Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s
Globe and Mail are two articles that are, simultaneously,
complementary and
competing one with the other:
http://www.theglobeandmail.com/news/politics/budget-must-tackle-rising-costs-of-greying-population-watchdog-warns/article1471991/ Budget must tackle rising costs of greying population, watchdog warns
Slaying deficit isn't enough to counter looming squeeze on Canada's coffers, budget officer says
Steven Chase
Ottawa
Thursday, Feb. 18, 2010
Ottawa's battling to rein in record deficits, but there's a bigger problem at play that will make life even more miserable for politicians and taxpayers: Canada's aging population.
Parliamentary budget watchdog Kevin Page is releasing a report Thursday that warns it's not good enough for Ottawa to simply balance the books – because of the increasing squeeze Canada's greying ranks will place on coffers.
He predicts that even if Ottawa slays the deficit, it will still have to confront an expanding “fiscal gap” in revenue over the next decade of $20-billion to $40-billion annually.
This will arise as Canada's work force shrinks in proportion to its growing pool of retirees, a trend that should both slow the growth of government tax revenue and increase demands for health-care spending and old-age benefits.
Mr. Page's new report effectively pours cold water on the idea Canada can “grow” its way out of trouble – as the economy expands and generates more tax revenue – or make do with a moderate restraint program.
The budget watchdog says the federal government must prepare to eliminate this revenue gap – through tax hikes or spending cuts – in order to keep its debt levels stable relative to the size of Canada's economy.
Ottawa will be forced to take actions equal to between 1 per cent and 2 per cent of Canada's estimated annual economic output merely to stabilize its debt burden, the Parliamentary Budget Officer calculates. (Mr. Page is using economic output forecasts for 2013-14 to derive the $20-billion to $40-billion prediction.)
His report also says that Ottawa would need to act on an even grander scale if it wanted to go further and shrink the size of its debt relative to economic output.
Failing to at least stabilize the problem will lead to growing deficits and “severe debt problems” over the next couple of decades, Mr. Page warns.
The year 2011 is the beginning of what has been called a “demographic time bomb” for Canada: an explosion of the 65-plus population over two decades coupled with a sharply declining proportion of Canadians in the work force as boomers retire.
“Right now we have a mindset that if we got back to balance, everything would be fine. That's a very short-term perspective,” Mr. Page says.
The watchdog takes care to avoid criticizing politicians for past fiscal decisions, but his analysis clearly suggests the combined efforts of the Harper government and former Liberal governments resulted in tax cuts that were deeper than can be sustained. Since 2006, the Tories have reduced taxes on individuals, families and businesses by an estimated $220-billion over 2008-09 and five subsequent years. That works out to roughly $36-billion a year in lost tax revenue.
Canada's demographic troubles are a slow-growing menace to this country.
The number of workers supporting each elderly Canadian is expected to dwindle to 2.5 to one in 2030 from five to one today because of this country's low birth rate, rising life expectancy and aging boomers.
This carries a fiscal cost. As the federal Finance Department warned in the 2005 budget, this looming demographic shift could sap economic growth each year over the 2010-30 period by half a percentage point.
Until the recession hit and blew Ottawa off course, this issue was a central preoccupation for the Finance Department, which warned repeatedly that it was the reason why Ottawa had to keep driving down the national debt until it was only 25 per cent of the economy. Less debt means more room to borrow when the spending pressures of an aging population begin to climb.
The number of Canadians aged 65 and over has been growing at about 2.5 per cent annually. But this rate will climb to between 3 per cent and 4 per cent starting in 2011, when the first in the massive baby boom generation celebrate their 65th birthdays.
Separately yesterday Stockwell Day, the federal cabinet minister tapped to lead the charge on restraining spending, said that he believes Canadians expect “considerable sacrifices” from Ottawa as it slays the deficit.
The Treasury Board president said the March 4 budget will identify some areas where Ottawa expects to ratchet back spending plans to help balance the federal books. “You will see some of the specifics; other areas will be more general where we will want ongoing input from Canadians.”
And
http://www.theglobeandmail.com/news/opinions/ottawa-should-just-show-spending-restraint/article1471713/ Ottawa should just show spending restraint
The emotional GST battle obscures the fact that the government doesn't have to raise taxes
William Robson
Thursday, Feb. 18, 2010
Anxiety over projections of red ink in the federal budget through 2015 and beyond sparked a flare-up over the goods and services tax recently. Suggestions by business leaders, and a prominent banker in particular, that Ottawa should reinstate the 7-per-cent GST to get back to a surplus drew a rebuke in a Conservative Party e-mail. An alternative path – spending restraint – could help move us past this dichotomy, and the government should take the lead with a tough and convincing budget on March 4.
Certainly the anxiety over the federal deficit is well-founded. Business leaders, policy-makers and most adult Canadians recall the frustrations of trying to rein in government over-borrowing in the 1980s and early 1990s. To get stuck on the same treadmill of interest payments mounting beyond the capacity to pay in the coming decade would be doubly foolish.
