Iceberg, Dead Ahead

By Max Fawcett | December 24, 2007




are, almost by definition, events which cannot be predicted or planned
for with any significant degree of accuracy. Instead, we're left with
half-measures that are intended to blunt their effects upon their
inevitable, and equally unpredictable, arrival. We reinforce our
buildings and bridges for earthquakes, stockpile vaccines for deadly
viruses, and create comprehensive emergency plans, all in the name of
bringing some degree of control over the uncontrollable. We've even
begun to adjust our behaviour in a belated but still entirely welcome
effort to minimize with the consequences of global warming and perhaps,
just maybe, prevent its arrival altogether.

It is ironic, then, that
while we're doing so much to prepare for these unknowable future
catastrophes, we're doing so little to prepare for the one catastrophe
about which we actually know something. We know a lot more than
something about it, too. We know when it will arrive, how it will do
its damage, and even who its victims will be. We even know how to stop
it entirely, yet we have done, and continue to do, absolutely nothing.
David Baxter of the Urban Futures Institute, invoking a familiar icon
of catastrophe, observes that it is as if "we're on the bow of the
Titanic, but we're not looking at the iceberg out there." That iceberg
is the collective impact of aging Baby Boomers, and the good ship
Canada is about to get wrecked on it.

This is no small iceberg,
either. Canada had the biggest Baby Boom in the Western World, which
today numbers 9.9 million people, or almost 40% of the Canadian
population. According to David K. Foot:



the Canadian baby boom was so big, Canadian boomers are a slightly more
important factor in Canadian life than American boomers are in American
life. Fully one-third of Canadians today are boomers, and for that
reason alone, when they get interested in a particular product or idea,
we all have to sit up and take notice.



The product in which
they're about to become most interested is healthcare, but this time
it'll be the rest of us who pays the bill. According to a 2001 C.D.
Howe Institute study, a person between the ages of 15 and 44 will use
about $1,000 worth of public health care resources per year. But those
in the 75 to 84 cohort burn more than $8,000 a year, and if you make it
to 85 – and more Boomers will than any other generation in history both
because of their sheer size and the advent of healthier lifestyles and
better healthcare – the tab grows to more than $15,000 a year. Multiply
these figures by the demographic enormity of the Boomer cohort, and the
problem becomes evident.

The total on this looming
bill are no secret, either. The Conference Board of Canada's report on
healthcare, titled "The Future Cost of Health Care in Canada, 2000 to
2020," confirms not just the existence of David Baxter's demographic
iceberg but also its precise dimensions, temperature, and course.
According to the Conference Board's exhaustive research, provincial and
territorial health care expenditures in Canada are projected to rise
from $55.9 billion in 2000 to $102.5 billion in 2020, an increase of 83
per cent. As a share of total revenues, health expenditures are
projected to grow from 31.1 per cent in 2000 to 42.0 per cent in 2020.
More depressing still is the fact that this is only the tip of Baxter's



Another interesting point
to keep in mind is that this report covers only the period to 2020. At
that time, those at the tail end of the baby boom, who represent the
largest portion of this cohort, will just be reaching their most
expensive health care years. Obviously, the strains and competition for
resources will not end in 2020. In fact, perhaps the biggest problems
will be seen after the current forecast period ends. Unless explorers
discover an eleventh Canadian province made entirely out of barrels of
crude oil, we won't be able to pay this skyrocketing healthcare bill.

Boomer spokespeople have
responded, unsurprisingly, by arguing that aging Boomers will make
contributions to cover these monumental costs. The Montreal based
Institute For Research on Public Policy (IRPP) released a report in
2002 on the subject titled "The Bright Side" describing the positive
aspects of our rapidly aging population. The lead author, University of
Ottawa economics professor Marcel Merette, observes that "for Canada as
a whole, we have the resources and the capacity to go through the aging
population," most of which would come from the tax revenues created
when Boomer RRSPs are cashed in. Similarly, in a presentation sponsored
by the Ontario Society of Senior Citizens' Organizations and delivered
to a group of seniors on January 30, 2002, pension expert Monica
Townson argued that "we shouldn't forget that seniors continue to pay
taxes as they grow old," and that "some economists believe increased
tax revenues from a much bigger generation of seniors will cover most
of the increased costs of seniors' benefits".

But the calculations of these anonymous economists are at odds with those of The Globe and Mail's Pierre Fortin, who describes a much different set of economic conditions:


This year,
51 per cent of Canada's total population is working. In 2020, when the
baby boomers' departure will be well underway, only 49 per cent of the
population will be working, if employment rates by age remain stable.
The overall employment rate will thus have dropped two points from 51,
the equivalent of a 4 per cent drop. What will the impact be on
government tax revenues? We can calculate how much governments would
have lost in 2006 if the number of taxpayers had suddenly dropped by 4
per cent. Since Canadians will pay $500 billion in income and other
taxes this year, our governments would have collected $20 billion less
(4 per cent of $500 billion).


