Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 17 - Evidence - Meeting of October 20, 2005
OTTAWA, Thursday, October 20, 2005
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:35 a.m. to examine and report on issues dealing with the demographic change that will occur in Canada within the next two decades.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Good morning, and welcome to the second round table of the Standing Senate Committee on Banking, Trade and Commerce. The committee proceedings are live on the worldwide web and on the delayed CPAC broadcast.
The mandate of the committee is to consider questions that not only affect banking, trade and commerce but also the economy as a whole. We will hear evidence on key issues affecting the underpinnings of the Canadian economy. The first round table was dedicated to productivity. The report of the committee was tabled in the Senate last June and is available on the committee's website. We believe the report has contributed to influencing public and private decision makers to incorporate productivity as a key to Canada's economic future.
The second round table is dedicated to the question of demographics, which is a key factor that will affect our economy as a whole in the near future. The objectives of these hearings are simple: to encourage public debate and to propose policies to deal with the potential economic and financial implications of our quickly aging Canadian population. In only 10 years, it is expected that Canada will experience an unprecedented situation. There will be far more elderly, that is, people over 65, than younger people under the age of 15. In 30 years, it is expected there will be about 2.5 working-age persons — those 15 to 64 years — for every senior citizen. That is half the current ratio of about 5.0 working-age persons for every senior citizen. This is a bad ratio. These demographic trends are not unique to Canada. Many other OECD countries are experiencing similar traumatic changes. Recently, our superb Governor of the Bank of Canada, Mr. David Dodge, delivered a speech in which he stressed how critical it is for policy-makers — and I emphasize this — to act now, not later, to ensure that appropriate structural government policies are in place to face the challenges of the next 10 to 20 years. We cannot play catch-up on this question. It affects not only the public sector but also the private sector. We hear much conflicting speculation over the potential implications of an aging population for the provincial and federal governments' finances, our economic growth, our housing markets, our health care system, our public pensions, our financial markets and personal savings, as examples.
The committee intends to hear from a wide range of specialists in order to provide all Canadians with a better and more intelligent view of the future demographic trends and their implications for our economy and Canadian society as a whole. It is hoped that the study will stimulate new thinking and new policy ideas, will change the conventional thinking that currently does not focus on this issue, and will lead to effective recommendations on how to prepare better for what I call ``the demographic bomb.''
I remind those who are watching live on the Internet and on CPAC's delayed broadcast that the committee wants your input, too. The issue of demographics will have a monumental impact on the lives of all Canadians. If you have any comments, the committee invites you to send us an email at banking-banque@senate.parl.gc.ca. We hope that all Canadians, experts and ordinary people alike, will email their views, which will have an impact on the deliberations of the committee.
The Honourable Senator Paul Massicotte, a member of this committee, convinced us that it is vital to study this topic. We congratulate him on his idea and his persuasive powers.
I will turn now to our third panel of witnesses on this second round table. Mr. Longman, please proceed.
Phillip Longman, Bernard L. Schwartz Senior Fellow, New America Foundation: The New America Foundation is essentially a think tank. I do not hold myself out to be any kind of expert on Canadian demography in particular, but I have written and published a lot on global demographic trends. I appreciate this opportunity to address the committee on how these trends might affect Canada's future.
Canada is in the vanguard of an unprecedented demographic phenomenon that is now spreading to every corner of the globe. In both hemispheres now, in rich countries and poor, in Christian, Taoist, Confucian, Hindu, and especially Islamic countries, there is one broad megatrend that holds constant at the beginning of the 21st century — birth rates are falling everywhere.
Today, global fertility rates are only half of what they were in 1972. There is no industrial country that still produces enough children to sustain its population over time or to prevent rapid population aging.
The most dramatic example is Russia, where the population is shrinking by 750,000 persons per year. Japan's population has already begun to shrink; it is expected that it will eventually shrink by as much as one third, which is equivalent to the experience of medieval Europe during the scourges of the Great Plague.
Canada's birth rate is about 40 per cent below the level needed to avoid long-term population loss. In demographic terms, Canada is much more like a European or Asian country than its neighbour, the United States, where, at least for now, birth rates are still slightly below replacement rates — the number of people needed to sustain the population over time.
These facts upset all our conventional wisdom on the dynamics of human population. We know from our own generational experience now that human populations do not automatically grow to the limit of their resources, as Thomas Malthus, Charles Darwin and others have so long taught. We now know that even in a healthy, well-fed population such as that of Europe, Japan or Canada, people may collectively decide to produce far fewer children than are needed to replace themselves or to avoid population loss.
This is a stunning anomaly in world history. Previously, we have seen certain classes fall into this pattern — most notably, the nobility of the late Roman Empire, which fell into such a pattern of low fertility that Caesar Augustus felt compelled to slap on bachelor taxes. However, never before have we seen entire nations, much less continents, fall into this pattern of sub-replacement fertility.
Even more anomalous is the spread of this sub-replacement fertility phenomenon to countries and classes that are far from affluent. The steepest drops in fertility and the most rapid rates of population aging are now occurring in the developing world, where many nations now are growing old before they grow rich. In Iran, for example, even under the tight rule of a militantly Islamic clerisy, the country has seen its birth rate plummet to the point that it no longer produces enough children to sustain its population.
Because of this rapid fall in fertility, much of the developing world faces population aging at a pace never before seen in human history. To gain some perspective on this, contrast Canada with Algeria. In the last 50 years, as Canada's birth rate gradually declined, the median age of Canadians increased by just 11 years; so that today, half of Canada's population is over 39 years old. By contrast, during the first 50 years of the 21st century, Algeria will experience a much faster rate of increase in its population age. The median age will increase by nearly 20 years, rising to over age 40, according to UN projections.
All told, there are now 59 countries in the world, comprising about 44 per cent of the world's total population, that are not producing enough children to avoid population decline. The phenomenon continues to spread across every continent, including all of Asia, all of Europe and much of Latin America.
What does this global megatrend mean for Canada's future? For now, I will confine myself to a few key points, starting with immigration.
Immigration is vital to Canada's future but it is not a panacea for Canada's population problem for several reasons. First, remember that fertility rates are plunging throughout the developing world so that the supply of potential immigrants to Canada will be more constrained than in the past. The supply of immigrants from countries such as China and India, that combine declining fertility with rapid rates of job formation, is likely to shrink particularly quickly.
Second, the competition from other aging societies for those immigrants is likely to increase. We are already seeing a large flow of immigrants from Latin America to Europe, for example.
Third, immigrants typically arrive on these shores not as infants but as adults. That means immigrants will do far less to rejuvenate Canada's population than will an increase in the birth rate.
Finally, immigrants are having fewer children than in the past. Among immigrants who have lived in Canada for more than 10 to 14 years, the average fertility rate is 1.5, the same as the national average.
All this means that Canada must, in one way or another, enable more people to start families and to raise children. The alternative is a stagnating economy, staggering burdens on taxpayers and mounting pension and health care costs. As these costs rise, they will make it even more difficult for young couples to afford children, thereby setting off a potential spiral of higher and higher taxes and fewer and fewer babies.
Unfortunately, the record of pro-natal policies throughout the ages has not been particularly fruitful. This does not mean that governments are impotent in the face of demographic decline, but bold new approaches are needed.
As my time is short, I will refrain from describing in any detail what those approaches might be until the question and answer period. Suffice it to say that they involve smoothing the tensions between work and family experienced by so many young couples today, and also better compensating parents for the enormous sacrifices they make on behalf of us all.
Jean-Claude Ménard, Chief Actuary, Office of the Superintendent of Financial Institutions: Honourable senators, thank you for the opportunity to speak to you about the demographic change that will occur in Canada within the next two decades. Let me start by talking about the mandate of the office of the chief actuary.
Although the office is housed within the Office of the Superintendent of Financial Institutions, OSFI, it operates independently, with a unique role and a mandate different from OSFI's. Our primary role is to provide actuarial services to the federal and provincial governments who are Canada Pension Plan stakeholders. While I report to the superintendent, I am solely responsible for the content and actuarial opinions in our reports. Again, our mandate is to conduct statutory actuarial evaluations of the Canada Pension Plan, the Old Age Security program and pension and benefit plans covering the federal public sector employees.
As reported in the most recent actuarial reports on the CPP and the Old Age Security, the population of Canada stood at 32 million people, with a median age of 39 years; half the population is older than this age. According to the demographic projections of these reports, the Canadian population is expected to age considerably by 2030, the year by which most baby boomers will have retired.
By 2030 the population is projected to grow to 39 million, with a median age of 44 years. During this period, the working-age population will decrease in proportion from 62 per cent to 56 per cent of the population or, at that time, 22 million people, while the proportion of retirees will increase significantly from 13 per cent to 23 per cent, or 9 million people.
Those aged 80 and older will also significantly increase, from 3 per cent to 6 per cent of the population, or 2.3 million. This group represents one of the fastest growing segments of the population.
These projections are based on assumptions developed for fertility, migration and mortality. It is expected that the population will continue to increase, but at a declining rate due to projected low levels of fertility. As fertility will likely remain low, all projected growth in the population after 2030 will come from net migration.
As the population ages, the cost of the public pension plans — and here I am referring to the Old Age Security, the Canada Pension Plan and the Quebec Pension Plan — will likely increase from 5 per cent of the GDP to 7 per cent by 2030. In comparison to other OECD countries, the cost of public pensions for Canada is relatively low.
Australia, the United States and the United Kingdom have lower public pension costs than Canada, and their costs are projected to remain lower, ranging between 4 per cent and 6 per cent of the GDP in 2030. OECD countries like France, Italy and Germany have much higher projected public pension costs, at 16 per cent of the GDP.
The cost of the Old Age Security benefits is expected to increase from 2 per cent of GDP to 3 per cent by 2030, driven largely by the retirement of the baby boomers. Balancing the budgets and taking steps to put the debt as a proportion of the GDP on a downward track are effective ways to ensure sustainable financing of the Old Age Security funded from the Consolidated Revenue Fund.
