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.

Charting a new course for Winnipeg

A new effort to brighten Winnipeg’s future gets under way in January. That’s when a new private-sector led initiative called “Yes! Winnipeg” will get up and running, mandated to pursue economic growth and a new spirit of prosperity for our city.

It’s the latest in a series of efforts over the years to revive the fortunes of a city which went through a period of stress and struggle that lasted a generation. Winnipeg had begun the ’70s as the country’s fifth-largest metropolitan area and the economic capital of the Canadian Prairies, with a population one-tenth larger than Edmonton’s and one-third larger than Calgary’s.

By 2001, Winnipeg was the country’s eighth-largest metro area and had been deposed as a regional economic capital by both Calgary and Edmonton, which by that point were both 40 percent larger than Winnipeg in terms of population.

The decline appears to have stopped. Statistics Canada projects that Winnipeg will still be #8 in 2031, with a metro population of about 884,000.

Winnipeg will obviously be a somewhat bigger city in 2031 than it is today, but will still be a secondary market a mere one-tenth the size of metro Toronto (8.9 million), and much smaller than Montreal (4.9 million), Vancouver (3.5 million), Calgary (1.9 million), Ottawa-Gatineau (1.6 million) or Edmonton (1.5 million).

The days of grandeur — the days when Winnipeg was one of Canada’s most important cities — are obviously not coming back. But there are still things that can be done to become a more pleasant place to live in the decades ahead.

I copied and organized some of the data that Statistics Canada keeps on its 2006 Community Profiles web site and set out to look for the factors that make some cities more vibrant than others — younger, better educated and more attractive to people moving back and forth within Canada.

From the sample of 25 cities I looked at, here’s what I learned:

1. Keeping a healthy balance of young and old is crucial. If you follow the news, you probably have heard about politicians being concerned about an aging population. These concerns are well founded, and not just because of the impact of soaring health care costs that we keep hearing about. In the 2006 census, cities with older populations tended to be worse off in several ways:

  • Older cities tend to have lower household incomes, and working people make up a smaller percentage of the overall population. (Keep in mind that working people pay more tax and drive consumer spending, so an aging population is detrimental for both government and business.)

  • Older cities tend to have weaker housing markets — rents are lower, monthly home owner expenditures are lower, and turnover is lower. Low turnover also contributes to some degree to a larger number of homes requiring major repairs.

  • Older cities tend to place heavier financial demands on federal and provincial governments due to larger numbers of people relying on redistributed income to survive. Thus, cities that allow their populations to age will find it much more difficult in the coming decades to satisfy a public that wants quality services and fiscal responsibility and no tax increases, all at the same time.

Fortunately, Winnipeg is doing not too badly in this regard. In 2006, the median age of Winnipeg’s 694,665 residents (38.8 years) was slightly lower than the national median age of 39.5 years. Keeping that median age down, however, will require us to:

  • Continue welcoming large numbers of immigrants to our community (a good thing if you think diversity is kind of cool, as I do), given the reluctance of other Canadians to move here and the dubious record of various “baby bonus” schemes tried around the world.

  • Create rewarding jobs to encourage locally raised young people to stay here — jobs in business services and the sciences that are both interesting and lucrative.

  • Create fun, interesting lifestyle options to keep people here

2. Education needs to remain a priority. For years, Manitoba has had a problem with its troubling high school dropout rate, which intensified the gap between rich and poor in Winnipeg as promising job opportunities for those with less than a Grade 12 education became fewer and further between. It also took a toll in other ways. For governments, high school dropouts pay less tax and put more strain on health care and social services budgets. For businesses, high school dropouts mean fewer discretionary spending dollars to go around, and it makes Winnipeg a less attractive place to invest or to hire. And it’s demoralizing for everyone.

Increasing the number of post-secondary graduates is also important for creating the kinds of business and science-related jobs that give a city a sense of vibrancy. Across the 25 cities examined, a higher percentage of the population with a university degree, for example, tends to mean that:

  • Reliance on social assistance and other government transfers goes down, which frees up government funds for other priorities.

  • Use of public transit systems goes up, reducing reliance on subsidies.

  • Jobs in management, the sciences, and in arts, culture, recreation and sport become more plentiful.

  • Demand for housing increases. (A one-point increase in the percentage of people aged 15 years and over with a university degree is associated with an increase of more than $15,000 in average home values.)

The key to fixing this problem will be to start children on the path from an early age to completing high school and then going on to post-secondary education. This will be a challenge in the inner city where many families have no history of post-secondary education and where young people have less exposure to the working world and to the career options available to them than do their suburban counterparts.

3. Becoming a less manufacturing-focused town will be an important part of making Winnipeg a more attractive place to live. To get a better sense of what divides the cities that young people dream of living in someday from those they don’t dream of living in (or desperately want to get out of), I looked for factors across the 25 cities examined that had some relation to the percentage of citizens who lived in another province or territory five years earlier.

Unfortunately, one of the most important factors was geography — the one factor that Winnipeg can do absolutely nothing about. Using a scale of 0 to 100, where both St. John’s, Newfoundland and Victoria, B.C. at the far ends of the country represented a “100” and the half-way point in between at approximately 88°W longitude represented a “0”, I noticed that the closer a city was to the middle of the country, the smaller the concentration of expats and returnees from other parts of Canada.

This, at least, is consistent with what we already know about those who move away to pursue jobs in the energy industry or to live in a less extreme mountain or coastal climate. It’s also consistent with the problems that the U.S. Midwest has had in terms of preventing its young and well educated from being drawn away from the interior of the continent toward the peripheries.

The other factor that makes a big difference here is how much a city’s economy relies on manufacturing. Manufacturing towns tend to be the worst at drawing in returnees and people looking for a better way of life.

Rightly or wrongly, manufacturing is seen as offering little in the way of secure, well-paying or mentally stimulating jobs — and that drives people away. A little more than 45 percent of the difference between cities in terms of the size of the expat and returnee community can be attributed to how much of the workforce is engaged in manufacturing, making this just as important as a city’s geographical location.

  • Among the 25 cities examined, 12 cities had more than 10 percent of their workforce in manufacturing, including Winnipeg at 11 percent. The average size of the expat and returnee community in these 12 cities: 1.3 percent of the population.

  • Among the 13 cities where less than 10 percent of the workforce was involved in manufacturing, the expat and returnee community constituted, on average, 4.5 percent of the population.

This is not to suggest that it would be healthy to have the same fate befall Winnipeg as befell other Midwestern cities that became ghost towns as manufacturers disappeared. A better way to reduce our reliance on manufacturing is to change the local labour force by setting people on the right course toward higher education while they’re still young. As long as we are the high school dropout capital of Canada — or even a serious contender for that dubious honour — our ability to shift our economy away from manufacturing and toward jobs in the business services and science sectors will be severely compromised.

Though Winnipeg will likely never regain the status it enjoyed as recently as the early ’70s as the economic capital of the Canadian Prairies, I’ve sought to outline some of the changes that could be made to at least allow us Winnipeggers to have a better way of life and to start to turn our city’s reputation around.

It’s shorter on specifics than I would have liked — there’s only so much one blogger can do — but if it shifts the terms of reference away from the idea that all that Winnipeg needs to get out of neutral is a new stadium, an NHL team, an Ikea store or some other bauble instead of deeper structural changes, it will have been worth it.