Northern Economist Visiting NOSM

I will be visiting the Thunder Bay Campus of the Northern Ontario School of Medicine on January 26th to give a seminar in the Human Science Seminar Series.  My talk will overview trends in health spending in Canada over the longer-term and provide some recent estimates of aggregate value for money from this spending.  Looking forward to the visit.

The North and Population Aging

The 2011 Census results for population age are out from Statistics Canada today and Canada is indeed a much older place than the last census in 2006.  The proportion of population aged 65 and over is now 14.8 percent, up from 13.7 percent in 2006.  The results for Northern Ontario suggest that the North is older than Canada as a whole.  A ranking of Canadian CMAs (Census Metropolitan areas) and Northern Ontario CMAs and CAs (Census agglomerations) show the Sault is the oldest major city in the North with 19.3 percent of its population aged 65 years and older.  Thunder Bay is next at 17.2 percent followed by North Bay at 17 percent.  Sudbury is next at 16.1 percent with Timmins the youngest at only 13.8 percent.  For Canada's CMAs as a whole, the oldest is Peterborough at 19.5 percent and the youngest is Calgary at 9.8 percent.  Indeed, Calgary, Edmonton and Saskatoon, out in the booming west with its influx of young migrants - are the three CMAs with the lowest share of population aged 65 and over.  Additional note, I've left Elliot Lake (a northern CA) off of this graph.  Its proportion of population aged 65 and over is 35.1 percent but then it has become a retirement community.

The Slowdown in Net Worth

While I've always had an interest in wealth distribution, composition and growth from the perspective of 19th century economic history, recent evidence is also of interest.  I received a report on wealth in Italian households this week and posted a comparison of net worth to income estimates across G-7 countries on Worthwhile Canadian Initiative.  I decided to follow up with a look at data on per capita Canadian net worth for persons and unincorporated businesses.  Given the recent warnings about the rising level of consumer and personal indebtedness in Canada, it comes as no surprise that the last four years have seen a halt to rising net worth.  Between 1971 and 2010, real per capita net worth (in 2002 dollars) in Canada nearly tripled.  It peaked in 2007, then dropped,  but has yet to recover to its 2007 level.  Along with the shock of the financial crisis on investment portfolios, recent years have also seen growth in personal and consumer debt limit net worth growth.  Over the period 2007 to 2010, the average annual growth rate of net worth was 0.7 percent.  Compare that to 3.2 percent for the period 2000 to 2006 or 3.7 percent for the 1990s.  While the growth rate of net worth has slowed, we have not seen the steep declines of the United States where the recession was driven by a collapse in net worth brought about by the end of the U.S. housing boom and the drop in house values.  To date, we have been spared that type of "balance sheet" recession.  However, the February 4th issue of The Economist drew attention to Canada's housing market as being in a bubble of its own. The good news is that a soft landing was predicted.  Rather than a bubble, the Canadian housing market was referred to being more of a "balloon"  and balloons can deflate slowly - if not pricked by a pin.

Northern Economist in the Winnipeg Free Press

 