On the Canada Pension Plan, following extensive consultations in 1997, the provincial and federal governments agreed to change the funding approach of the Canada Pension Plan to one of steady-state funding or partial funding. The contributions were increased. The future growth of benefits was reduced. The CPP Investment Board was created to invest the funds not required by the CPP to pay current benefits. These measures have acted to ensure the long-term financial sustainability of the CPP.
Contributions are projected to exceed the benefits until 2021. Funds not required to pay benefits will be invested by the CPP Investment Board. As a result, the assets will significantly increase over this period.
The retirement of the boomers will create upward pressure on the plan of flows, and a part of the investment income of the plan will be required to pay for benefits after 2021. However, assets are projected to continue to grow.
[Translation]
The Canadian retirement income system includes diversification of sources of income — and here I am referring to income from both private and public pensions.
The system also provides for diversification of funding approaches. A mix of full funding, through an employer pension plan or registered retirement savings plan, partial funding through the Canada Pension Plan and the Quebec Pension Plan, and pay as you go funding by means of the Old Age Security pension is well recognized for its capacity to adapt rapidly to changing conditions, including the aging of the population.
Canada has also succeeded in maintaining a reasonable cost of pensions, in significantly reducing poverty among seniors and in insuring seniors can maintain their standard of living in retirement. This system is expected to be sustainable and affordable well into the future in the face of changing demographic conditions. Ongoing review of the system will help to ensure this remains the case.
As part of the 1997 reforms, the governments agreed to increase the frequency of actuarial reporting to every three years. While on the subject, I would point out that the most recent CPP actuarial report, which was tabled before Parliament in December 2004, and which was provided to committee members, is one item considered by the federal and provincial finance ministers when reviewing and making recommendations on the CPP.
Factors that may reduce the future financial pressure on the public pension system include increases in net migration and further increases in labour force participation rates, particularly for women and older workers.
An actuarial study was prepared in March 2003 by the Office of the Chief Actuary on the CPP actuarial adjustment factors which are used for those who commence their CPP retirement pensions either before or after age 65. The CPP retirement pension is permanently adjusted downward or upward by 0.5 per cent for each month between age 65 and the age the pension commences, which can be as early as age 60 or as late as age 70 at the discretion of the contributor.
The study found that these current adjustments are too generous for those who elect to take their benefit before age 65, and that conversely, benefit uptake after age 65 is penalized.
Policy makers may also want to consider whether the CPP is sufficiently accommodating of the more varied transition to retirement and career paths that are becoming increasingly common. Allowing people to take their CPP pension and continue to accrue additional CPP pension benefits may merit consideration. It would, of course, require that working pensioners contribute to the plan, which is currently not the case in the CPP.
I should point out, however, that this option has been possible under the QPP since 1998. In other words, the QPP allows working pensioners to contribute and potentially accrue additional retirement benefits.
This said, the CPP is expected to remain financially sustainable at the 9.9 per cent contribution rate without any changes to the plan.
Thank you once again for the opportunity to appear before the committee. I would be delighted to answer any questions that you may have.
[English]
Steven Tobin, Economist, Directorate for Employment, Labour and Social Affairs, Employment Analysis and Policy Division, Organisation for Economic Co-operation and Development: I thank the committee for having me here today. I may repeat to some extent what my colleagues have said. I would also reiterate Mr. Longman's point that immigration in the Canadian context should be seen as playing a complementary role. I also compliment Mr. Ménard on the excellent work that has been undertaken in financing the Canadian pension. As he mentioned, it is in much better condition than those we see in other OECD countries.
The brief you have before you, ``Aging and Employment Policies in Canada,'' is one in a series of 21 countries. I hope you are now convinced, if you were not already, that Canada's population is aging. As the chairman mentioned at the beginning, this will have some significant consequences for health care expenditures in the Canadian context.
One point I should like to really draw upon is that population aging will mean a significant reduction in the number of people in employment to support a greater number of people in retirement, and spending more and more time in retirement.
Our series of publications points to the fact that giving people more opportunities to stay in work longer could prevent significant decline in the labour force over the coming decades. To give you a quick idea of where we are heading and where we have been, in the past 50 years, the labour force in Canada has grown almost 200 per cent, one of the highest figures in the OECD. However, if participation rates remain at their current levels, the labour force will grow over the next 50 years by 5 per cent. We are looking at 5 per cent over the next 50 years compared to nearly 200 per cent over the past 50 years.
Fortunately, in Canada, we have seen that many recent retirees would have considered a decision to stay on and work longer if the circumstances had been different. I hope that we will not talk today about forcing people to work longer to avoid these labour shortages. I think the challenge for governments, employers and unions is to provide the right conditions for people to extend their working lives. I am glad to see that there are a few people around this table today who are over 50 and who are extending their working lives.
Senator Angus: What about over 65 and 70?
The Chairman: You are just one sweet-talking economist. Thank you so much.
Senator Angus: That is what living in Paris will do for you.
Mr. Tobin: Getting to the central recommendations of our report, it is important for employers and governments to give workers more flexibility in their work-to-retirement transition. What we see in Canada and in many other countries is this cliff-edge pattern of work to retirement. You just jump to retirement, and you think, ``Okay, what now?'' Climbing back to employment for many people represents a real cliff edge. We would like to see more gradual transitions from work to retirement. This would allow people to combine pension income with work.
Second, to give older workers more choice, the government should also move to abolishing mandatory retirement ages, the presence of which is inconsistent with policies to extend working lives.
At the same time as we are talking about extending working lives, we all know that there are also unemployed people in Canada, which fact should not be neglected. The government needs to provide greater assistance to older, unemployed workers looking for employment.
To participate in many employment support measures today, older workers, or all workers, need some kind of EI history. We know that many older workers in different regions of Canada lack this employment history needed to participate in these support measures.
Although it would require a change to the Employment Insurance Act, we suggest that the federal government envision extending eligibility for the support programs, at least on a trial basis, to everyone. This could be done by giving job counsellors the discretion to provide support to the people they think most need it, regardless of their employment history or EI benefit receipt.
To avoid labour shortages, we need to get employers, unions and governments involved in solving this problem and encouraging people to extend working lives. Since many people in Canada would like to do that, this would have not only the economic benefits of helping to avoid labour shortages, but also should contribute significantly to the welfare of those individuals who are often forced to exit employment.
The Chairman: Thank you all. It has been a thoughtful and provocative opening. We have all had the benefit of reading your fuller briefs. They have been available to members of the committee. I reviewed them briefly and we will look at them in greater detail. We are delighted you have taken the time to consider the subject and not only talk about the problem but also to give us what we consider to be transitional policies. We are to talk about that. My first questioner is the person who inspired these hearings.
Senator Massicotte: I wish to start with Mr. Longman. Your orientation is worldly. Many people are not attending to this issue of demographics because it has not affected us in a significant sense yet, at least in this country. Their first reaction is that it will be a government deficit issue and will not affect them. Why should the average Canadian be concerned about this? How would it affect the average Canadian and why is it important for them to take an interest in this subject?
Mr. Longman: When they hear there will be fewer people in the world in the future, a lot of people are happy. If we look, for example, to Italy or to Spain, countries in the vanguard of hyper-aging, those are not good places to be young people. They have double digit unemployment rates among young people even though there is a theoretical shortage of them. Young people, because they are rare, do not command higher wages. It is the opposite. Population aging implies higher taxes for pensions, which young people have to pay. It also creates a climate that encourages more union efforts toward job protection, as the unions are dominated by older workers. You get the sclerosis that you see in Italy, Japan and in Spain that affects young people directly in their opportunities in life.
[Translation]
Senator Massicotte: In Canada, it is commonly held that those who are well educated and wealthy, particularly amongst women in paid employment, tend to have fewer children. However, Mr. Longman spoke of countries such as Iraq and Iran, countries where few women are in paid employment, where people are no wealthier, but where, nevertheless, the birth rate remains relatively low. Something is not right. How can the situation be explained? Why are we seeing this trend on a global scale?
[English]
Mr. Tobin: I hope I understand your question correctly, as to why numbers of women in the workforce are lower in Canada.
Senator Massicotte: One of the reasons that we have a lower birth rate is that women are working. Therefore, they are participating in the workforce and are not at home. When people are more educated, they have more money. They have a tendency to retire earlier. Mr. Longman referred to Iran, where that would not be the case. Yet they still have a low birth rate. What is the cause of the low birth rate here?
Mr. Tobin: Birth rates are very much a household decision and it is difficult to compare across countries. Maybe Mr. Longman might be better able to answer this question. If we look at the United States, for example, as he mentioned, birth rates are higher but participation rates are also in the same area as in Canada. We know that birth rates affect labour force participation, but at the same time we know that in Canada there are some rather generous support measures for women to leave the labour market, and then to return. Why lower birth rates? I think it is a household decision; people are deciding to have fewer children.
Mr. Longman: On a global scale, we are now at the point where half the world's population lives in cities. When you live in an urban area, the economics of the family budget are different. Children go from being an asset, as they are on a farm, to being a luxury consumer item.
The Chairman: Yesterday, one of our witnesses said that it is akin to a speedboat. It is a super-luxurious item.
Mr. Longman: I have worked out numbers for the United States. To raise a middle-class child in the United States born this year — both direct and indirect costs — is more than $1 million. That is quite a speedboat.
The Chairman: I have seen those statistics.
Senator Angus: Let us have that again. Is that to raise the middle child or a child?
Mr. Longman: A middle-class standard of living. That does not include university.
The Chairman: That is from age 1 to 18, is that correct?
Mr. Longman: Yes.
The Chairman: When they go university, what happens then?
Mr. Longman: Most of it is in foregone wages; that is, the compromised careers of, particularly, women if they are at home trying to raise children at the same time.
