November 3, 2011 – In today’s National Post, reporter Derek Abma discussed MLI’s recent study by economics professor Christopher Ragan of McGill University. The study, Canada’s Looming Fiscal Squeeze, focuses on the coming fiscal challenges brought on by an aging population and the need for Canadian governments to act now or “risk a situation of unsustainable public debt that approaches what’s now being seen in European countries like Greece.”
Author Christopher Ragan estimates what would happen if Canada’s federal and provincial governments made no adjustments to their spending programs or their tax rates between 2015 and 2040 to take account of such changes. He estimates that total government spending as a share of the economy would gradually rise well above tax revenues so that by 2040 the deficit would be 4.2 percent of GDP. In current terms, such a deficit would be roughly $67 billion.
Ragan said, “Governments can either act proactively and methodically now, or reactively, in crisis later. But make no mistake, governments will be forced to act.”
MLI director of research Jason Clemens added, “We can implement difficult policy changes over 20 years where we don’t displace people to any great extent, and we can methodically, incrementally implement these changes. Or we can do it in the middle of a crisis where we do have to displace people.”
The study emphasizes a number of measures to tackle this issue, such as the need for spending restraint and reductions in government. Increasing taxation is also an option.
Ragan said, “Finding the right balance between the economic costs and political costs requires considerable finesse on the part of the government, a balancing act that would be aided with clearly stated objectives and careful but honest communications.”
Read the full study here: Canada’s Looming Fiscal Squeeze
Read the National Post article here by Derek Abma: “Aging population could lead to Greek-style debt crisis in Canada, report suggests”
This article also appeared in the Ottawa Citizen, Vancouver Sun, Montreal Gazette, Saskatoon’s The Star Phoenix, Regina’s Leader-Post, Calgary Herald, Windsor Star, and BC’s The Province. It was also posted on Canada.com.
