Last month, the Canadian government quietly released a document conceding that Canadians might face an economic crisis in the coming decades. This projection is largely based on a dramatic shift in Canada’s age demographics. Other than an article by the Toronto Sun, the government-released document has not received attention from Canadian media.
The document, titled Update of Long Term Economic and Fiscal Projections, begins by declaring that Canadians have reached a demographic tipping point. As of 2015, the number of Canadian citizens aged 65 and up has exceeded the number of Canadians aged 14 and under. This is the product of both an increase in life expectancy and a plummeting fertility rate.
As the document notes, with an increase in lifespan and falling fertility rates comes a decline in the ratio of working aged people between 15-64 to those over the age of 65. The graph below indicates that the ratio of 15-64 year olds to those over 65 is projected be slashed in half, going from 5.3:1 in 2005 to 2.5:1 by 2035. In accordance with this regression, the overall labor force participation rate is projected to decline from roughly 66% today to 61% by 2055.
The Canadian government outlines exactly which citizens qualify as “participants” in the labor force in a footnote at the bottom of the document.
Upon entering the workforce, the Baby Boom generation provided a massive boost for the economy. That being said, now that Baby Boomers are beginning to retire, the opposite effect is projected to occur. Since those in the workforce aged 15-64 tend to work more hours than those in the workforce aged 65+, the decline in workforce participants aged 15-64 means that Canadians are working less hours overall. When Canadians (or anyone) work fewer hours, they become less productive. Less productivity means less growth. The document confirms this by revealing that Real GDP growth is expected to decline from an average of 4.8% to a projected 1.7% as the labor force shrivels.
Much like the U.S, Canada has a social security system, which is referred to as the Canadian Pension Plan. The CPP guarantees Canadians an income and benefits upon retirement. When the Canadian government first instituted the CPP in 1966, not only was life expectancy far lower than it is now, but individuals were also having for more children at the time. This meant that those retiring would not only collect social security for less time because they would die sooner, but those retiring at the time also produced more offspring in their child-bearing years than those retiring now. Due to the declining fertility rate and lengthier life expectancy, there will be far fewer Canadians supporting those who are guaranteed benefits, while at the same time, more and more Canadians will be guaranteed said benefits.
Canada’s working class, which contains comparatively fewer citizens, will be forced to pay a burdensome amount for the retiring Baby Boom generation’s expansive social security in the form of intrusively higher taxes or printing more money. There’s a name for operations where people presently buying into a system have their money covertly paid out to people who previously bought into the system; it’s called a Ponzi Scheme.
Ponzi Schemes can only last until the central planners no longer have enough money to pay the people who previously bought in to the system. That’s when it all comes tumbling down. One can argue that many countries are guilty of clandestinely running social security Ponzi Schemes. The Canadian government seems to affirm this suspicion, as this document forecasts a looming fiscal and economic crisis in the coming decades for Canadians.
More specifically, it can be inferred from the document that, unless major changes are made, the upcoming generation will not be able to sustain the costs required to fund all of the Canadian government’s expansive expenditures. With fewer individuals to take from and more individuals to give to in the form of taxes, the government will be forced into both borrowing and printing more money, thus placing an even greater burden of debt onto the working generation and their (likely even fewer) offspring.
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