I think the spread of the global media is an effect. In Brazil, for example, television was introduced province by province and not all at once. Each time television came into a new province, the birth rate declined. You can speculate on why that is happening but it is a major trend.
The Chairman: So the hockey strike did help.
Mr. Longman: I do not think it did in Brazil; it might have helped in Canada.
Women's education is strongly correlated with low fertility. This is something for policy-makers to think about. I notice that Quebec's blue-ribbon panel came out today talking about putting more into education and charging young people more to get it. That is one of their planks. What could more discourage starting a family while you are still able to do so than huge student debts? This is as close to an iron lung in the social sciences as there is, namely, that education drives down fertility. If you are to reach for a more educated population, you will have to take measures to ensure the educated people have the children. They usually want to have them but do not feel they can afford it.
Senator Massicotte: Can you comment on the fact that in Quebec several years ago there was a decision to financially encourage people to have more kids? It would appear it did not help very much. Statistically, we do not see an improvement in the birth rates in Quebec, yet in France they have a program that has seen an improvement. It looks as if they have developed a program that basically countered the world trend of lower birth rates. Do you wish to comment on that, the reasons?
Mr. Longman: I have read mixed things about Quebec. One study I saw said it did raise the fertility rate to higher than it would have been. It would have cost $15,000 per child. That is a bargain as far as I am concerned.
You cannot pay people enough money to have children. One reason that the United States has a higher birth rate than other industrialized countries is its comparatively flexible workforce. It is easy for a young mother to find part- time work, and that is very important.
Reducing the opportunity costs to parents is more important than straight cash benefits alone, although, as you will read in my written remarks, there is an opening to connect old age pensions with fertility. Going to your first question, on why this is decreasing around the world, one reason is that historically, a major incentive to have children was to provide for one's old age. Now the state and the financial sector in general have allowed all of us to basically finance our retirement through other people's children. Even with a private pension plan that is what happens. Therefore, a pension scheme that gave greater benefits to parents — parents who successfully raised children to age 18 with a high school education and relative independence — would be not a subsidy but an opportunity to recapture some of the value they would create for all of society. It sends the right message about how pensions are financed and, potentially, would create a strong incentive to procreate.
Senator Massicotte: How is the third child program working in France?
Mr. Tobin: I would not be prepared to comment on the French system, but the ``famille nombreuse'' kind of system, of having the third child, adds extra benefits. I would agree with Mr. Longman that it is important to reduce the opportunity costs. We must be careful not to pay people to have children who would have had them without the payment.
Senator Angus: That is called ``good American pragmatism.''
The Chairman: Please help us a little more with that comment.
Mr. Tobin: If we were to introduce a subsidy for having children, we would need to carefully evaluate the program to determine whether it affected women's decisions to have children. The program could end up paying women who would have had children without receiving a subsidy. That would be a dead-weight loss, lost money.
Senator Meighen: It is an ironic fact of life that those who can best afford to have children are not having them. What can you give them?
Mr. Longman: You can give them something akin to what we give our veterans. Our veterans go off to perform a public service that has been historically a male function. It is no surprise that around the world veterans command, as in the U.S., a cabinet agency of their own. We should look for men and women equally who make a sacrifice to raise children and do the same by connecting that to education benefits. A parent could serve two years in the public service or the military and receive an opportunity to attend school. We could let people do that when they are 30, after they have spent their 20s raising children. We would not discriminate on the basis of age. That is a problem in today's world.
Senator Plamondon: Mr. Tobin, I want to comment on your last sentence. You began by saying, ``the couple,'' and then immediately said, ``the woman'' decides. No one questions the women, who are able to tell you why they do not want to have more children. It is the woman who decides. From the time that women could decide whether they would have children, they have been making that decision. We have to determine what women think, because they will not regress in that respect. They have power over their fertility, but they do not hold the reins of power in politics, economics and the workplace. Thus, many women decide not to have children. That is a choice, like the choice to have children. As long as the men make decisions in their respective departments, rather than considering the life of the woman, there will not be any more children. I do not agree with you that you have to make personal sacrifices to have children. I have seven children and I never sacrificed a thing. It is a pleasure to have children, but you have to make it pleasurable.
The Chairman: The honourable senator has raised a series of provocative comments. Perhaps we could have a response.
Mr. Tobin: I have one quick comment. Senator, I agree with you to a great extent. I will clarify what I meant by my statement about the couple deciding and then the woman deciding. I meant to say that many single women decide to have children, so that does not enter into the spectrum of couples deciding. I wanted to separate out that many single women decide to have children on their own.
Mr. Longman: Polling data suggest that both men and women in my generation are coming to the end of their reproductive lives not having had as many children as we would have liked. I am the father of one adopted child because we did not pay enough attention to our biological clocks. Many people in this economy face pressures to establish themselves in a career and create all the conditions necessary to become decent parents. Therefore, many of us run out of time. That is hopeful news. It would be far worse if the prevailing sentiment were, ``It is such a terrible world I do not want to bring people into it.'' Some people think that, but it is not the majority opinion in North America.
Mr. Ménard: I am not an expert on this subject. When I look at the empirical evidence, I would say it is difficult for governments to act to change the direction of fertility rates. In Sweden, where the gap in participation rates of women and men is the smallest, it is 4 per cent to the advantage of the men.
The Chairman: Iceland is also close and might be at par.
Mr. Ménard: Yes, I agree. Their fertility rate is also higher than ours. In Canada the gap is 11 per cent and the fertility rate is lower. Based on what I have seen in Sweden, I would say that we have an opportunity in Canada to raise both participation rates and the fertility rate.
I agree fully with one comment of Mr. Longman: Women's education is strongly tied to the fertility rate. The interesting challenge would be to get both men and women educated first and to have children together afterward. Fertility rates of 1.6, 1.7 or 1.8 are achievable.
Mr. Tobin: I agree with Mr. Longman and Mr. Ménard. I also think the government needs to decide how much of a role it wants to play in this, and maybe should separate that from the general social protection system.
For example, the United Kingdom does not make any official statements regarding fertility. They regard that, as I mentioned before, as a household decision so there is no promotion of fertility. Of course, they are fighting to provide child care benefits and that kind of social protection measure.
It is an important question for the government. Many factors influence fertility and the links between participation rates. There are also other reasons why the participation rates in Iceland and Sweden are high.
Separating all these factors is difficult and we can certainly do more work on that. However, from the premise, the government needs to decide what role they want to play first before trying to disentangle all these effects.
Senator Plamondon: My question is for Mr. Longman. I would like to know why you said immigration is a temporary solution and that replacing ourselves is the real solution. What approaches would you like to see?
Mr. Longman: I did not mean to say it is a temporary solution; I meant to suggest it is only a partial solution. That is different. There are many reasons it is partial. At current levels, it is not sufficient to overcome the birth rate and it is probably politically inconceivable that you could import that many people and still have a Canadian sense of place.
The United States slammed shut its immigration door in the 1920s when it was going through a period of population decline. Sweden did the same in the 1970s, as did France. Even though aging societies need more immigrants, they tend to become xenophobic. There are practical and political limits to immigration, and also supply issues.
One thing that has always struck me is there is now no net immigration between Puerto Rico and the mainland of the United States, even though Puerto Rico has a lower standard of living, even though Puerto Rico has a great diaspora in the United States and there is a completely open border. Puerto Ricans have now created enough jobs on the island that, on balance, they prefer to stay where they grew up.
We have lived in a world where we felt as if the whole world was banging on our gates all the time — and it is still like that. I am suggesting we are coming to a point where, with the combination of the rest of the world's fertility rates dropping and many of those other places becoming more prosperous, we will not see that kind of immigration in the future.
Senator Goldstein: I am still at the natal encouragement level. I am talking specifically about the Quebec experience with family allowances. There are obviously mixed evaluations of whether or not that program worked. I am aware of the study that you cite in your paper and we had some brief discussion about that yesterday.
I wonder whether the results would be more clearly positive if instead of encouraging an initial birth or a second birth, there was encouragement for third and fourth births, based on the theory that couples who have already initiated a family would be more prone to add to that family if the financial burden were somehow shared with society as a whole?
Mr. Longman: I see the thrust of your point. I am a little conflicted about it because I think one of our problems today is that people do not get around to having their first child in time for economic reasons. In my generation, 20 per cent of baby boomers in the United States never had children. I do not know what the number is in Canada, but it is similar.
We see from polling that a lot of those people are entering mid-life feeling wretched about this. They have no children; they will face old age alone. My instinct would be not to make any particular preference for the first child versus the third. Even though you will wind up paying many people to have children who would have had them anyway, that is the cost of business.
Senator Angus: I think this is good. That is what a round table is all about. I like the way it is going.
The Chairman: If you want to accede to Senator Plamondon, it is up to you.
Senator Angus: I will throw in my two cents' worth here.
The Chairman: This is the problem. Total freedom in a committee is no freedom at all, so I will ask Senator Angus to have his round and then we will return to the list and allow Senator Plamondon a second round.
Senator Angus: Gentlemen, were any of you here yesterday? Did you get a chance to see the hearing? No, okay.
It was fairly evident yesterday that two main factors have created an awareness of this ticking time bomb: One was the aging population, the fact that the general levels of education and industrialization of the world have led to better care and better drugs, et cetera. On the other hand, there is the falling birth rate.
We were told the principal reason for the falling birth rate is that as societies evolve and become members of the OECD, education and birth control are available at reasonable rates. This evidence was not contradicted.
Having said that, we are told the problem exists in most of the OECD countries but apparently not yet in the U.S. We had conflicting evidence yesterday, as the chairman has pointed out. As you are an American, Mr. Longman, living down there and focused on the issue, I would be interested in knowing what the real facts are. I think all the facts we were given yesterday were a little nuanced, but the basic point was that in the U.S. it is flat. There is replacement going on; the fertility rate is higher but it is not necessarily for ethnic reasons — African-Americans or South Americans who have come to the United States. Also, women are having their first child sooner in the U.S. than in Canada — at 24, 25, whereas here it is 28, 29. I would be interested in all of the data — the OECD's and yours — and in what the actuarial patterns are.
