Opening Statement to the Committee On Public Accounts
Chapter 6 – Population Aging and Information for Parliament: Understanding the Choices (April 1998 Report)
L. Denis Desautels, FCA
Auditor General Of Canada
Thank you for providing us with the opportunity to discuss with you our chapter, Population Aging and Information for Parliament. As you may know, this chapter is a continuation of the series of reports we have issued on the need for better information for Parliament about the state of government financial health.
In my role as Parliament’s auditor, I have the responsibility to comment on the meaningfulness of government financial reporting. In this regard, I believe that it is important that government provide Canadians with information they need to make the financial choices that affect not only them today but also generations down the road. This is why we have reported on this theme of better financial information particularly as it affects the government’s overall financial condition.
In this chapter we specifically focus on the importance of taking demographics and the long term into account in annual Budget decisions; in saying this, it is important to recognize the distinction between taking this information into account and being accountable for the information.
This chapter has two objectives:
Starting with the first point, we showed that as baby boomers get older, there is the strong possibility that economic growth and related revenue growth will fall off, while expenditure growth will likely quicken.
This potential decline in economic growth is based on the expectation that labour force growth will slow down markedly as baby boomers begin reaching retirement age in 10 years or so and start leaving the labour force in large numbers.
This adverse effect on the economy and government revenues could be offset by increases in labour productivity. With such productivity having remained relatively constant, near one percent for the last 20 years, a dramatic increase would be needed to offset the projected decline in labour force growth. While this would be very opportune, it is also something that we should not count on.
On the spending side, as baby boomers approach retirement and people are generally living longer, governments can expect larger pension costs and rising medical costs. Again, while this is not inevitable, for it not to occur would require major changes in the way medical services are consumed and pensions are funded, particularly OAS and GIS.
This may sound and look like a lot of economic projections being made by the Auditor General, and I would agree. My reason for doing this is not to predict the future but to illustrate the need for information to help Canadians understand the potential impacts of demographic trends on long-term financial condition, and to show their relationship to current budgetary decision making.
Mr. Chairman, let me assure you that what we are calling for is not something out of line with other advanced nations.
In its latest budget, the British government announced a new Code for Fiscal Stability. That code calls for fiscal projections for a period not less than 10 years “to shed light on the intergenerational impact” of the government’s fiscal strategy.
In addition to the UK, Australia, New Zealand and the U.S. are currently providing long-term projections with their annual budgets to demonstrate the relationship between budget decisions and the long term.
Yet Canada continues to provide two-year rolling targets with no information in the Budget or the Fall Outlook about the impacts of demographics on government finances.
As I conclude, let me clarify two points. First, I am well aware that long-term projections are fraught with uncertainty. But as the OECD has pointed out, the greatest value of making projections of this nature is not the numbers themselves, but that it forces people to think about the future.
Second, I am not proposing that the Minister of Finance provide 10-year to 30-year forecasts for which he should be held accountable. Such a proposal would be impractical. Our concern is with transparency, not accountability. And in this regard, we believe that for government financial reporting to be meaningful, telling people about the potential impacts that demographics can have is fundamental. This does not necessarily mean reporting such information with the annual Budget; a more appropriate time could be the fall when the government comes to Parliament for input into the next Budget.
Thank you Mr. Chairman; we would now be pleased to respond to questions.