I'm enthusiastic, as you can tell.
In the last five years, I was the primary caregiver for my late mother in the last days and weeks, as well as the co-caregiver with my wife during the extended passing of her mother and father. We became deeply enmeshed in the Canadian health care system at end of life, and I want to talk about the good, the bad, and the ugly of our health care system as it pertains to seniors.
I first became interested in this subject after reading Gray Dawn: How the Coming Age Wave Will Transform America—and the World. It was written by Pete Peterson in 1999, the former commerce secretary under President Ronald Regan, and later the founder of what has become the very prestigious Peterson Institute in Washington, D.C. He documented, with incredible statistics from the U.S. Census Bureau, the gray dawn, the gray tsunami that's coming.
In the years since, a plethora of authoritative empirical studies have been published by the OECD, the World Bank, IMF, and reputable think tanks such as Brookings, Peterson, C.D. Howe, and MLI on the effect of aging on the macroeconomic economy, on tax receipts and on economic growth and productivity. I'm sure most of you or all of you are very familiar with this.
Both the IMF and OECD have produced increasingly dire studies and warnings about the increasingly serious squeeze on fiscal revenues caused by the smaller percentage of the workforce that is employed and 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 just like Florida, but without the warm weather. In other words, one in four will be over 65 years of age.
In a recent study, the IMF has argued that the aging crisis is going to impose much larger costs on society than the 2008-2009 financial crisis.
Closer to home, former Bank of Canada governor Dr. David Dodge—and former deputy minister of Health Canada, if I can remind everybody—published a superb report called “Chronic Health Care Spending Disease” in 2011, through the C.D. Howe Institute, using StatsCan data and CIHI data. It showed the gargantuan amount of health care per person for those over 75, and we all know the numbers over 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, and these costs are going to skyrocket.
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 the OECD argues they will become in Europe, precisely because of Canada's prudent, responsible, risk-diversified, four-pillar pension system 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 gargantuan loss of workers caused by the exodus of the boomers. Indeed, every serious macroeconomic study, including from Finance Canada, shows long-term GDP declines of around 1% to 2% annually, which is going to cause a serious hit to the federal and provincial revenues.
No; I've concluded that the vulnerability in Canada, and likely elsewhere, is health care. As Dr. Dodge demonstrated in his report, using very hard CIHI empirical data, the older we are above 65, the more and more health care we consume per person. As we move from our 70s into our 80s, we consume an average of around $25,000 health care per person per year. They, or should I say we, will be consuming a new Honda Civic every year.
Do we believe the young people in this room and across Canada are shouting “Whoopee—I get to pay a lot more taxes in the future to support Ian Lee in the years ahead”? For these reasons, the overarching purpose of government policy concerning seniors should be an absolute focus on keeping seniors in their homes for as long as possible, in my view.
I'll briefly highlight, then wrap up, because we're going to have time to talk, I hope. I'm going to focus on two very highlighted areas.
We need financial pension reform. The overarching policy should endeavour to keep every worker in the workforce for as long as possible by eliminating early retirement before 60 across the Canadian economy and by penalizing retirement between 60 and 65. Indeed, we need pension policy reform to eliminate incoherence and pension bankruptcy.
Fred Vettese is chief economist at Morneau Shepell. I should add as an aside that I have met him several times at pension conferences and I consider him to be highly intelligent and probably one of the single most important pension experts in all of Canada on this subject of pensions. As he noted in his recent blog, our national pension policy system is incoherent. Number one, OAS allows retirement and pension only at 65, while CPP allows a range from 60 to 70 and employer pensions under the Income Tax Act allow retirement as early as 55.
He suggested, and I completely agree, standardizing the flexible CPP model that allows a range between 60 and 70, with penalties for early retirement below 65 and pension top-ups for those who postpone their pension above 65.
Moreover, the tax act requirement to collapse all pension plans by 71 years of age is arbitrary and unreasonable, and should be pushed back or eliminated. This will allow much greater flexibility and encourage citizens to remain in the workforce. This will not have an excessively negative impact on government, because it will continue to receive its share of the deferred taxes once the pension is drawn down or the citizen passes away.
Finally, I'll wrap up on health care and hospitals.
We need to completely invert the paradigm of health care to a model where we should assume health care is delivered within the home in the first instance, including death and dying, and in the second instance in local, decentralized regional hospitals or community clinics, again to encourage seniors to remain in their homes. Our large legacy hospitals should be institutions of last resort for the most serious cases, rather than for warehousing elderly people.
In conclusion, policy can ameliorate but not eliminate the grey tsunami that is inevitable.
Thank you.