Mr. Longman: I would cite several factors. One is the difference between U.S. and Canadian immigration. U.S. immigration is predominantly from Mexico and Latin America. It takes no account of your educational attainment. Canada's immigration policy gives a lot of weight to whether you have a PhD; I think you get three points on a 67- point list. Therefore, you get a lot of quality people from India with PhDs who wind up driving taxis. However, one thing you know, whether you are Indian or from somewhere else, if you have a PhD, your chances of having a large family are very small. Therefore, Canadian immigrants have fewer children than American immigrants.
Another reason I mentioned was the comparative flexibility of the U.S. labour market. It makes it easier for parents to balance work and family, even though the state provides very few benefits to parents.
Senator Angus: Can you elaborate on that? What do you mean by ``flexibility of the labour force'' and so forth?
Mr. Longman: Because there are not a lot of mandates on employment in the U.S., it is easy to fire people, for example.
Senator Tkachuk: Cheaper too.
Mr. Longman: Yes. An employer is in a position where if he has a little work available, he can take on a part-time person. He does not have to make any commitments, even to that person's health care or pension. However, it does create this high-flex labour market. It has its downsides, but it is valuable to women.
For instance, for Italian women who are college graduates, it is an all-or-nothing proposition. They go into the corporation and rise up the ladder or stay home and make babies. There is nothing in between, as I understand it.
Senator Angus: You are talking about in Italy?
Mr. Longman: Yes, in Italy. The United States, by comparison, offers many different options for people to balance work and family.
Third, the United States is a very religious country and is becoming more so all the time. As Protestant fundamentalists have a much higher birth rate than the rest of the country, you can expect the United States to gradually become an even more religious society. As with education, the other strong correlation is between religious feelings and fertility. In the Canadian context, I think of the Sunday in the summer of 1967 when the churches of Quebec were suddenly empty. That is when the Catholic Church got into trouble with the Quebec population. That is a large part of what is going on in Spain and Italy, too. Younger people feel disaffected from the state religion and have not found any other religion. That is very unlike the United States, which, even in the realm of religion, is very entrepreneurial. We have all kinds of new churches opening all the time.
The Chairman: On the point of the United States' experience with home ownership and cost of homes as a percentage of income, it is comparatively lower than in Canada. Our tax costs for homes are skyrocketing. It is much easier and quicker, because of your tax system, for a person to apply to buy a home in the United States.
You indicated in your comments that the urban environment is a disincentive for additional children because of its high cost. That is not the case in the United States.
Mr. Longman: Comparatively it is.
The Chairman: In Canada it is worse.
Mr. Longman: It is due to the existence of fairly easy mortgage money. In Italy, for example, you have to have a 40 per cent or 50 per cent down payment to buy a house.
Senator Angus: In Canada, too.
The Chairman: Also, we cannot deduct mortgage payments for income tax purposes. There are regional differences, but I think there is a comparative difference between Canada and the United States.
Mr. Longman: Housing is a huge issue. If you go through world history and look for a pro-natal policy that worked unambiguously it is hard to find one, except one that was not conceived of as a pro-natal policy, so to speak, and that is the GI bill passed in the U.S. at the end of World War II. It gave all returning veterans a subsidy on their mortgage. They could buy a starter home for $3,000 with no down payment. They were also given education benefits. The United States got an enormous increase in human capital from that single bill, but it was consistent with rising fertility. That actually created the baby boom. It was not the only cause of the baby boom, but the United States' post-war boom was bigger than in any other country, and it was because policy levers at that point very much favoured young adults. The country realized its debt to that generation and gave them a great start.
Mr. Tobin: I agree with Mr. Longman. At the same time, the margin of comparison is very fine. For example, the fertility rate in Canada is higher than in countries such as Italy. You mentioned employment protection. Employment protection in Canada is quite weak compared to most other OECD countries. There is a lot of flexibility in the Canadian labour market compared to other countries, although perhaps not as much as in the U.S.
With regard to immigration, the types of immigration we have had have not led to higher fertility rates, but at the same time, they have been quite successful in terms of meeting some of our labour demands. That is also a success story. We must be very careful here to recognize that there is a fine line between what is good and what is bad. On some of those issues I agree with Mr. Longman. At the same time, we are also doing very well.
Senator Angus: Mr. Chairman, I think we are all agreed that there is a problem. The evidence has been confirmed by witnesses, both yesterday and today. We have analyzed the scope and the nature of the problem but we have not heard much about what the solutions are. I would like to know if there is any reasonable solution without having a revolution in the OECD countries.
The Chairman: Here is an opportunity for you to put forward your dream list. What are the four or five policy points you would recommend to us that we could, in turn, recommend to our government and the private sector?
Mr. Tobin: I take your point. I am not here today to talk about promoting fertility. We need to look at population aging as a great opportunity as well. As you mentioned, this is happening because we are living longer, healthier lives and are therefore spending more years in retirement. That is all good news and we need to look at it as an opportunity.
Moving away from the fertility issue, the OECD report suggests that since we are living longer, healthier lives, we need to encourage people to stay in the labour market longer. That will help us to avoid some of the challenges that population aging brings. Creating more flexibility and allowing people greater choice to do that, rather than forcing them out of work, is a key element. As well, we need to help those in the over-50 age group who find themselves out of work to obtain the right skills to get back into the labour market.
I reiterate that it is an opportunity, and we should seize that opportunity.
Senator Meighen: Mr. Tobin, in your presentation you said that you favour a more gradual transition from employment to retirement. What do you have in mind? Part-time work would be one aspect.
Mr. Tobin: That is right.
Senator Meighen: You also talked about the obvious importance of getting labour and management together on this issue. If my memory serves me well, one of the reasons for mandatory retirement was to open up places for young workers when the baby boomers entered the workforce. Are we now over that stage? Would you tell a union leader that he or she need not worry about that any more?
Mr. Tobin: I am glad you brought that up. I will tackle your second point first.
We have learned from OECD countries that early retirement did not create employment opportunities for youth. It did not and does not, just as employment opportunities for women do not reduce employment opportunities for men. We need to move away from the myth that early retirement creates jobs for young people. That is an important message that many OECD countries are tackling right now.
I have heard the argument that mandatory retirement provides more jobs for younger people. I think that some of these arguments are for the benefit of employers. If I may speak bluntly, I think that mandatory retirement allows employers to get rid of people they do not want to keep on.
Senator Angus: Or that they do not need.
Mr. Tobin: Or that they do not need.
Employees are quite fearful. It is a Catch-22 situation. Employees are fearful that they will be forced to stay on longer, while at the same time, employers are thinking that they need to get rid of them.
The absence of mandatory retirement does not prevent individuals from leaving work if they have acquired pension rights. However, the absence of mandatory retirement does allow people to continue working if they choose to do so.
The flexibility is a difficult point with which we are grappling. Many OECD countries are moving toward the stick approach as opposed to the carrot. Many countries have decided to increase the age of eligibility to receive a pension. The danger with flexibility is that many people think that means beginning to work part time at age 55 and retiring fully at age 62. There is a risk that too much flexibility may reduce total labour supply, and we need to be careful about that.
In terms of what type of arrangements we could consider, you mentioned part-time employment. In a recent Statistics Canada survey, one third of people asked said they would have reconsidered the decision to retire if more flexibility had been available.
Since the current situation in Canada is quite favourable, the country has the opportunity to test different flexible arrangements. As we know, many workers want a variety of flexible arrangements. Some want to work maybe three 12-hour shifts and then have four days off, whereas some people would prefer to work three days a week. There is a significant amount of individual choice here to tackle.
There is the danger that it may reduce the overall labour supply, but I think we need to try to test these work arrangements. Given that Canada is in a good position, I think we have the opportunity to do that. The hope is that people would continue to work beyond the age that they do now.
Mr. Ménard: My personal view is that we should put all necessary efforts towards creating more flexibility and more of a choice for older workers to work longer if they want to. In that sense, we should try to remove all disincentives in the system to work later, whether they are in the Canada Pension Plan, the private pension plans or the Income Tax Act.
Mr. Tobin is being humble because in his paper there is a significant amount of material that describes how removing these disincentives could be done, not only in general terms, but also with a recipe to follow.
Mr. Longman: I echo my two colleagues in terms of flexibility at older ages, but we have to attack the problem from both sides — flexibility for younger people so parents have more options to go in and out of the workforce as well as flexibility for older people. That is a unifying theme.
We often hear that we are living in the midst of a longevity revolution, and it is true that part of the problem is that people are living longer and are healthier. It is widely exaggerated and not a trend that is likely to play out much in the next 30 years. I am somewhat of a contrarian here.
In the United States, for example, we have an epidemic of obesity among younger people. We have epidemics of diabetes. We have for the first time in history a rising rate of disability under the age of 39.
The rate of increase in life expectancy at older ages has decreased in each of the last decades so that by some measures, American women at age 65 today do not have a higher life expectancy than did their counterparts 10 years ago.
In the United States particularly, we have become very good at extending life an extra six months in a high-intensity care unit. I do not see a general trend towards people being fit at older ages. At the same time, I see a global economy that requires ever sharper and newer skills.
I think it is silly for people my age to say, ``Well, I do not need to save for retirement because I know that the world economy of 2025 has a great job for me.''
We need to encourage people to work longer. Certainly a standard retirement age of 60 is untenable. I do not think we should just attack the problem by rolling back the welfare state, taking benefits away from seniors and making them work longer, regardless of how sick or tired they might be.
Senator Angus: Yesterday, the chief economist from the Canadian Conference Board's main evidence was, ``I am shocked and amazed that the private sector has no interest in this issue.'' They see it as a kind of red herring, like the millennium bug, and they are not reacting to it.
