A long-term view of Canada’s Demographics

Century Initiative | October 2, 2016.

The Conference Board of Canada (CBOC) recently released a report, A Long-term View of Canada’s Demographics: Are Higher Immigration Levels an Appropriate Response to Canada’s Aging Population? The report explores how increasing immigration could offset the negative economic implications of Canada’s aging population.

Canada will face significant challenges from an aging population and historically low fertility levels. These demographic factors will negatively impact the country’s economic growth through a shrinking labour force, a smaller domestic market, and inadequate capital investment.

If the population continues along the current trajectory, Canada will be a small country, with only 53.5 million inhabitants in 2100. The Conference Board projects that if current trends continue, economic growth in Canada will slow to 1.6% by 2050 and average just 1.5% from 2050 to 2100. Weaker economic growth over the long term will limit the amount of revenue that governments in Canada collect, putting pressure on government finances at the same time that there is a sharply increased demand for both healthcare and Old Age Security (OAS) spending.

What would happen if Canada’s population grew steadily? How would this impact our current trajectory?

The CBOC report explores five population scenarios with different levels of immigration and natural increases in population. The report highlights how each could impact the size and age structure of the population in 2100. Each demographic scenario is presented alongside an examination of the impact on the Canadian economy and, in turn, governments’ fiscal resources to pay for public spending programs. The scenarios presented include: A Status Quo Scenario; a Medium Scenario; a Medium Scenario with Younger Immigrants; a High Scenario; and a 100 Million Scenario, in which the Canadian population reaches 100 million by 2100.

The demographic challenges that lie ahead for Canada cannot be reversed, and funding the healthcare system in the 2030s and 40s (“peak age”) will be expensive, regardless of the future workforce. However, it is also evident that Canada’s population size can be increased considerably, and that higher immigration levels would have a positive impact on the Canadian economy. A larger population can help boost Canada’s labour force and generate stronger long-term economic growth, reducing the average cost per working Canadian for expensive social programs – such as healthcare – by increasing the ratio of workers to retirees.

The 100 Million Scenario presented in the report provides the greatest positive impact on the demographic challenges that lie ahead for Canada.

To get Canada’s population to 100 million by 2100, immigration levels would need to increase steadily but not dramatically. A multi-year plan to increase immigration to 1.3% of population (415,000 – 450,000 entrants per year over the next 5-10 years) is more than adequate. At various times in Canada’s history we have exceeded these levels with no harmful effects.

The 100 Million Scenario leads to higher economic growth – estimated to become 2.3% per year by 2050 and 2.6% per year by 2100. This growth results in greater revenue for both provincial and federal governments and reduces shares of revenues required to fund OAS, healthcare, and other services. With 100 million people in 2100, the share of revenue spent on OAS at the federal level is less than 10%, which is a significant reduction from the 12% share under the Status Quo Scenario. In the 100 Million Scenario, the proportion of the population aged 65 and over never rises above 23.2% and eventually stabilizes at 21.3%. If this were to happen today, $4.84 billion in government spending would be freed up.

Healthcare spending paints an even more dramatic picture. Under the 100 million scenario, provincial healthcare costs fall from 34.5 to 29.2% of provincial spending. Today, the value of that 5.3% is $21.2 billion dollars.

The value of economic growth is even larger – the Conference Board projects 2.6% growth per year under the 100 million scenario, significantly greater than its status quo projection of 1.6% per year. A larger domestic market will substantially affect housing starts, retail sales, savings, and investment levels. The differences are stark.

Canada’s future economy depends on how we address these demographic challenges. Immigration has been a key driver of Canada’s population growth in recent years and will continue to be the key component of Canada’s future population growth. In fact, based on current fertility levels and without increased immigration, Canada’s population will start to shrink in 2039.

The CBOC report highlights how a larger population can help offset the future economic challenges of Canada’s aging population and can result in greater economic prosperity for future Canadians.