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Atlantic governments, already in tough fiscal positions, face worse problems in years to come
There’s no denying the economic gap between Atlantic Canada and the rest of the country.
Due to demographics, debt and a variety of economic obstacles, almost all provinces face fiscal headwinds in coming decades, but those challenges are magnified on Canada’s east coast.
Nationally, the country’s aging population is driving health care costs higher at the same time as retiring baby boomers are putting downward pressure on the workforce, says the federal Parliamentary Budget Office.
Atlantic Canada’s population is the oldest in the country.
Meanwhile, this region’s workforce is already getting squeezed. By next year, only seven young workers will enter the workforce for every 10 people retiring here, says the Atlantic Provinces Economic Council. That’s expected to improve only marginally, to eight new workers for every 10 retirees, by 2040.
Across the country, fiscal policy at the provincial level (except for Quebec) is already unsustainable, the PBO cautioned in September 2018. That message is only amplified in the Atlantic region.
Five years ago, the Ivany report sounded many of the same warnings.
So, the prognosis is sobering. What are the solutions?
In its recent report — Catching Up with Canada — the Atlantic Institute for Market Studies (AIMS), newly merged with the Fraser Institute, pushes a strong pro-growth agenda to close the gap with the rest of the country.
There’s merit in many of their prescriptions. For example, eliminating interprovincial trade barriers in the region is a no-brainer, given the magnitude of the challenges facing this region. Finding a way to lower the region’s relatively uncompetitive corporate taxes — the highest in the country at 16 per cent — is essential. Eventually bringing down personal taxes is equally important.
But governments here must also be careful not to undercut their ability to manage rising costs associated with an aging population.
In its 2019 report, The Fiscal Health of Canadian Governments, the Conference Board of Canada points out that though many baby boomers have already retired, the latter part of that demographic phenomenon — the tail-end boomers, in their mid-50s and early 60s — are actually the most numerous. So the impact of their retirements over the next decade or so, both on demand for health care and the labour force, have yet to be felt.
But health care costs are clearly the elephant in the room.
This is where Ottawa’s help is crucial. The PBO projects the federal Canada Health Transfer — the money Ottawa distributes to provinces to fund health care costs — will slowly shrink, from 21.4 per cent of health care spending to just 17.1 per cent, by 2092.
That’s at the same time, according to PBO projections, the federal government’s fiscal position will be getting stronger. In the long term, Ottawa must shoulder more, not less, of the health care burden.
Atlantic Canada, however, has its own crucial to-do list, particularly in regards to bolstering its labour force.
A June report from the Atlantic Canada Opportunities Agency found 31,000, 2.4 per cent of workers, left the labour force here between 2012 and 2018. Businesses in many sectors in the region, having trouble attracting the right skill sets, are already unable to take advantage of demand for their products and services.
Immigration, already showing encouraging growth, is imperative. Increasing the participation of women, older workers, including would-be retirees, Indigenous people and the disabled in the workforce is also key, according to APEC.
Better skill matching between training and opportunities is among other important goals.
At the same, governments must be prudent about spending.
The bottom line, however, remains that we must change course. We can’t keep doing what we’ve been doing and hope to muddle through.