I thank the committee for inviting me to speak on the issues before us today. First, here are my disclosures. I don't consult to anyone or anything, anywhere, not governments, not unions, not corporations, which means I'm not a registered or unregistered lobbyist. I don't belong to or contribute to any political party. Salient to what I am about to say in the next three and a half minutes, in about 70 days from now, I am passing, involuntarily, into that club called the “seniors of Canada”.
I want to talk briefly about the whole issue of deficits but only as the prelude to talking about the greatest crisis that is facing Canada and every western country, the grey tsunami over the next 20 years or so. It is going to profoundly affect every OECD country.
Before and after the great downsizing of the 1995 federal budget and deficit, there was then, and still remains or continues, extensive debate in Canada concerning what I believe are two false premises concerning deficit reduction. First, it's argued that Canada is a very wealthy country and deficits will not break or bankrupt this country, so don't worry about it. The second argument that's put forward, which I believe is a false argument, is that policy X, let's say the Canada benefit, is an excellent policy; therefore, deficits are justified.
I just want to put those arguments to bed and then get on to the bigger issue.
Of course, Canada is a wealthy country. I've travelled all around the world, in many developing and developed countries, and we are fabulously wealthy on a per person basis, one of the wealthiest countries in the world. It is approximately equal with Germany on a per person basis, and Germany is indeed the wealthiest country in Europe. However, that's no justification to squander scarce public resources. Secondly, yes, there are excellent policies on the books, but that does not justify deficits. Rather, it justifies pruning and judicious program review of, to paraphrase Governor Carney, “dead programs”.
In the very few minutes I have, I want turn to this issue because I really do think it's the biggest crisis facing us. The IMF has said so. It has said that it's going to exceed, far more greatly, the financial crisis of 2008-09.
I first became interested in the subject after reading a book in 1999, called Gray Dawn: How the Coming Age Wave Will Transform America—and the World. It was authored by Pete Peterson, the former commerce secretary under President Ronald Reagan, who later founded what became the very prestigious Peterson Institute in Washington.
In the years since, a plethora of authoritative empirical studies have been published by the OECD, the World Bank, the IMF, and reputable think tanks such as Brookings, the Peterson Institute, the C.D. Howe Institute, and the Macdonald-Laurier Institute on the subject of aging, on the macro-economic economy, and on tax receipts and economic growth and productivity.
Both the IMF and the OECD have produced increasingly dire studies and warnings about the increasingly serious squeeze on fiscal revenues caused by a smaller percentage of the workforce, the employed paying taxes, and the concomitant dramatic increase in health care costs for the exploding number of seniors.
As one American demographer recently noted, in approximately 20 years, all of North America is going to look like Florida but without the warm weather. In other words, one in four people will be over the age of 65. As I've already mentioned, the IMF has argued that the aging crisis is going to impose far larger costs on our society over the next 10, 20, or 30 years than the 2008-09 crisis.
Closer to home, former governor and former deputy minister of health David Dodge published in 2011 a superb report called “Chronic Healthcare Spending Disease”, showing the gargantuan amount of health care per capita for those over age 75. The numbers of people over age 75 are skyrocketing.
Very recently, the PBO published a report showing that provincial budgets are going to become increasingly bleak going forward, because most costs associated with aging are funded by the provinces.
Having read and absorbed a number of these excellent studies, I've come to the conclusion that the cost of pensions will not be the problem that the OECD argues they'll become in Europe, precisely because of Canada's prudent, responsible, risk-diversified, four-pillar pension system, which is unfortunately criticized by some of my colleagues in academia. This is not to minimize the drag and loss of productivity and economic growth caused by the enormous loss of workers, but every serious economic study, including by Finance Canada, shows long-term GDP declines of 1% to 2% annually.
I've concluded that the vulnerability in Canada, and likely elsewhere, is health care. As Dr. Dodge demonstrated in his report using CIHI data, the older we are above 65, the more we consume per person per year.
As we move from our seventies to our eighties—and this is in his report from CIHI—we consume an average of around $25,000 per person per year. This is the equivalent of consuming a new Honda Civic every year. Do we believe the young people in this room or across this country are shouting, “Whoopee! I'm going to get to pay a lot more taxes in the future to support Ian Lee and all the boomers in the years ahead”? For these reasons the overarching purpose of government policy concerning seniors should be focused on keeping this huge increase in seniors in their homes for as long as possible.
What follows is what I really want to talk about very quickly, and then I'll wrap up.
Firstly, in terms of pension reform, we need to be discussing a lot more about what we can do, such as eliminating early retirement before 60 across the board and penalizing retirement between 60 and 65. We need pension reform to eliminate incoherence within our policy frameworks, such as OAS allowing 65 retirement, CPP a range of 60 to 70, while employer pensions allow retirement as early as 65. We need to standardize there. We need to end the rule that prohibits RSPs and pensions after 71, in other words, that we have to take it.
Then, secondly, and then I'll finish, Mr. Chair, we need to completely invert the paradigm of health care to a model where we assume health care is delivered within the home. We assume now it's delivered within what I characterize as legacy hospitals—large, enormous, expensive hospitals—rather than local decentralized regional hospitals or community clinics, as a second instance, again, to encourage seniors to remain in our homes.
In conclusion, policy can ameliorate but it will not eliminate the great tsunami that is inevitably coming to Canada and other OECD countries.
Thank you.
