Demographic shift putting dream of lower taxes, balanced budgets and no cuts out of reach

By all indications, Manitoba’s provincial election on Tuesday is going to result in the election of the first Progressive Conservative government since 1999, with Brian Pallister being sworn in in late April or early May as Premier of Manitoba. As Pallister and his cabinet settle in to office, they will go through a ritual that all new governments go through: briefings by department staff who will explain the cold, hard realities that they will have to deal with as the excitement of winning an election wears off.

One of those cold, hard realities to be anticipated will be an update on how changing demographics will affect the province’s finances. The heavy influx of immigrants into Manitoba in recent years paints a picture of a young province; but the population data tells a different story.

Statistics Canada periodically updates its population projections for each Canadian province and territory, and its projections of population by age are sobering.

Over time, the balance between working-age Manitobans aged 15-64 and retirement-age Manitobans aged 65-plus has been shifting. Forty years ago, in 1976, there were 6.1 working-age Manitobans for every retirement-aged Manitoban.

Thirty years ago, in 1986, it was 5.3. Twenty years ago, in 1996, it was 4.8; rising slightly to 4.9 in 2006.

But despite the arrival of younger immigrants by the thousands, that ratio has resumed its decline over the past 10 years.

Currently, there are about 4.4 working-age Manitobans for each retirement-age Manitoban. And according to Statistics Canada’s M1 –medium-growth, 1991/1992 to 2010/2011 population trends, in just 10 years time, there will be one less person on the working-age side of the balance than there is today — or 3.4 to 1.

The change is expected to continue in this direction into the mid-2030s, when there will be three working-age Manitobans for every retirement-age Manitoban.

Number of working age Manitobans per retirement-age Manitoban by year. Based on Statistics Canada's Projected population, by projection scenario, age and sex, as of July 1 -- M1 medium-growth, 1991/1992 to 2010/2011 scenario.

Number of working age Manitobans per retirement-age Manitoban by year. Based on Statistics Canada’s Projected population, by projection scenario, age and sex, as of July 1 — M1 medium-growth, 1991/1992 to 2010/2011 scenario.

Why does this matter? As people retire, their spending changes. If you’re a working-age person, think of what you spend your money on today: transportation to and from work, food, clothing, shelter and income taxes.

Now think about how that would change if you were a retiree. You wouldn’t need to drive around so much (or buy a car or fill it up with gas as often). You would likely eat out less; you wouldn’t need neckties or dress shirts anymore except for special occasions; you may very well never be in the market to purchase a home ever again.

All of which means you’ll be paying less in sales taxes, even if the rates stays the same, and less in other government fees and taxes. That includes income tax, since you’ll be earning less. (As you can see below, the average Canadian household in which the designated “reference person” was aged 55-64 years in 2014 paid $18,220 in income tax. But when the “reference person” was aged 65 or older, average income tax payments dropped by more than half to $7,851.)

Average annual spending by Canadian households, by age of designated "reference person", Canada 2014

Average annual spending by Canadian households, by age of designated “reference person”, Canada 2014

The number of households in Manitoba (and throughout much of Canada) in which that “reference person” is one of those lower-spending 65-plus retirees is going to continue growing much faster than the number of younger, higher-spending households.

That’s going to put a bit of a squeeze on government finances, and on the businesses that sell those things on which spending drops the most in retirement: department and business-wear stores, restaurants, auto dealers, gas stations, realtors and so on.

Among the few areas where spending is higher among 65-plus households than it is among the 55-64s: direct health care costs, by $211 per year at the national level.

With that, the governments of the next 20 years will need to deal with a world where satisfying the dream of a balanced budget every year, no tax increases and no controversial cuts is an increasingly difficult task.

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About theviewfromseven
A lone wolf and a bit of a contrarian who sometimes has something to share.

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