Unlike last time, when the movement of the baby boomers into their highest-earning (and highest-taxpaying) years gave a fiscal boost, the boomers are now beginning to leave the work force. Equally serious, governments around the world are in deep fiscal trouble: Fears of inflation and even default in some cases could drive borrowing costs much higher, pushing interest payments, taxes and borrowing up together.
As for the debate over the GST, feelings are high because even before the financial crisis and slump made it look fiscally imprudent, the cut to 5 per cent pitted business people and economists against political tacticians.
Most of the former see the GST as a “good” tax – much less economically damaging than alternatives such as taxes on personal incomes and business profits. For them, the cut was a missed opportunity for implementing growth-friendly tax relief instead.
Politically, however, cutting the visible and unpopular tax looked smart. The 5-per-cent GST was one of five key planks in the Conservatives' first winning election platform, one they felt obliged to enact early in their mandate. Reversing the cut would be intensely embarrassing, and advice to do so is correspondingly irritating.
We should consider what outcome promises the best fiscal future for Canada.
If, as most business people and economists would prefer, consumption taxes such as the GST should provide a larger share of government revenues over time, the provinces need them far more than Ottawa. The provinces face the relentless pressure of health-care spending as the boomers age, and the GST-like taxes that Newfoundland and Labrador, Quebec, Nova Scotia and New Brunswick already have, and Ontario and British Columbia soon will, are the most robust sources to fund it.
Ottawa's fiscal situation has deteriorated so sharply partly because both the previous Liberal and the current Conservative governments committed to increase transfers to the provinces faster than the economy and the federal tax base can grow. This situation is not just fiscally unsustainable, it also undermines accountability: Governments serve citizens better when the legislature that provides the programs levies the taxes.
Those transfer commitments expire before 2015, and by then Canada will be better off if Ottawa is raising and transferring less money, and the provinces are posing honest questions to their voters about how to fund their health-care promises.
The battle also risks obscuring the key fact that Ottawa does not need to raise taxes to balance the budget. The scary projections start from a stimulus-bloated baseline. As many commentators have pointed out, and as the C.D. Howe Institute's upcoming “shadow budget” documents, simply returning real per-person spending to its 2008 level can end deficits before 2015.
The spending cuts overseen by prime minister Jean Chrétien and finance minister Paul Martin in the late 1990s not only yielded big surpluses, but also were accompanied by robust economic growth. Similar moves today are both desirable and practical.
The main obstacle to balancing the budget through restraint is opposition inside the government and among those who benefit from its spending. Talk of tax hikes will strengthen that opposition and make a necessary job harder.
Prime Minister Stephen Harper and Finance Minister Jim Flaherty can and should lay out a credible path for spending that restores budget balance before five years have passed. If they do not, people will infer that the government lacks the conviction or will to proceed. In that case, the pressure for tax hikes will grow – and if the government responds to that pressure, it will be more damaging personal and business taxes, not the GST, that go up.
If the March 4 budget does lay out a clear and compelling program of spending restraint, the task of restoring fiscal balance will be far easier to accomplish.
William Robson is president and CEO of the C.D. Howe Institute.
First: two cherrs to Kevin Page for bringing some long term thinking to this process.
Second: to more cheers to William Robson for highlighting the
single most important element of budgeting –
restraint.
At the risk of repeating myself, we need:
1. Massive cuts to expenditures,
excluding cuts to –
a. Health and social transfers to the provinces,
b. National defence/security;
c. Post-secondary education; and
d. R&D – with emphasis on the R.
2. Restraint in transfers to provinces – holding increases to the rate of inflation;
3. Restrain in defence spending – holding increases to the rate of inflation for military hardware (which is much, much higher than the general rate of inflation)
and funding unforecasted operations from general revenue;
4. Cuts to taxes and fees, specifically –
a. Cuts to the income tax aimed at taking hundreds of thousands of the lowest income (from employment) Canadians off the tax rolls entirely
b. The complete elimination of corporate taxes, which are, essentially, just consumption taxes (like the GST/HST) but with an expensive, convoluted collection system,
c. Reductions to the
employers’ share of EI and the CPP,
5. Then, if necessary, two new taxes –
a. A surtax on income from employment over some defined amount, say, just for argument) income from employment (salary and bonuses) exceeding $2.5 Million, after deductions, and
b. A new carbon tax, a
green tax that would be collected à la the GST/HST on a
flow through basis so that the ‘burden’ ends up, visibly, with the end user consumer, from Victoria, to Yellowknife and on to St. John’s, every time (s)he heats the family home or business, fills up the gas tank, turns on the big screen TV or buys groceries.
You can bet that defence spending (which accounts for about 7.5% of federal spending or about ⅓ of the deficit) will be on many, many, many ‘cut’ lists – starting with the political left but including people in Finance and the Treasury Board.
