Why 35 Million Canadians Are Not Enough, Doug Saunders outlines his thoughts on how Canada could grow its population to ensure economic and ecological sustainability. In this excerpt, he discusses the economic consequences of a low birth rate, coupled with an aging population.

THE PUBLIC COST: A LACK OF CHOICES

When scholars and governments talk about population shortfalls these days, they are most often looking at the demographic and fiscal challenges of a population that is aging fast and growing slowly. This is not Canada’s problem alone; many other countries face this demographic crunch, and some, including France and Germany, have already taken aggressive policy action to counter it with population and labour-force policy. It is not the most pressing or the most insoluble problem of underpopulation, and it is largely a medium-term problem, occurring over the next 40 or 50 years. But it happens to be one that terrifies governments, economists, and investors, because it has the potential to measurably lower our quality of life.

Canadian families today have an average of 1.6 children each, a rate somewhat higher than it was at the turn of the 21st century but still below the rate in many other Western countries, and well short of the 2.1 children per family needed to maintain a stable population. As a result, Canada’s population growth currently depends entirely on immigration. The national population has been growing, at a modest rate averaging about 1.2 per cent each year, but not as fast as the average age of Canadians has been increasing. To put it more bluntly, the number of baby boomers turning 65 each year outnumbers the babies and children entering Canada through childbirth and immigration. For the first time in our history, there are now more Canadians over 65 than there are Canadians fourteen and younger.

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This has a direct impact on Canada’s capabilities — that is, on the ability of our governments, agencies and charities to act effectively on things like environment, infrastructure, poverty, and justice for indigenous peoples. That’s because an aging, slow-growing population means a country that has both fewer fiscal resources and higher costs.

At the moment, 16.1 per cent of Canadians are 65 and older. By 2035, the proportion of Canadians over 65 will have risen by more than half, to 25 per cent. By 2026, more than 2.4 million Canadians over 65 will require continuing care support (long-term care, seniors’ homes and so on) — a 71 per cent increase from 2011. By 2046, this number will reach 3.3 million.

The most important figure for governments is the dependency ratio: the number of working-age people (who contribute the lion’s share of taxes) compared to the number of retirement-age people (who tend to consume considerably more tax-supported services). In Canada, this ratio is shifting quickly. At the moment, there are four working-age Canadians to support each retirement-age Canadian; by 2031, that will be halved to a two-to-one ratio. For a couple of decades, we will have only about two taxpayers to support each senior.

This will be expensive. According to the Conference Board of Canada, spending on continuing care for seniors will need to increase from $29.3 billion in 2011 to an extraordinary $184.2 billion in 2046. Two-thirds of this spending will be provided by governments, which at the same time will be losing tax revenue because of a lowered workforce ratio. And this estimate is based on Canada’s eldercare institutions relying, as they do today, on a significant number of unpaid or poorly paid caregivers and volunteers — a situation that could prove unsustainable or intolerable to a generation of seniors, and their families, who expect better care. Therefore the $184.2 billion estimate may be low.

Long-term care is only part of the puzzle. Health care spending by provinces, currently $150 billion a year, will increase from 37 per cent of government revenue today to 44 per cent by 2042 — a huge chunk out of already strained provincial budgets. Likewise, the share of federal tax earnings that will have to be spent on Old Age Security will rise from 16.5 per cent today (making OAS the largest single item in the federal budget) to 20 per cent by the 2030s. Health and eldercare spending will eventually begin to fall as the baby boom generation passes away, but this won’t happen until after 2050.

This means that both federal and provincial governments will face some very difficult choices. After all, health care, long-term care, and Old Age Security are not items that would be politically or practically easy to cut; quite the contrary, there will be substantial pressure to increase funding for all three. Without additional places to draw revenue from, beyond a slim margin for further tax increases, most of this adjustment will need to come from large-scale reductions to other government departments and programs, including education, transit infrastructure, the social safety net, and environmental protection — areas that are otherwise considered central to generating future growth and stability.

At the same time as this is happening, low population growth will also eat into revenues. The proportion of high-tax-contributing working-age people in the population will be decreasing fast, and the demographic realities will cause a slowing of economic growth. According to the Organisation for Economic Co-operation and Development, Canada’s economy will grow by an average of only 1.5 per cent per year for the rest of the century if current immigration and fertility levels stay the same.

In other words, governments will find their capacity limited — both by rising costs and by falling revenues. If nothing changes, Canada is headed into a future where it will have to do more with less. Not some catastrophic dystopia, but a frustrating sort of time that Canada has known before: a more difficult and straitened place where a lot of hopes and ambitions will have to be put off until later.

That is not the only possible future. It could be a lot tougher. According to Conference Board forecasts, if immigration were restricted to half its current level in coming decades — for example, if an anti-immigration party of the sort we’ve seen in Europe and the United States were to hold power for some time — then the decline in population growth rates would cause economic growth to fall to an average of 0.6 percent annually. This would both choke off private-sector investment and limit government capacity.

On the other hand, if a maximizing agenda were pursued — a robust set of family policies to bring fertility rates to 1.7 and a modest increase in immigration, to a rate of 1.3 per cent annually (that is, a gradual increase to a peak of 408,000 immigrants per year, or less if birth rates rise more), with the aim of reaching a population of 100 million by 2100 — then the dependency ratio would shift. The proportion of Canadians over 65 would peak at a markedly lower 23.2 per cent, creating considerably more options.

Under this population-growth scenario, provincial health care spending would fall from 34.5 per cent to 29.2 per cent of the budget, a savings equivalent to $21.2 billion in today’s dollars annually. Old Age Security would decline to 10 per cent of the federal budget. And economic growth would be much stronger: an average of 2.6 per cent annually rather than the current 1.5 per cent, driven by a larger domestic market with greater retail sales, savings and investment. A more capable government and a more sustainable economy would mutually reinforce one another.

This is, admittedly, not the most exciting case for population growth. There is something a bit bloodless and desperate in governments urging their citizens to pop out more babies and welcome more immigrants simply in order to make their balance sheets add up — even if we are aware, on some level, that those balances have a profound effect on our standard of living and our children’s ability to have a better life in Canada.

And a reasonably big slice of the dependency-ratio problem can be dealt with through non-population means. An aging workforce can be expanded as other countries have done, with policies allowing retirees to return to full-time work while still collecting their pensions, and programs such as flexible work time and expanded childcare making it much easier for women to return to work while raising children. Some European countries that have spent heavily on such policies expect them to take care of as much as a fifth of their dependency-ratio problem, somewhat reducing the need for immigration and fertility policies.

While a larger population will make it possible for Canada to grow and improve its living standards during the decades of aging population, it won’t completely erase that problem. In any of these scenarios, the proportion of the population over 65 will not return to current levels, and the 2040s will be an expensive time for governments no matter what happens; provincial health care spending will rise to above 40 per cent of the budget for a decade, no matter what we do (though with a larger population, it would fall far more quickly). As a Conference Board analysis commissioned by the Century Initiative concludes, “the increase in the population will not reverse the consequences of an aging population but will significantly help to cushion the economic impact.” A population increase will, however, have even more significant impact on the savings, investments, and jobs of Canadians, for the impact of underpopulation on our economic lives is profound.

Excerpted from Maximum Canada by Doug Saunders. Copyright @ 2017 Doug Saunders. Published by Alfred A. Knopf Canada, a division on Penguin Random House Canada Limited. Reproduced by arrangement from the publisher. All rights reserved.

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