That's $20 billion in lost
revenues that federal and provincial governments will have to overcome
before the rising costs of healthcare, pensions, and other
senior-specific programs are even considered. Unless governments decide
to levy special taxes on botox injections, Rascal scooters, and Bob
Dylan memorabilia, the notion that seniors will cover their own social
costs is either impossibly optimistic or self-delusional.

Another argument that
seeks to downplay the impact of aging Boomers focuses on the idea of
the dependency ratio, a figure that calculates the ratio of working to
non-working people. According to Statistics Canada, in 2001 the ratio
sat at a record low of 46 children and elderly people for every 100
Canadians of working age. Thanks to the aging of the Baby Boomers, that
figure is projected to rise to 60 dependent people for every 100
potential workers by 2026. We've been there before, mind you. The
Boomers set that record in 1965 when they and their grandparents
combined to create the highest dependency ratio in Canadian history, a
fact that analysts like McMaster University Economics professor Byron
Spencer highlight in their discussions of the social footprint of aging
Boomers. According to Spencer, who is the director of the Social and
Economic Dimensions of an Aging Population program, "it's at least
possible to support the demographic transition that we're going
through." According to Spencer, the increases in costs associated with
an aging population are offset by a decrease in costs associated with a
young population such as childcare, education, and employment
insurance. Gloria Gutman, the director of the Gerontology Research
Centre at Simon Fraser University, observes simply that "as long as
you've got fewer young people that you have to pay for, you've got more
money for old people."

There are, however, two
fundamental flaws in this argument. The first is the ease with which it
equates the economic conditions of the 1960s and the predicted fiscal
landscape of the 2020s and 2030s. In the 1960s, Canada could afford to
support a massive cohort of non-workers, the majority of which were
children, because the economy was in the midst of an historically
unprecedented and unparalleled boom. Economic growth was steady and
predictable, and the contours of the welfare state were still being
defined. The tax base grew at what Pierre Fortin describes as a
"breathtaking rate", and governments could afford to make modest social
commitments to post-secondary education, healthcare, and welfare. The 21st
century, in contrast, has already been defined by the emergence of new
economic superpowers in China and India, a decline in the health of the
American economy, and a rough and casualty-laden transition from a
resource based economy to one driven by high technology and skilled
workers. To assume, then, that the Canadian economy will support a
demographic shift in 2026 because it supported one some sixty years ago
is a particularly dangerous form of wishful thinking.

The second flaw is the
notion that there is parity between the costs of youth-oriented social
spending and the costs of supporting an aging population. This belief
is represented in Spencer's assertion that "there appears,
approximately, a complete offset to the increases associated with
population aging." While it's true that child-care allowances,
education funding, and other child-oriented forms of social spending
will decrease as the number of children declines, it won't decline
nearly as much as Spencer seems to think. According to Statistics
Canada's projections, the relative weight of people under 19 years of
age will drop by 13 percent between 2006 and 2020, permitting a
proportionate decrease in child-oriented tax breaks accorded to parents
by the federal government and education and daycare spending made by
provincial governments. These expenditures totaled $79 billion in 2006,
and a 13% reduction – assuming no new spending commitments are made –
would amount to $10 billion.

Fortin contrasts these
relatively modest cost savings with the growing bill for federal
payments to seniors, which will self-evidently increase as the
percentage of the population collecting those payments grows. With the
expected five percent increase in the over-65 population in 2020
compared with 2006, the costs of senior-income programs – which do not
include Canada Pension Plan payouts – will rise by $12 billion. More
alarming still is the findings of the 2000 actuarial report of the Old
Age Security program, which predicts that these payments will skyrocket
in the years 2020 to 2030 and leave the federal government of the day
with a $109 billion tab, a staggering 436% increase from 2006 levels.
Unless the federal government sells the naming rights for schools and
universities to big corporations – The TD Canada Trust University of
Toronto or Concordia University sponsored by Fed-Ex Kinko's, for
example – it's unlikely that the savings associated with fewer children
will cover the costs of our rapidly aging population.

The biggest catastrophe
facing Canadians in the near and longer-terms isn't the environment,
terrorists, American exceptionalism, or even a Conservative majority
government. It is instead the Baby Boomers. To be fair, at the best of
times societies don't do a very good job of planning for the future.
After all, if we as individuals can't bother to put enough money away
for our own retirement, what chance is there that society as a whole
will be capable of doing the same? It's not surprising then that we've
done nothing to protect ourselves against the demographic tidal wave
that's starting to crest. But it's still there, and sitting at the top
of it are the millions of Baby Boomers, whose expensive healthcare
treatments, pension payouts, and other senior-related social benefits
are going to come crashing down on the rest of us, dominating our
public spending and limiting our ability to do anything other than
become a national retirement home.

Toronto, January 3 – 1,995 w.



  • Max Fawcett

    Max Fawcett is the former editor of the Chetwynd Echo, a weekly newspaper in the small northern town of Chetwynd, B.C. He currently lives in Edmonton, and works as the managing editor of Alberta Venture Magazine.

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