Oct. 10, 2011
-- According to recently released research by the C.D. Howe Institute (The Glacier Grinds Closer: How Demographics Will Change Canada’s Fiscal Landscape) demographics shifts in Canada are creating the need for “immediate measures” to contain costs and fund age-sensitive social programs on a sustainable basis. According to the report “If current patterns of spending in age-sensitive public programs – healthcare, education, elderly and children’s benefits – persist as the population evolves, Canadians will divert more of their incomes from other public and private purposes to fund them. Discounted over 50 years, that increase amounts to an implicit liability of $2.8 trillion for governments, with essentially all of the burden falling on the provinces and territories rather than on Ottawa. Spreading this cost evenly over the period with CPP-style level funding would require immediate annual levies ranging from 2.9 percent of GDP – $1,800 per person – in Saskatchewan to 7.7 percent of GDP – about $2,700 per person – in Nova Scotia and New Brunswick, and more than 10 percent of GDP – $5,700 per person – in Yukon.”
Of all the age sensitive state liabilities, research by Enquirica makes it believe the developed economies are at the very beginning of the problems that will have to be faced with pension finances. Enquirica believes that significant amounts of future bail-out funds will required for struggling state pensions across the developed economies with serious consequences for already precarious public debt levels. The longer zero interest rate policies continue the worse the funding shortfall problem will become and it already appears to be serious. Studies on US municipal and state pension obligations by the Kellogg School found a total funding shortfall at the municipal and state levels of approximately $3.5 trillion. Shortfalls of this magnitude make it unlikely that there will be enough to pay promised benefits without significant additional capital in the form of higher contributions or bail-out funds. The alternatives are benefit reductions or bankruptcy - neither of which appears to be a viable option in the current political climate.
Enquirica Research is a Calgary based firm focusing on the analysis of alternative asset classes and investments, primarily in western Canada. For copies of Enquirica research register at www.enquirica.com.
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Enquirica Research is a Calgary based firm focussing on the analysis of alternative asset classes and investments, primarily in western Canada. For copies of Enquirica research register at www.enquirica.com.