The View from the West

Harper seeking a sustainable Canada

By: Livio Di Matteo

February 13th, 2012

News headlines present what seem to be unconnected stories regarding government initiatives and yet there is an underlying strategy to what any government does. For example, recent weeks have seen the term "sustainability" being applied to describe federal government policies with respect to health transfers and pensions.
At the same time, there have been references to Canada forging new trade links with Asia and Europe. Coupled with all this is the looming federal budget, which is expected to unveil substantial budget cuts.
Linking all these items together is the agenda of Canada's present federal government, which can best be understood as a comprehensive strategy of national sustainability. That is, the pursuit of a strategy that will make Canada economically sustainable for the 21st century.
To borrow a Prairie metaphor, the government's vision is passing the farm on to our children via two policy pillars. First, is restructuring the public finances and second, the pursuit of an economic strategy designed to ensure long-term growth and opportunity by taking our trade eggs out of one basket.
Securing the public finances requires balancing the budget and making sure the national debt begins to decline as the prospect of rising interest rates and debt service costs may squeeze health and social programs.
The sustainability of government spending and elimination of the deficit in the long term requires government spending not rise faster than the resource base.
To this effect, federal health transfers will eventually rise at the rate of GDP growth. As for government pensions, there is ongoing discussion about reforms to Old Age Security to increase the eligibility age and thereby also limit spending. Eliminating the federal deficit primarily through expenditure reduction rather than revenue increases can also be seen as a calculated strategy of fiscal sustainability designed to keep our tax rates low for the purposes of international competitiveness.
Given that one third of our GDP is rooted in the export sector, Canada's economic viability also requires that we seek opportunities to grow our trading relationships. The pursuit of trade opportunities in Asia and Europe represents a long-term strategy to diversify our trade portfolio and is a departure from our monogamous historical trade patterns. First, we had Great Britain as our primary trade partner and directed most of our exports there. Then, we cultivated the United States as our trade partner, which at one point absorbed nearly 80 per cent of our exports.
Reliance on one major market for our goods makes us vulnerable to political and economic shocks. In the case of the U.S., while it represents a convenient and wealthy market for our wares, recent years have seen the Americans become increasingly inward looking and preoccupied with their border to the extent that trade with them has become increasingly more difficult. The shift away from the American market began during the world financial crisis and the Great Recession of 2009. Between 2005 and 2010, the value of exports to the U.S. dropped by 10 per cent and their share of our exports fell from 82 to 73 per cent. Over the same period, exports to the United Kingdom and Europe have grown as well as exports to other OECD countries, China and India. The pursuit of China as a market for Canadian energy also marks a departure from our previous continental approach to energy markets.
The federal government is following in the path of previous governments in crafting an economic strategy to secure Canada's sustainability as a nation. From 1867 to the Second World War, we were dominated by the national policies of land settlement, tariff protection and railway construction, which erected an east-west national space. The period from the end of the Second World War to the 1980s saw the pursuit of trade opportunities with the United States via agreements such as the Auto Pact with increasing dominance of the North American market leading to the 1988 Free Trade Agreement and NAFTA.
We are embarking on a 21st-century strategy of economic diversification with the pursuit of trade and investment opportunities with Asia and Europe. The continental economic vision of guaranteed access to the U.S. market has been increasingly under siege as a result of repeated lumber disputes, tighter border controls, and an economically weaker United States that is more inclined towards protectionism. In the face of these challenges to Canada's economic future, the government response is a strategy to balance the books and to make sure we will not be dependent on one international market for our future economic welfare. Who can really argue with that?

Livio Di Matteo is professor of economics at Lakehead University.

Republished from the Winnipeg Free Press print edition February 13, 2012 A10

New Health Fiscal Sustainability Report Released

A new report on the fiscal sustainability of public health care in Canada was just released by the Canadian Health Services Research Foundation.  The report is titled “The Fiscal Sustainability of Canadian Publicly Funded Healthcare Systems and the Policy Response to the Fiscal Gap” and is authored by myself and Rosanna Di Matteo and is available on the CHSRF web site.  For a summary of the results, see below:

Key Messages

• Fiscal sustainability generally refers to the extent to which spending growth matches growth in measures of a society’s resource base. Since 1975, real per capita government health spending in Canada has risen at an average annual rate of 2.3%, in excess of the growth in real per capita GDP, government revenues, federal transfers and total government expenditures.
• Five expenditure scenarios were constructed, using regression determinants and growth extrapolation approaches, for Canada as a whole, each of the ten provinces and the territories for the period 2010–2035.
• For Canada as a whole, real per capita public healthcare spending from 2010 to 2035 can be expected to grow anywhere from 78% to 115% and reach a level in 2035 in 2010 dollars ranging from $6,552 to $8,798 per capita.
• For the provinces, the average increase across the ten provinces from 2010 to 2035 in real per capita provincial government health spending ranges from 81% to 160%. Average estimated spending in 2035 ranges from a low of $6,711 to a high of $10,819 per capita.
• For the Yukon, real per capita public healthcare spending between 2010 and 2035 can be expected to increase from a low of 142% to a high of 652% – a range in 2035 of $14,316 to $41,089 per capita. For the Northwest Territories and Nunavut, low-end growth was 57% while the highest growth was 281%. Spending in 2035 would be estimated to range from a low of $12,423 to a high of $32,557 per capita.
• In terms of the fiscal gap, annual compound growth rates for forecast government health spending exceed those for government revenue growth for most scenarios and jurisdictions. For Canada as a whole, the public healthcare expenditure-to-GDP ratio could rise to as little as 9.5% or to as much as 13.4% by 2035 from the current 7.6%. The territories and most provinces generally also see increases in the public healthcare expenditure-to-GDP ratio by 2035.
• Under the extrapolation assumption that health expenditure trends for the 1996 to 2008 period continue but with lower economic growth, government health spending in Canada in 2035 would reach $8,798 per capita and the public healthcare expenditure-to-GDP ratio would reach 13.4%. This projected increase is equivalent to an increase in public spending today of about $2,797 per capita, possibly requiring up to a 15% increase in per capita revenues.
• Potential policy solutions to make public healthcare spending more sustainable include controlling and restructuring expenditure, raising additional tax revenues, creating a federal health tax to generate revenues for a national health endowment fund, and allowing for a greater private role in healthcare spending.