Growing Grey: Fiscal Policy Amid an Aging Population

As the population ages and more people exit the workforce than naturally enter it, policy-makers will be presented with significant challenges. This short paper looks at some of the fiscal stresses that demographic change will pose, with a specific focus on British Columbia, and suggests options that could help to ease the looming fiscal crunch.

As the population ages and more people exit the workforce than naturally enter it, policy-makers will be presented with significant challenges. This short paper looks at some of the fiscal stresses that demographic change will pose, with a specific focus on British Columbia, and suggests options that could help to ease the looming fiscal crunch.

Highlights

• Population aging promises to create significant fiscal challenges for governments in many jurisdictions, including Canada, where there are now more people aged 65 and older than under age 15.
• As labour force growth slows and seniors account for a larger fraction of the population, the tax system will come under strain. This is particularly true in the case of personal income taxes, where revenue growth is likely to downshift as the population ages.
• Government should be looking to re-tool the tax system to reduce reliance on personal income taxes and garner larger proportions of revenues from other sources, such as taxes on consumption, property, and wealth.
• Other fiscal policy changes that can help to manage the pressures associated with population aging include tax reforms to accelerate investments in productivity-augmenting forms of capital (machinery, equipment, and digital and other advanced process technologies); greater support for child care to increase female labour force participation; and measures to encourage more people to stay in the workforce beyond age 65.