Canada's Housing Bubble

Feb 27, 2010 Bill Curry theglobeandmail.com

Parliamentary Budget Officer Kevin Page, shown in a file phote, has warned the government of a looming demographic crunch. A Tory report released Friday suggests the crunch has already started. Christopher Pike/Reuters

Despite Tories' dismissal of crunch as a problem of the future, cost of elderly-benefits payouts is already up $1-billion

Canada's aging population is already having an impact on Ottawa's bottom line as new figures show the cost of elderly benefits is up more than $1-billion this year.

The figures come a week before the minority Conservative government releases its 2010 budget amid a growing debate over whether the government's finances can handle the demographic challenges ahead.

Parliamentary Budget Officer Kevin Page, shown in a file phote, has warned the government of a looming demographic crunch. A Tory report released Friday suggests the crunch has already started.

Parliamentary Budget Officer Kevin Page released a report last week warning that Ottawa needs a better plan to manage the looming hike in health-care and elderly benefit costs created by Canada's aging population.

The fact that some of Mr. Page's projections went as far as the year 2082 led Finance Minister Jim Flaherty's office to describe the paper as an “academic exercise.” But Mr. Flaherty's own department issued a report Friday showing demographics are already driving up costs.

According to the department's monthly Fiscal Monitor, Old Age Security payouts increased by $1.1-billion, or 4.4 per cent, over the first nine months of the year, “in line with growth in the elderly population and changes to consumer prices, to which benefits are fully indexed.”

Statistics Canada projects that the number of Canadians 65 and over will grow by more than 3 per cent a year for the next 15 years. In contrast, growth in that age group over the past 15 years has never exceeded 3 per cent.

Mr. Page said Friday the figures show demographics are already having an impact on the government's finances. “Growing eligible population is a major factor behind current growing elderly benefit payments, but the real spending pressures are still ahead of us,” he said.

Looking at the government's overall finances, the report shows Ottawa's deficit is now $39.4-billion for the first nine months of the current fiscal year. That pace suggests Mr. Flaherty's estimate last fall of a $56-billion deficit for 2009-10 may still be right, but the final numbers could come in lower.

More than $16-billion of this year's deficit to date is attributable to the Conservative government's stimulus measures – called the Economic Action Plan – which include tax cuts, more generous employment-insurance benefits and transfers to the automotive sector.

Revenues are down $19.4-billion and program expenses are up $22-billion.

The numbers underline the cash crunch Mr. Flaherty faces due to lower tax revenues and an aging population. The government has said Thursday's budget will confirm a second year of stimulus spending and will also include a “road map” showing how Ottawa will return to balance over time.

Mr. Flaherty's spokesman, Chisholm Pothier, said the increase in elderly benefits is expected, given that they rise with inflation.

“It's not a big revelation that the elderly population is growing.... The government has acknowledged it for a long time,” he said, promising the government will unveil a deficit-reduction plan in the budget. “It would be a stretch to take a reasonable and expected increase in costs incurred over a nine-month period and draw 75-year conclusions about it.”