The Chairman: When the gentleman from the Conference Board of Canada, which is a think tank for the private sector, raised these issues at meetings, he was hissed at. We quickly came to the conclusion that obviously there is a conventional-wisdom problem here concerning not making changes.
Senator Angus: The contrarian view may not be so contrarian.
The Chairman: The contrarian view is maybe more appropriate than the conventional wisdom.
One of the problems that we in this committee will try to look at is how we can change conventional wisdom about this. We detected conventional wisdom yesterday against all these changes from the government, although the government is starting to look at it; from Parliament, the unions, the private sector and all the sectors that are stakeholders in the economy. The conventional wisdom is all the other way.
Mr. Tobin can suggest that we should make these flexible choices, but we have a lot of countervailing political weight against coming to what we consider to be a sensible solution. That is why we are so interested in what you have to say.
Senator Meighen: I want to follow up on that. There is conventional wisdom and conventional wisdom. It is usually wrong.
As somebody who, along with others in this room, completed my university education before 1970, which was a kind of watershed in these areas, I can say the Malthusian theory was still pretty well accepted. Populations of the world were spiralling out of control, and we would all be beating each other because we would not have enough food.
Nationalism was dead and internationalism was the way of the world. Everybody knew that. We only have to look back at the last 35 or 40 years to see where that conventional wisdom has led us.
While I am not trying to deny the appropriateness of some of the solutions that you have all put forward, you may have touched on some facts that could, for better or worse, change the trends we all see today. You mentioned one or two of those. Disease could be one of them.
Look at what is going on in Africa right now. I do not know whether that has had an effect yet. Do you see any phenomena that could reverse present trends or throw them off?
Mr. Longman: I do. I have a piece coming out in Foreign Policy magazine in which I make the prediction that European fertility rates will go up substantially in the next generation. Here is my reasoning: Take French women born in 1960. Only about 30 per cent of them had three or more children. Yet those children today constitute 50 per cent of the younger generation in France.
You have a huge percentage of people in countries like France, Canada and the United States who are not producing at all. They just drop out of the gene pool. Then you have another 30 or 40 per cent who only have one child. That is enough to replace one parent, not both. Those people's genetic, social and cultural influence on the next generation will be quite weak.
Then you have this comparatively small number of people who are having large families. Their influence on the future population is huge.
I was talking earlier about how the United States was bound to become a more conservative country. It is because of who is having the children and how they are raising them. There is a long-term change, but it is not necessarily pretty. The standard history of the Roman Empire is that the upper classes got bored with having families.
That did not mean that the peninsula of Italy had a lower population; it just meant that it had a different population. These things do tend to rebound over a generational span.
Senator Massicotte: Your argument is that given that the preponderance of children today came from large families, they will have a tendency to create larger families themselves and that may become contrary to the general trend. That is a plausible argument. I take an example from my own background. What happened to French Canadian families that had 12 or 13 kids? They were used to large families, yet they did not follow that trend. Why would this be different?
Mr. Longman: If you are talking about the postwar period in Quebec, or anywhere in the world, some people had more children than others, but there was not a tremendous disparity. I would guess that there were very few people who had no children in the 1960s in Quebec. It probably was about 5 or 6 per cent of the population. Now it is 20. All those zeros in the average means that a comparatively small proportion of people produce most of the children, whereas before there was a much broader general expectation of marriage and family. You did not get these large differentials in fertility between, say, people who go to church and people who do not, or between people who voted for John Kerry and those who voted for George Bush. Bush supporters have a 12 per cent higher fertility rate than Kerry supporters.
The Chairman: That is a very interesting political point for us. What exactly is the difference?
Mr. Longman: The 12 per is cent calculated from the average fertility of the states that Bush took versus the states that Kerry took. The states that voted for John Kerry have the same fertility rate as France.
Mr. Tobin: I have a quick comment on what you say. Maybe there is a reason for this complacency. We must be careful here, however, because measures that introduce flexibility and changes to the pension system take time. We could arrive at a point where there was a reason for the reforms, so changing this type of structure will take time. If we wait, it may take too long. Complacency on the part of employers is not a reason to be complacent ourselves.
Second, in terms of offering people more choice, we are not talking about introducing bad things here so that 15 years from now we will think that we should not have given those people that choice. We need to take those factors into account as well.
Senator Tkachuk: I have several areas I would like to cover.
We talked about policies for the young, to provide opportunities for them to have children. One of the reforms that Mr. Ménard had talked about involved the Canada Pension Plan. Although I agreed with the principle of reforming the Canada Pension Plan, I did not agree with the methods, because the plan was built on the idea that more would pay for fewer rather than fewer would pay for more. We have stuck our young people — and have I two of them, so it is something that I hear often from their friends and others — with a 10 per cent tax to pay for the profligacy of my generation. A person at age 25 now pays, at the lowest level of his income when he starts to work, all of the premium for a pension that will pay him the same as I am receiving for paying a lot less in my lifetime.
Would it not have been better to make up the difference through income tax and reform the entire idea of the pension plan tax so that they would not be faced with paying this huge amount of money for the rest of their lives when, as you mentioned earlier, they have no guarantee they will receive anything as there is a chance that there will be a shortfall?
Mr. Ménard: Yes indeed, I agree with you that the 9.9 contribution rate for the CPP is quite high. I somewhat disagree that it is a tax. It is saving for retirement. The benefits are based on the contributions made.
At the time in 1996 and 1997, there were also some discussions about reneging on our promise to the people who have contributed to the plan in the past. That did not happen. Indeed, we recognized that there was an unfunded liability at that time that had to be shared amongst future generations. In the actuarial report we disclose what the value of the Canada Pension Plan is, what we call the normal cost; if we have a fully funded plan, what will be its value? This plan is 6 per cent and we are paying 9.9. Why? That is because 40 per cent of the cost is paid due to what happened between 1966 and 1996, in those 30 years. You are right when you say that at the beginning the plan was based on the assumption that there would be more and more people to contribute compared to retirees, but it was very clear, I would say, in the mid-1980s that that would never be the case again. The governments had to make difficult choices. It was agreed to try to maintain a level contribution rate forever.
Forever is a long time. Projections for 75 years are all based on demographic, economic and investment assumptions. Of course, the reality could be quite different, not necessarily in the next 10 to 15 years; but in 2075, we do not know.
At least what was done was to finance the plan properly and make sure that when the boomers retire, there will be two sources of income: contributions from workers and investment earnings from the assets invested through the CPP.
Senator Tkachuk: What would the rate of return be for an 18-year-old coming out of high school who starts at a fairly low-level income and for a university graduate who is starting to earn his earliest salary at age 24 and paying 10 per cent of his income? I know that the employers pay, but it is still part of the cost of being an employee. If they were self-employed, they would have to be paying 10 per cent.
Mr. Ménard: Yes, 9.9.
Senator Tkachuk: At the end of all this, at a 6 per cent rate of return, they could have had anywhere from $750,000 to $1 million in the bank. Instead, they will be getting the equivalent of $9,000 today, which 40 years from now may be $26,000. Does that make any sense?
Mr. Ménard: For a young contributor — and indeed my son is 22 next week — what we call the internal rate of return is 2 per cent real. Based on a long-term inflation of 3 or 2, there will be a nominal rate of return of 4.5. It will still be positive for him and future generations. I agree that people in the past got a higher rate of return because they paid less for fewer years than is the case now.
The Chairman: Just to clarify this point, because this is a fundamental issue about the nature of our social contract, complaints have been heard from the young generation that, as Senator Tkachuk says, they are paying an inordinate amount. They are being taxed heavily now for a return that they will not receive. They are paying a 10 per cent flat rate, or whatever it is, for a return that is much lower than the amount of contributions, and therefore there is a huge shift within the system in favour of those who have not contributed as much. There appears to be injustice within the social contract. Actuarially, I am sure you have worked this out. We do not really talk about this because politically, it is a time bomb. The question is how do we get at this in a fair way? We are talking about a tremendous transfer of wealth to segments of the community that have not contributed fully and will not contribute as fully. Please give us more precision on this because it is a fundamental issue that we will be looking at.
Mr. Ménard: First, if there had been no decision taken in 1997, it would have meant for our children and grandchildren a contribution rate of 14 per cent. It was decided at that time to put all future generations of workers on the same footing, at the same level, at a contribution rate of 9.9 per cent. This will provide them a rate of return of around 4.5 to 5 per cent.
The long-term interest rates are so low that if you go to an insurance company when you are 65 and you want to buy an annuity, the real rate of return you will be quoted is around 1 per cent. The internal rate of return of your immediate annuity bought through an insurance company will be around 1 per cent, even lower than for the CPP.
Senator Tkachuk: If the Canada Pension Plan was based on the premise of more paying for fewer, which we know is no longer the case —
Mr. Ménard: Yes, and the 9.9 per cent —
Senator Tkachuk: Why keep the same plan or the same philosophical idea of the plan, which was originally that all of us would help our seniors because there were so few of them and it would cost so little? The entire premise of the plan was that this would always be the case. Now that has been absolutely inverted, why do we not have a different plan, such as set contributions as part of the income tax so that the burden of making it real would be more widespread? We would also maybe allow people to invest personally. Could there not have been many other options to look at besides doing what we did, which was just to charge people more money?
Mr. Ménard: Did I understand correctly, that you said the other route would be to have a fully funded scheme for everyone? Is that the question?
Senator Tkachuk: No, but maybe have a spread.
Mr. Ménard: First, if you want to replace the plan by what they call a super RRSP, start from scratch and say to my son, ``Okay, you start with paying 6 per cent instead of 9.9, and you will get the same full CPP benefit,'' you have to take into account the four or five hundred billion in liabilities for the people who have contributed to that plan. Some countries have moved to a different system, but the biggest challenge is to ensure that one generation does not pay twice — for itself and for the parents. If that is the case, it is very costly. You may feel richer by paying in 6 per cent and getting the same CPP benefits, but at the same time, someone will have to pay for the pensions of their parents.
