Perspective
Facing up to Demographic Realities
FROM:
JUL-AUG 2004 ISSUE | BY JOHN NAGY, FCGA — CHAIR, CGA-CANADA
CGA-Canada and its members have always advocated strongly for a rigorous program of debt and deficit reduction in Canada. We applauded Paul Martin’s efforts as finance minister. And we continue to believe there are many good reasons to keep a relentless focus on paying downthe debt and not living beyond our means.
Recently another good reason has come to light, to keep up this important effort. In a word — demographics. We all know about the huge impact the baby boom bulge is having on western economies — on everything from consumer spending patterns to the recent popularity of cosmetic surgery.
It turns out there’s another pending impact the boomer bulge is going to have on our society. It’s related to government deficits and government debt. Recently, the governor of the Bank of Canada issued a warning relevant to Canada and all other developed economies. Get your spending and debt under control, said Mr. Dodge, or risk major problems when the boomer generation moves into its retirement years.
The comment from the governor is timely. The leading edge of the boomer generation is defined by demographers as those born in 1946. Many of those early boomers are now in their late fifties, approaching the magic sixty-year mark, when retirement becomes a real possibility. And as more and more boomers retire, governments will be faced with a shrinking tax base.
The problem, as the governor outlined it recently, is for western governments to get their spending and debt to gross domestic product (GDP) ratios in hand. If they don’t, they risk not being able to sustain critical and expensive social programs such as health care and education. That could mean drastic and undoubtedly painful adjustments in government spending priorities, as well as inevitable social upheavals.
It was interesting to note in the governor’s recent remarks that Canada is the only one of the Group of Seven industrial countries that is currently running a surplus, and Britain is the only other country with a deficit below three per cent of GDP. These observations are startling and ominous.
The problem is that the solutions are not entirely within our own borders. Other economies, notably those of the
United States, Japan, and Europe will have to solve this problem as well if we’re to get out of the woods safely.
The U.S. is currently running a $521 billion deficit, which is
4.5 per cent of GDP. President Bush hopes to cut that in half. But with military spending and security issues looming large, the bets on his success are still out.
How things progress in the United States and in other advanced economies will affect us directly here in Canada. There are currency values, interest rates, and stock prices at stake. Indeed, we are all in this boat together.
And as the experts like to remind us ... demographics explain a great deal. In order to develop feasible and effective programs to address today’s most complex and challenging issues, our governments must simply face the numbers — and the demographic facts. So the time to focus is now, while realistic and achievable solutions are still possible.
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