N.L.'s aging population, demographics a looming financial problem that needs action, says Ottawa

Closing schools, vacant jobs and outmigration: the impacts of an aging population on Newfoundland and Labrador's small towns and rural areas are well documented.

But a new report from Ottawa is providing a glimpse of an aging population's impacts on the province's finances.

"The government is going to have to do something," said Mostafa Askari, the assistant parliamentary budget officer.

Long-term problems

The parliamentary budget officer's 2017 fiscal sustainability report, released Oct. 5, takes a look at how the current spending and borrowing patterns of the country and all of its provinces would hold up for the next 75 years.

Comparing national or provincial debt with the size of its economy, it looks down the road to see whether the government's current financial practices would land it deeper in debt in 2091, or whether it'd come out okay.

It's not necessarily a forecast, but a fiscal check-in.

"The idea here is to give the policy makers a sense that well, do you have a long-term problem or not in terms of your fiscal structure?" said Askari.

Canada is in good shape, according to the report.

But Newfoundland has a long-term problem. And it's the worst in the country.

Mind the gap

When comparing the provincial debt to the size of the economy, the report found that the government's current spending and borrowing habits were unsustainable.

In order to get to a sustainable level with the current fiscal plans, the government would have to increase revenue or reduce spending by about $2 billion.

"What the Newfoundland government needs to do is raise revenues somehow, which is not easy, or reduce spending, or a combination of the two, by about $2 billion on a permanent basis," he said.

That's equivalent to a 26 per cent increase in taxes, or a 21 per cent decrease in spending. 

That $2-billion gap between current operations and sustainable operations is the biggest gap of all the provinces.

Oil won't solve all the problems

The problem, says Askari, is the province's changing demographics.

"I think the main problem in Newfoundland [and Labrador] really is the aging of the population and the loss of population," he said. "Which is really a structural issue for the province."

"It's a major challenge for the government and I know it's extremely difficult to deal with that."

It's a problem not even oil revenues can solve, he said.

"If the oil prices come back, maybe some help will come from that and that will raise the revenues," he said. "But I don't think that's going to really solve all the problems."

In particular, it won't help the extra spending on health care that goes along with an aging population. The report estimates that the province will have to bump its health-care expenses by almost seven per cent of its current GDP — the largest increase in the country.

"The loss of population will lead to lower economic growth and then the increase in spending as a result of the aging of the population, those two will lead to a continuous and rising fiscal deficit and, as a result, rising public debt in Newfoundland," he said.

No. 1 in 'the worst possible things'

"We're No. 1 in virtually all of the worst possible things," said Keith Storey, head of the Population Project, an initiative based out of Memorial University's Harris Centre that looks at the province's future demographics.  

Two grim reports have come out of the project, showing the impact the aging population will have on the province's rural areas. Storey is not surprised to hear it will also have a severe financial toll.

• Report predicts plummeting population for rural Newfoundland and Labrador
• Drastic population declines forecasted for southern Labrador and Northern Peninsula

"This is a train that's been coming down a long track for a long time," he said.

Adapting health care to the changing demographics is of particular interest to Storey and his team. They've just launched a project looking at how the needs of patients in Labrador are changing as they age.

And though Newfoundland and Labrador's population is getting older faster than any other place in Canada, Storey said there are other places in the world that have coped well and figured out a way to pay for it.

Germany, for example, has regions where the people are getting older faster than in Newfoundland and Labrador, said Storey. Those regions have figured out innovative ways to keep elderly people in their homes rather than in expensive, specialized facilities.

The province needs a plan

There are even opportunities for new types of jobs, new types of technological advances and new health-related businesses, said Storey. But in order to turn things around and make the most of the situation he agrees with Askari: the province needs a plan. 

But as it stands now, he said he hasn't seen or heard of much planning, fiscal or otherwise.

"We've been seeing these trends since the mid-'80s; it's just that there hasn't been an attempt to have this discussion and debate about what we're going to have to do about it."