Mr. Tobin: I have a quick interjection on behalf of Mr. Ménard. I certainly do not want to speak for him, but pension reform is necessary. To some extent, I applaud the reforms that were undertaken at a critical time. Many OECD countries are now facing this problem that Canada faced 10 years ago. When you undertake these kinds of reforms, it is difficult to avoid some transfer between generations. We have transfers between income classes now. Having people pay more income tax as a solution to the spread would have been a redistribution of other resources.
The Chairman: You will be pleased to know that this committee is moving toward looking at tax reform as a general as opposed to a specific question, because there are anomalies in the system such as pensions, returns and so on. We will be looking at this next year as part of our comprehensive look at the economy.
Senator Tkachuk: Perhaps I am not making myself clear. My point was that the shortfall could have been collected from a broader segment of the population than just the young. We do have surpluses that we could have put into the Canada Pension Plan, and there could have been other methods used to make up the shortfall.
I wanted to ask all of you about something else, and you alluded to it, Mr. Longman. Yesterday we discussed economic incentives for having children, and some of the witnesses said that these do not necessarily work. We had our debate about France and whether it works. It is cultural, is it not? Is it not about celebrating the family? Is it not about what Senator Plamondon said? To her, it was not a sacrifice to have seven children. If you ask people who have kids, they do not consider it a sacrifice. You consider it a sacrifice before you have children, but not after. It is a cultural issue that is stalking the world, and something that we have to address without forcing people into some kind of Orwellian state. It is a cultural issue. Senator Moore touched on it yesterday. There is no question that the more the family is not respected as a unit of society, the more you will have a falling birth rate.
Mr. Longman: I think you are quite right, senator. I already alluded to the correlation to religious feeling. One way to summarize modern attitudes towards children is that they are pets. If you can afford them, go ahead and have them. They gratify your ego, fill up your time and are fun to be around, at times. It is not really a public concern. Maybe we will pay for their public education, but that is basically it. As I said earlier, a religious revival might be one way this turns around, but if it is a secular solution, then we will have to say to those who sacrificed to create the human capital of the next generation that they are every bit as important and honoured in this society as any veteran, and they will have to receive benefits commensurate with the sacrifices that veterans typically make at the same time of life, in their early 20s. You can call that maternal feminism or whatever, but because the extraordinary population boom was part of our experience, we got to a point where we totally devalued parenthood, and people are not honoured for it. It is a hard road. There are many more opportunities and distractions available to people. I think you are right to say it is ultimately rooted in culture.
The Chairman: We have four minutes left.
Senator Plamondon: My first comment is for Mr. Longman. There may be a religious angle, but I do not think it is the entire angle. You said that at age 40 you realized that you did not have children and you had to adopt. That is not a religious issue, it is a human issue. You did not invoke a religious angle at that time. I think that today people who reach for something realize they have missed out, and it does not have anything to do with religion. We have seen new films like Horloge Biologique, and I think it is starting. However, the media and the marketing always propose that an ideal family is two children. At the same time, I think we are seeing something else. When all those people reach 40 and realize that they invested in things instead of just being, that will reverse the trend. That 20 per cent will realize that they have missed out on happiness. I think that the marketing and the media should have a role in that. What do you think?
The Chairman: Brief comments, please.
Mr. Longman: I would just say that I agree.
Senator Massicotte: Let me make an observation and ask you about the effect. It was noted in the manifesto of some honourable people that Quebec has the second lowest birthrate after Japan, and certainly lower than in the rest of Canada. Canada's birth rate is also lower than the American's. Yet in each case — Quebec relative to the rest of Canada; Canada to the United States — it is the major trading partner. It competes directly with other parties for jobs, wealth, growth, and so on. Mr. Longman made the comment that in countries where those conditions occur, such as Spain, Japan and France, a negative reaction to immigration occurs, with higher unemployment and a society that becomes paralyzed. The objective of yesterday's manifesto in Quebec was to deal with that. How do you see that affecting our economic effectiveness with the United States, where the other party is in a more favourable position?
Mr. Longman: I am just talking from intuition; I am not familiar with Quebec society. Part of the explanation for why Quebec has had trouble modernizing and adapting to the global economy is that a segment of its population does not have much stake in the future. Their careers are almost over or are over and the relative voice of youth is small on everything except university tuition. This is part of the death spiral that an aging population can get into. A certain degree of aging, such as entering middle age, can be good. You are more vigorous intellectually at 45 than you were at age 35, but from 45 to 75 is a different story. I worry for Quebec because it seems to be combined with a kind of militant secularization, but I am only looking from afar.
Mr. Tobin: In the face of population aging, to some extent Canada will face a slight comparative disadvantage versus the United States. That does not mean that we can do nothing. Perhaps what you are looking at is the spectrum of things we can do. Increasing fertility tomorrow will have an effect in 2030 at the earliest. Immigration will also have certain limitations; extending working lives, helping people to do that, will have limitations. However, it does not mean that we cannot be doing things. We need to look at this comprehensively. We need to be taking action now on a variety of fronts instead of looking at one solution. That will be our greatest comparative advantage.
[Translation]
Mr. Ménard: If current forecasts prove to be correct, the Canadian population will indeed soon be older than the US population. It is also true that Quebec will have an older population than elsewhere in Canada. Even if the CPP and the QPP are very similar, there are some differences. That being said, they are identical in terms of retirement benefits and pension indexation.
It is clear that, while the fertility rate in Quebec is not necessarily lower than elsewhere in Canada, over the past 30 years, there certainly has been a lower level of immigration to Quebec than to the rest of Canada. Furthermore, if you consider how the system is funded, you will see that while there is supposedly a shift towards partial funding, the system will still only be funded at 25 per cent in 2015, which means that demographic trends will be important. In light of these trends, I think that the QPP will be under more strain than the CPP in the future.
[English]
The Chairman: I commend Mr. Longman's book, The Empty Cradle, to everyone. I read it. It was fascinating. After I was inspired by Senator Massicotte to consider this, with my deputy chair, as a subject matter for the committee, I read that book and became convinced that his views were important. If we want to change conventional wisdom in this country, we should read that book as a start.
I want to thank Mr. Tobin for his insight and Mr. Ménard for his excellent study. This is a serious, ticking time bomb. As Senator Angus says, it may be a ticking time bomb, but is anyone listening to the ticking? I want to thank our witnesses. We welcome your contributions. If you have further comments, please let us have your materials. We will be winding this up shortly and then issuing a report in the near future.
Senator Angus: When is your article in Foreign Affairs appearing?
Mr. Longman: That one is in Foreign Policy but the other will be out in the winter.
The Chairman: Give us any hints on what you are writing about. Thank you so much.
On some technical business, pursuant to rule 89, as chair I am authorized to hold hearings and to receive material when a quorum is not present. We had a full quorum earlier today. Many senators had to leave due to conflicts with other committees, but all the transcripts will be available to all members of the committee.
We are delighted that you are here today. We have received your written text and any further comments that you wish to make will be noted by the committee.
I also wish to invite anyone who is watching this program on CPAC or live on the worldwide web who wishes to contribute to this round table on demographics to please email us. Our email address is on our website as well as on CPAC.
We are delighted to welcome our two distinguished witnesses, Mr. Jacques Henripin and Mr. Robert Brown. We will hear first from Mr. Henripin, who is a retired professor from the University of Montreal, and then from Robert Brown from the University of Waterloo.
[Translation]
Jacques Henripin, Professor Emeritus, University of Montreal, as an individual: I will endeavour to be brief, and would like to begin by mentioning three important trends. The first relates to Canada's fertility rate, the second to our aging population, and the third to immigration.
When compared to our close cousins, such as the US and Western Europe, it is clear that Canada is in the process of becoming one of the least fertile countries. Much has been said about Quebec's low fertility rate, and while this is certainly true, I would have to say that the rest of Canada is hot on Quebec's heels when it comes to following this bad example.
According to the most recent data that we have available, Canada ``produces'' if you will forgive my choice of words, 20 to 25 per cent less children than it requires in order to ensure that each generation will fully replace the one which precedes it. An average of 2.1 children per woman, or per man — it amounts to the same thing, is required. The average in Canada stands at around 1.6. We have a shortfall of 0.5 children per adult; expressed as a percentage of 2.1, the required average, 0.5 represents around 25 per cent. We therefore have a 25 per cent deficit.
This means that, if this trend remains unaltered, over the space of 25 to 30 years, in other words from one generation to the next, our base population will decline by around 25 per cent. Obviously, immigration partially compensates for this decline; but that is a whole different problem.
When compared to Canada, and many other countries, such as those in Northern Europe, we see that the United States is the only large western country which still produces enough children to replace each generation — we do not fully understand why this is the case, but that is how it is. There are some other European countries which are also maintaining a good average, higher than that in Canada. I think that we should be every bit as worried about the rate at which fertility is plummeting, as we would be were the same trend suddenly to appear amongst the animal population. Everybody would panic if that happened, yet nobody raises an eyebrow when it happens to Canadians. I think that there are grounds for concern. Western governments have not yet paid much attention to declining birth rates, but that will change because it is a matter of growing concern to the public.
That concludes my comments on fertility. Earlier, someone was asking why Canada's fertility rate is so low. Many factors contribute to the current situation: obviously, the fact that women, and particularly mothers, are working does not help; raising children is far more expensive today than it was in the past; families are far more fragile — and it is important to stress this point.
In Canada, approximately 25 per cent of Canadian children born around 1990 saw their parents separate before they were 10 years old, and that percentage is growing. Something is really wrong with the way a good many Canadian families work. Of course, the break-up is not always a catastrophe. Some children do very well, but some very young children suffer from the problems caused by their parents' separation throughout their lives.
Generally, the phenomenon begins with poverty, because when a couple breaks up a single-parent family is created. Single-parent families represent the most significant pool of poverty in Canada. I would add one last thing: generally speaking, Canada is one of the Western countries that gives the least to children. There are no universal benefits. Universal benefits do not exist; benefits are provided only to poor and semi-poor families. Canada would do well to do the same as a number of European countries, who are doing much better than we are.
