NCPA - National Center for Policy Analysis


September 2, 2008

Each Canadian taxpayer is on the hook for C$150,211 (about U.S.$140,472.30) that their government has racked up in debt and unfunded program obligations.  The combined total debt is C$1.3 trillion (about U.S.$1.21 trillion).  The problem stems from the fact that the governments in each province have committed themselves to programs that are not fully funded or that have been updated in the last four decades, says the Fraser Forum.

Consider the Old Age Security (OAS) program -- Canada's retirement income system.  Pensions are available to all citizens 65 years or older and are to be paid from federal tax revenues.  Unfortunately, the program is based on demographic assumptions from the 1960s that do not ring true today, says Fraser: 

  • In 1956, only 7.7 percent of Canadians were over 65 years old; in 2006, that proportion increased to 13.3 percent, and is expected to rise to 26.5 percent by 2040.
  • This change in Canada's demographic makeup has increased and will continue to increase the portion of federal revenues need to fund OAS benefits.
  • The difference between the stream of promised benefits and the expected future stream of revenues is estimated to currently be C$356 billion (about U.S.$341 billion).

Moreover, Canada's Medicare obligations suffer the same ills:

  • In 2006-2007, Medicare consumed 19.1 percent of total federal, provincial and local government revenue.
  • Given that those 65 years old account for approximately 44 percent of all health spending, and the fact that the percentage of the population over 65 will increase dramatically, the portion of revenue currently used to fund Medicare will not be sufficient.
  • As such, Medicare's unfunded liability stands at C$364 billion (about U.S.$340 billion).

The good news is that Canadians have, for the most part, come to realize the seriousness of continually increasing government debt.  Indeed, most governments are making an effort to balance their books and some are paying down debt.  At the federal level, many consider running a deficit a sure way to commit political suicide, says the Forum.

Source: Niels Veldhuis and Milagros Palacios, "Another $150,000 please," Fraser Forum, July/August 2008.


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