Monday, September 28, 2009

Demographics driving BC tax hikes

Thanks to the surprisingly poor PR job done by the Campbell government, there is a common misconception that the global recession alone was behind the provincial government’s recent budget cuts and tax hikes.

In fact there is another subtle contributor that has slowly wormed its way into the economy – it is demographics.

To be sure the global recession that was brought on by the poorly regulated U.S. financial system likely brought matters to a head a few years sooner, but this demographic day of reckoning has long been coming.

After the Second World War there was a huge post war baby boom. No country experienced a larger post war baby boom than did Canada. Hence was born the boomer generation who came of age in the 1960s and 1970s. What also came of age in the 1960s was the women’s rights movement, the sexual revolution and the birth control pill. There followed a precipitous decline in birth rates.

Women, especially in Canada, have been having fewer and fewer children at a later and later age. In 1960 the average woman was married and had finished having her four children by the time she was 24. Today’s average 24 year old woman is wondering how the hell she is ever going to pay off her massive post secondary student loan and keep paying the rent on her one bedroom condo.

Unlike other wealthy nations, Canada’s birth rate has continued to decline. I believe that is because we have made family housing so unaffordable in this country that many middle class couples simply feel they can’t afford to start one.

So the net result is that we have fewer children and more seniors. That’s where the rub comes in. Ten years ago a senior BC health official mentioned to me that the average 18 year old cost the health care system $800 per year while the average 80 year old cost the BC health care system $21,000 per year.

So the more seniors the more health care costs sky rocket. Also because there is a relative shortage of young workers that means the provincial government is not collecting enough money from income taxes in order to cover these health care costs. So to solve this problem the provincial government will be imposing a 12% Harmonised Sales Tax (HST) and will be raising the Medical Service Plan (MSP) premiums we pay every month.

Both taxes are regressive in that they will affect the working poor and middle class much more than the wealthy. They will also act as a further impediment to middle class couples being able to afford a new home and raise a family; thus will continue Canada’s demographic death spiral.

Ah but what about immigration? Just to maintain our current population, we need to allow 500,000 people per year to move to Canada. Moreover we would have to make sure these were 500,000 young people. Canada both in terms of logistics and legalities is simply unable to undertake such a massive change to our immigration system.

But there are two groups in Canada that are having children above the replacement rate, those whose income qualifies them for subsidized housing and the wealthy. Those couples that are in the fortunate position of having made their money the old fashioned way – by inheriting it from Mummy and Daddy – are now having more kids as it has become recognized as a status symbol.

Squeezed out of the equation are the long suffering middle class who now require two incomes just to afford to purchase a glorified walk in closet known in Vancouver as a condominium. Some of these condos are so small you need to go out in the hallway just to change your mind. There certainly isn’t enough room to raise a child or two in.

In short unless or until we figure out a way to make family housing affordable enough for young people we’re not going to have young families and you can continue to expect further tax hikes, program service cuts and longer health care waiting lists.