The second — and to my mind, the most important — phenomenon I wanted to stress is the aging of the population. I would like to give you some figures on this. We will be looking at the period ending in 2025; in 2025, some 22 or 23 per cent of the population will be aged over 65. This is a good way of measuring aging. Today, this figure is 13 per cent. The number of older people in 2025 will be almost double what it is today.
The cost of public health is growing at approximately the same rate as the percentage of people aged over 65. If the percentage of people aged over 65 doubles, there will also be a doubling of the health care cost paid by every taxpayer, every worker, every adult. This is a fact, and all calculations show the same thing, regardless of how they are done. As for public pensions, the situation is even worse. I will be talking about our pension system very soon.
Public pensions are doing more than increasing proportionately with the percentage of older people in the population. By 2025, we can expect the public pension cost for each worker to increase by some 75 per cent. At present, health care and public pension costs stand at some 12 to 15 per cent of GDP. If that figure increases by 75 per cent — and I think it will increase by at least that between now and 2025 — then no less than 25 per cent of all the goods and services we produce will serve only to cover health care and public pension costs.
We will have to change the system somehow. If some corrective measures could be put forward, then a number of them could be put in place. The main remedy, and by far the most effective remedy, would be to delay retirement — in other words, to retire later. For any given pension system, putting retirement off for five years reduces the cost of contributions by some 40 per cent. Alternatively, if the cost of contributions remains the same, pension benefits could be some 35 to 40 per cent higher. Of course, putting retirement off by five years is not insignificant. Retirement could be put off by fewer years; the impact would be proportional.
In any case, the delayed retirement is the most effective and powerful way we have of preventing the strictly financial difficulties engendered by an aging population, which to my mind is the most significant social challenge we will be dealing with in 25 years. Aging should become stabilized at about 25 to 27 per cent, which is twice the current rate of 13 per cent.
We talk a great deal about aging, but we have not seen anything yet. We still have the other half to come. So we have to think about this. We do have time to think, but we also do need to take action.
There are other ways of dealing with the problem. We could delay retirement. It is worrying to see the trend among employers, who do not hire older workers or who invite them to retire somewhat hastily. However, business people are generally not idiots. If they have reservations about keeping or hiring older people, it is because they fear older workers will not produce as much as they cost.
I have never raised the issue with union leaders, but we should perhaps consider salary scales that become lower beyond a certain age. I do not know how quickly they would drop. The reduction would no doubt vary, depending on the profession involved. We have to look for ways of keeping people who can work on the labour market, until the age of 70 if they wish, without imposing that as a requirement on anyone. Pensions would be proportional to the time spent working.
I will conclude on that.
[English]
The Chairman: Mr. Brown, please proceed.
Robert L. Brown, Director, Institute of Insurance & Pension Research and Professor, Department of Statistics & Actuarial Science, University of Waterloo, as an individual: Senators, I brought the pictures that are before you, and I will spend my time explaining why I think they are important. The first picture represents live births in Canada over an extended period. I wish to point out to you that if you look at the years 1945-46, you do see a blip in the number of live births, but it is virtually unnoticeable. Senators, that tiny blip is the postwar baby boom. The baby boom did not take place in 1946 but rather in the 1950s and did not end until close to 1966. The largest number of live births ever experienced in Canada took place in 1959. If you have to use a single age to describe the baby boomers, they are now aged 46, not 59. The baby boom generation is not about to retire in the next two weeks. We will keep that in mind as we move along.
The next slide shows the proportions in the different age groups, to which my colleague alluded. You can see a rapid increase in the percentage of the population aged 65 and over, but if you look back through history — all of these indications are 20 years apart — there have been small continuous changes. The rapid acceleration in these ratios happens after 2016. The reason that it does not happen today is that the baby boom was not in 1946 but in the 1950s and the first half of the 1960s.
My personal research has taken me into the affordability of the aging population using ``the wealth transfer index.'' We will not spend time on that. The retirement age in Canada has been falling and is now close to age 61.5. People do not retire at age 65 in Canada. It seems to me that the amount of time we have spent on the discussion of mandatory retirement at age 65 is a bit of a tempest in a teapot. Changing mandatory retirement will have an impact of approximately 0.5 per cent on the labour force participation rate. We need to get people to work longer, not until age 65-66, but rather until age 61.5-62.5. I have looked at these numbers and my projections are that you could have a continued standard of living consistent with what we have today if you shifted the retirement age upwards. The projected retirement age actually bottoms out in about 2016. We are still in good demographic times today. We still have more people entering the labour force today than are leaving it. After 2016, when the true baby boom generation does retire, then we should have everything in place. Let me make it clear. I am not suggesting we need not do anything until 2016, but I am saying that we have to have things in place so that in 2016 we are all ready to go. We need people to stay in the workforce longer, but not five years or six years longer, because we have to connect this to productivity, which was the topic of the committee's previous round table. I will bring that important word back before senators. If we can become more productive, we can solve many of the problems inherent in an aging population. We can replace a missing baby with an immigrant. However, it is understandable that if any worker were to become twice as productive, that would equate to two workers. We can also replace a missing birth through productivity. Historically, we have had productivity improvements that are embarrassingly low, but we have averaged about 0.9 per cent per annum. With those productivity growth rates in mind, we would have to find seven- or eight-month increases in labour force activity to maintain a consistent standard of living. However, you need to understand that to maintain a consistent standard of living, no one gets an improving standard of living. If you do not want to retire later or if you want an improving standard of living, one of the ways to do that is by increasing productivity. If you can have productivity increases of 1.3 per cent per annum, the retirement age does not have to rise, although you will not have improving standards of living; it would be constant.
My final slide shows a number of developed nations and illustrates what they do for their senior citizens. The statistic on the left-hand scale is called the Gini ratio. This is a measure of income stability or lack of income disparity amongst the people aged 65 and over in these countries. Two countries, Israel and the United States, have very wide income disparity post-retirement. The country with the least spread of income or the least income disparity is Sweden. How does Sweden do that? Sweden controls 70 per cent of the income of the elderly. That percentage is provided by the government. This creates a high level of security but it also means there is not much room for private savings and private pension plans.
Look where Canada is. We provide only 46 per cent of the retirement needs of Canadians, and yet we have income security equivalent to Norway, very close to Germany, and a great deal better than the United Kingdom, Australia, Netherlands, United States and Israel. In my mind, as a combination actuary and gerontologist, I would be willing to present the argument that we are not doing too badly in the combination that we have created of small social security systems plus tax incentives for private savings. I present these as facts, not as opinions. Certainly, I await your questions.
The Chairman: We thank you for your insights, which are different from ones that we heard earlier.
[Translation]
Senator Massicotte: Thank you for your presentations. They were very informative. Mr. Henripin, I would like a comment from you. You say that the cost of health care will almost double in 20 or 25 years. The cost of retirement plans will increase by almost 75 per cent. If the trends continue, and if we have no success in increasing labour force participation or extending the number of years that Canadians work, and let's say that the productivity rate remains the same as we have seen for the past five years, what will be the tax impact on Canadians? What kind of society will we have in 20 years?
Mr. Henripin: From the standpoint of health, things will become more difficult for patients who wait their turn at the hospital. It will become increasingly difficult to provide care. There are corrective measures we could take to try to reduce not health care costs but the increase in health care costs. When I say the increase in health care costs, I mean the costs per worker.
Senator Massicotte: Yes.
Mr. Henripin: I believe that Canada has been extraordinarily good when it comes to the health insurance plan conditions imposed on the provinces. We are much better, much more angelic, than many European countries who are known to be somewhat socialistic, in fact, far more socialist than we are.
By making it impossible to charge each patient a small amount, or for each doctor to charge a small amount to each patient — this amount would perhaps not have to be paid in a hospital — we are taking away a significant means of reducing costs. That amount would contribute to covering expenditures and reduce the number of visits that some patients make to their doctor.
So I think we are being angels. On the other hand, for extremely expensive health care, the kind of health care that is required particularly in the last years of life, we could consider a funded plan, something that I suggest we also apply to our pension system. Take a very simple model: a man starts working at the age of 20, and stops at the age of 65. For his pension, he pays a contribution that will guarantee him 50 per cent of his average income during his working life. That is quite decent, perhaps not a lot, but decent. In any case, it is better than those we insure at 25 per cent in Canada. We can look at how much the contribution costs as a percentage of the workers' salary, and that percentage will be paid into a fund that will then pay his pension. The cost to the worker will be 18 per cent of his pay, if there is no return on accumulated capital.
If the return was 2 per cent, it would cost 9 per cent, or half. Why? Because the return on the amounts put into the fund is more or less equivalent to the employee's contributions. Depriving ourselves, as we do with the current system, of returns on capital that are invested in a fund — which is what all private pension systems do, they have no choice — is depriving ourselves of many of the benefits that we could provide to those who pay 10 per cent. My 9.6 per cent, with a guaranteed interest rate of 2 per cent and a 50 per cent pension, is the same amount as we currently pay for a 25 per cent pension.
So I do not understand why we do not progressively move from our current pay-as-you-go system — it is somewhat flawed — to a capital-based system like private companies have. What I would do is get rid of the employers' monopoly on private pension systems and set up a system like the one in Chile, and other countries, where the government requires anyone earning an income to contribute to a minimum pension system, a pension system which is managed by various private or public corporations, it does not matter, that changes nothing. But employers will no longer have to concern themselves with that; employees will no longer be victims or slaves to an employer who provides a good pension as compared to another one who provides a less generous pension. There is no reason for the future pension of a Canadian worker, that will last about 20 years, to depend on whether or not he worked for a good employer. I do not see why it works that way. It should be completely independent. Companies would manage these systems with the guidance of government which would impose the necessary rules and ensure that things are done properly.
[English]
The Chairman: Mr. Brown, would you like to respond briefly?
