Time for Canada to lose some weight

Government revenues have not returned to pre-recession levels and spending has grown to such an extent that a substantial portion of core program funding is debt financed.

June 30, 2011   by Gwyn Morgan

Some countries heading towards national insolvency act decisively. David Cameron’s government has embarked on the wrenching and politically volatile course of pulling Britain back from the brink. By contrast, the US keeps running multi-trillion dollar deficits that cannot go on forever.

Canada’s fiscal house is in much better shape than that of the US, Britain and other OECD countries; but complacency at this juncture would surely destroy our hard-earned strength.

Government revenues have not returned to pre-recession levels and spending has grown to such an extent that a substantial portion of core program funding is debt financed.

Unfortunately, there’s no real chance of revenues catching up, and Canada’s greying population is a big reason. Statistics Canada estimates the number of seniors will at least double by 2031, out-numbering children for the first time in history.

The revived federal budget predicts that spending on senior’s benefits will grow by a whopping 30% over the next five years. That doesn’t include the promised 6% annual growth rate in federal contributions to the provinces for health care.

The retirement of the baby boomers means not only lower income tax revenues, but lost economic growth due to the already serious inability of employers to replace these skilled workers. Add the unfunded pension liabilities for federal government workers (which the C.D. Howe Institute warns is some $65 billion higher than noted in the public accounts) and the stark outlook is for fewer working-age taxpayers supporting mushrooming costs.

But the election of Canada’s first majority government in seven years provides an opportunity to enact the structural changes needed to prevent Canada from facing a painful and divisive crisis and forced program cuts like those now happening in Britain.

But implementing the changes will still be politically challenging. To lose weight, governments have to be more efficient and smaller.

Well before the election the Harper government, through an on-going strategic review process, required each ministry to achieve a mandatory 5% cost reduction. But we need to do more, including moving towards the more efficient, lower-cost private contractor provision of government services. Following the private sector’s lead, public service pensions should be converted from open-ended, unfunded “defined benefit” schemes to continuously funded “defined contribution” plans that include significant employee contributions.

Change of focus
But what about smaller government?

For social programs, that means the current “universality” paradigm must be replaced to focus dollars on those who actually need help. While this logic needs to be applied to all social programs, the first priority should be to amend the Canada Health Act to allow Canadians to purchase insurance and to seek treatment either through the universal publicly funded system or user-pay private clinics, a freedom enjoyed by citizens of every other developed country.

A recent report by the Conference Board of Canada – citing patient care outcome data that ranks Canada’s health care system well back of European systems that allow user pay options – provides further justification for this change. Studies show private payments actually reduce waiting lists because they free up dollars for treating those needing access to publicly funded care.

These actions will be controversial. The outcries from vested interest groups will be shrill. But failure to act means that electing a national majority government will have done little to mend the demographic and structural fissures that are making Canada’s social programs structurally unsustainable.

Gwyn Morgan is the retired founding CEO of EnCana Corp.

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