The Demographic Timebomb

One of the ‘hot topics’ in the current election debates going on here in Canada is which party can brainwash persuade the most aging voters that they are best party to vote for.

The ‘grey vote’ is one considered to be especially important for several reasons. Firstly, unlike younger voters, the older demographic tends to be more diligent about voting. Secondly, this section of the community is one that is growing.

Like many western countries, Canada is facing an aging population and has been for some time. Also the ‘baby boomers’ are set to retire in the next few years swelling those figures. Exacerbating this, more and more of us are being extremely stubborn in living longer than ever before.

The net result of this is twofold. An aging population means that the financial impact of pensions increases dramatically. Additionally the extended lifespan leads to increased medical expenses – a double whammy in terms of the country’s financial budget.

It doesn’t end there either. With the changes in population balance there is another factor that comes into play. Not only do we have more people ‘taking’ from the system in the form of pensions and healthcare – but we also have less people ‘putting in’.

The explanation behind this is simple. Population growth since the postwar ‘baby-boom’ has declined by almost 45% – in other words there are now approximately that many less people paying taxes and taxes pay for healthcare and pensions.

How this works is often ignored or confused (possibly deliberately) but here’s how it goes. When you pay your taxes and your statutory pension and health insurance, it doesn’t go into the equivalent of a savings account or RRSP or any of those things. What it does is pay for all the people who are currently collecting pensions, having healthcare and winter holidays in Florida etc. Then when it’s time for you to kick up your feet in X years time, the people who are then currently paying taxes pick up the tab for your pension, your winter holidays and your turbo-charged zimmer frame.

That all sounds okay, doesn’t it?

It works – but only when the population trend is either growing or at least somewhat stable. Which is exactly what we don’t have. Which is exactly why this doesn’t work.

With fewer people paying taxes and an increasingly elderly population – the only way to make this balance is for the tax payers to pay increasingly more as the ‘burden’ increases. (Remember the first rule of politics – governments have no money!).

So, what is the answer? Well, we could euthanise everyone at age 21, though I imagine that would get us talked about at the very least.

We could cut pensions and healthcare. To an extent this is already being done in many countries through backdoor means; and anyone working now should certainly not rely on there being any kind of ‘state pension’ when their retirement plans come to fruition.

We could make people more financially responsible for their retirement by requiring or ‘encouraging’ people to take out their own pensions etc. This is an option again being pursued by many countries and is a particularly pernicious solution. What’s happening here is that the current crop of taxpayers are being asked to:

  1. Carry the burden of  the cost of existing pensioners through their taxes.
  2. Pay these taxes  but they themselves will never benefit from these.
  3. Pay, in addition, extra funds into private schemes to try and ensure they can retire with some security

Talk about getting screwed!

Canada has another option that it appears to be using with gusto. I guess you could call it the ‘Pension Immigrant Support Taxation’ plan (PIST – has kind of a good ring to it!).

This plan runs along these lines:

  • Recognise the aging population/falling birthrate problem and bankruptcy of current ‘pension planning’.
  • Encourage lots of new immigrants to make up the shortfall (hopefully).
  • Tax the new immigrants to pay for the aging, long-lived pensioners.

The problem with this scheme is that it requires enough immigrants want to come to Canada – which it has to be said appears to be an attractive destination to many so this may not be a real issue.

The second issue is more subtle. As more immigrants come in they dilute the ‘native’ population. Also very little is done to promote real integration with the existing population and, as many of the immigrants come from cultures with very different social values, this also dilutes the very society that exists within the country. Once ‘immigrants’ become the majority then their values will dominate – politicians are ruled by ‘shout loudest democracy’.

So, do we keep our pensions or our culture?

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