Canada’s welfare liabilities are growing exponentially

The growth of Canada’s unfunded liabilities under programmes such as the Canada and Quebec Pension Plans (CPP/QPP), Old Age Security (OAS), and Medicare system has been a focus of Canadian economists for many years. Largely due to increases in programme obligations, in 2000/01 federal, provincial and local liabilities added up to $172,416 (all figures in Canadian dollars) for each Canadian taxpayer or $83,927 for each Canadian citizen, according to the Fraser Institute's fifth study examining Canadian public liabilities.

These programmes are at least partially unfunded in the sense that the estimated future stream of contributions falls short of the expected future payouts of benefits:

The unfunded liability of Medicare – the national health insurance programme covering nearly all Canadians – alone grew by 37.4 percent between 1996 and 2000.

In total, CPP, OAS and Medicare unfunded liabilities grew by 22.3 percent during the 5-year period covered in this study.
At their inception, these programmes were based on the assumption that population demographics, economic growth rates and wage increases prevalent in the 1960s would persist. These assumptions have proven false. Birth rates have declined, income growth has stagnated, and mortality rates have decreased:

In 1956, the proportion of the Canadian population under 20 years of age was 39.4 percent while the proportion of those over 65 was 7.7 percent.

By 2002, the ratio of those under 20 years old to the total population had decreased to 25.2 percent and the ratio of those over 65 had increased to 12.7 percent.

Estimates predict that by 2036 those under 20 will account for only 20.2 percent of the total Canadian population while those over 65 will account for 24.8 percent (Brown 2002).

Demographic changes will continue to undermine the ability of these plans to provide the intended level of benefits at the current rate of taxation, according to Fraser.

Source: Raphael Barth, Joel Emes, Todd Fox and Niels Veldhuis, Canadian Government Debt 2003: A Guide to the Indebtedness of Canada and the Provinces, Fraser Institute, April 2003.

For text http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=513
For more on International (Social Security) http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 23 December 2003