Mr. Brown: I will be brief.
Let me say that I have spoken in as many fora as I could in opposition to the Chilean model of social security. I would be pleased to do that again if I were invited.
I like to see a multifaceted system of retirement income security. In Canada, you have Old Age Security that includes the Guaranteed Income Supplement, which is a defined benefit funded by tax. By definition, that is pay as you go. You have the Canada Pension Plan that is also defined benefit, and it is now partially funded.
Then there are tax incentives where the government is definitely involved. Employer-sponsored private pension plans are fully funded. Some of them are defined contribution and some of them are defined benefit. Some companies fall behind for a short time, but they are meant to be fully funded. All individual savings by definition are defined contribution and fully funded. It is a nice mixed system.
There are times when pay as you go is good. There are times, such as now, when funding looks totally superior, but I cannot predict the economy of 2020 or 2030.
The Chairman: We have 16 minutes. I appreciate, Mr. Brown, that we will explore the Chilean model. It would be very helpful if you can give us some material on that.
[Translation]
Senator Meighen: I found your presentations very interesting. I am going to put one question to Mr. Brown and indirectly to Professor Henripin.
[English]
I do not know whether you were here for all the presentations by the previous witnesses. I may be missing something, and please tell me if I am.
There is not much that is fundamentally different in what you are all saying except, Mr. Brown, your startling statistic about the timing of the baby boomers' impact. It is frighteningly simple. Why everyone has been talking about now rather than 2016 I do not know, unless I am missing something.
As you know, governments do not work quickly. Could you be more explicit as to what we should be doing or what you think we can do to prepare for 2016 that is realistic and would be helpful, other than increase productivity?
Mr. Brown: The best way to afford a comfortable standard of living is to produce wealth. Once wealth is produced, it is easy to distribute it, but first it must be produced. What can we be doing?
I agree with a lot of what was said this morning. Immigration is a partial solution but it is not the total answer. We will have to compete for immigrants. Fertility is a partial answer but it is difficult to incent a larger family today and I agree with the reasons given this morning: We are no longer in a male-dominated society; women have higher levels of education; our high divorce rates and our low level of religious participation — all of those lead to —
The Chairman: The cost of homes?
Mr. Brown: The cost of raising a child, as you heard this morning.
The Chairman: The cost of homes in order to afford space for children.
Mr. Brown: This all leads to lower fertility rates. I would like to see a combination — a little of this and a little of that.
For example, you were talking this morning about whether we should create financial incentives for families to have third and fourth children. Let me give you an alternative: If you did a study that said subsidized daycare would have the same impact on fertility as paying for a fourth child, then I would prefer if you went with subsidized daycare because it has other good effects. If free education has the same impact on fertility as paying a woman to have a third or fourth child, then I would rather you go with free education because it has other positive impacts.
Personally, I would not have as a priority finding money to entice families to have third and fourth children. It is not the best way to go, to my way of thinking.
[Translation]
Senator Goldstein: Mr. Henripin, you stressed that pushing back the retirement age would have dire consequences. Namely, it would lead to an increase in pension payments, with the risk of whether or not we have sufficient funds to bear the burden of these pensions, given the increase in the average age of the population.
My question is also for Mr. Brown. How could we encourage people to push back their retirement age from 65 to 70, or to accept your number, Mr. Brown, of 66, 67, 68 or 69?
Mr. Henripin: I am not an expert on the organization of work in a corporation. I do not know what should be done. However, if employers are reluctant to retain older workers and to hire new ones, it is because they do not see the advantages. Employers would see certain advantages if they paid less. We are stuck with pay scales that never decrease in keeping with the reduction in productivity of workers as they age.
For me, I finished my career, and I fully realized that at about 60, I was starting to be a little bit less motivated at work than when I was 40. So I think it would be normal for salaries to be paid based on workers' performance. And if performance is lower due to age, people should not be sent home, but paid less.
In any case, at that time of life, we need less money. The children have grown up and the financial burden has lessened. Some adjustments could be made.
There are probably many prejudices we should fight against. In any case, we must stop forcibly retiring people at the age of 65 and over, as does the federal government. This is giving a very poor example. Senators set a better example: 75 is a respectable age at which to retire.
[English]
Mr. Brown: The question was what should we do and I would suggest there are things we can undo. There are incentives today in the Canada Pension Plan that create a bias toward earlier rather than later retirement. There are two or three parts of the CPP formula that are perverse; they can be changed and undone.
The one-half per cent factor for early versus late retirement creates a bias toward early retirement. If I retire early, the number of years in my qualification formula is shorter than if I retire at age 65. That is not fair. There are many subtle actuarial things that we can get into.
The Chairman: We are interested in that here.
Mr. Brown: I will write something up and send it to you because it will misuse our time now.
In the private sector, it is difficult for me to get wage-earning income from the same corporate cheque-writing machine that provides my pension on the same day. There are income tax rules about that. You have to be retired or not. That does not incent flexible retirement. There are things that we can undo before we need to worry about what we need to do to help workers and employers create an environment where people will stay in the workforce longer — to age 62, 63 or 64.
[Translation]
Senator Plamondon: You spoke of the frailty of families and of the fact that 25 per cent of the time this results in single-parent families. We are talking about single mothers who are earning reduced salaries and have custody of the children, therefore of women who are poorer. We must emphasize that as a result of this, it is women and children who become poor.
With aging couples, it seems the women live longer than the men. I hear on occasion that women become caregivers, what we call in French the natural caregivers. In fact, there is nothing natural about nursing someone who is ready to be hospitalized, and more and more this burden falls on the shoulders of women. The woman not only becomes poor, but she takes on the role of the health care system.
You talked about health care costs. We are already seeing more pressures on seniors than on the health care system. A nurse told me that when a senior has a stroke and they go to emergency, the first question the doctor asks is their age. If the person is 80 years old, believe me, no treatment is given.
We are in the process of making selections by not offering care in order to settle health care problems, particularly as regards seniors.
I would like to hear your comments on this subject. The young woman must raise her children. She becomes poor when the family goes bankrupt. Then, as she ages, she must care for her husband until his death. Who will be there in turn to take care of her, when she needs care herself?
Mr. Henripin: I am not a specialist in this domain. I do not know if we can make generalizations on this point. It is probably true that most caregivers are women. As to whether or not it is natural, I have no idea. I do believe the government could help more, perhaps in the form of subsidies. In any case, this kind of problem is really out of my area.
Senator Massicotte: We have seen that the fertility rate is lower in Quebec than in the rest of Canada and that Canada's is lower than that of the United States. However, these three financial and social partners deal with each other a great deal.
Is it possible that this reduction in the birth rate could result in more poverty in Quebec compared to Canada and in Canada compared to the United States?
Mr. Henripin: I would not make a connection so easily between a reduction in the birth rate and poverty. In fact, the fewer children we have in the short term, the richer we are because there are fewer expenses. This causes problems in the long term. The cost for Quebec, assuming they maintain this lower birth rate compared with the rest of Canada and particularly when compared with the United States, and this is true for Canada vis-à-vis the United States as well, the cost to pay will be the cost of the aging of the population. It is the major demographic effect that will have painful economic repercussions. Public expenditures are tied to the percentage of seniors, and that mainly involves health care and public pensions.
[English]
Mr. Brown: There does not have to be a cause-and-effect connection between population aging and poverty. We can have a good standard of living while we have an aging population. I am biased in this because of my daily work, but I believe the number one target you want to throw your limited funding at is education. We can compete with the U.S. and the rest of the world, and Quebec can compete with the rest of Canada, if we allow our young people to be educated to the fullest extent that they are willing to participate. If you want living evidence of that, I would look at what has happened in Ireland over the last 20 years. They did a lot of other smart things that we should perhaps think about imitating, but one of them was that you could be educated for as long as you wanted, and they are now the driving tiger in the European Economic Community.
Senator Massicotte: If you make the presumption, which I think is fair, that the level of productivity would be the same in Quebec, Canada and the United States, the level of education will probably remain the same, or at least have a strong relationship, and given that the burden of health and pension costs is a significant increase in GDP, most studies indicate that our growth rate will probably go down to 1 per cent on a Canadian basis — so most of the growth per capita will be absorbed by significant increases in health costs. If the presumptions are the same on economic growth and productivity, you will have to say Quebec will spend a greater share of GDP on health costs than the rest of Canada, and Canada more than the United States, and therefore taxation will have to increase more in Quebec than in the rest of Canada. Then you are at a competitive disadvantage because people are mobile, particularly the well- educated ones. Is that not a serious economic-competitiveness issue?
Mr. Brown: Here is where Prof. Henriprin and I are in total agreement. I do not want to put words in your mouth, so please object if I do. Keep people in the labour force longer and none of those things come true.
Senator Massicotte: Let us say all three do so. In other words, if the tendencies are the same everywhere, and they all increase by two years, you will still have a greater tax burden in Quebec than in the rest of Canada, and in Canada than in the United States. If well-educated people are mobile, which they are, is that not a serious competitive issue? I know productivity will solve many problems.
Mr. Brown: It is a competitive issue, but I do not think it is a deal breaker. I would suggest that many of those statements are true today, and people are staying put. The economy is not good in Cape Breton, and Cape Bretoners are staying in Cape Breton. Why? There are 100 other reasons for that to happen. However, if you give everyone the opportunity to be productive by providing them with education and capital assets, then we can all have a good standard of living. It may be that other parts of the world will move ahead faster or more slowly, but we will all have a comfortable standard of living.
The Chairman: Just a brief question to both of you: We have heard about the national economy, but we also know, based on what we have read in the papers today — this manifesto from Quebec, and you have heard questions about that — about what we consider to be a differential between regions. From your research, can you tell us where there is a differential in terms of regional disparity on this issue? Are there other regions lagging behind and increasing the intensity of the pressure on the system because of what we consider to be an economic time bomb, perhaps ticking slower than we thought, but still ticking? How do we persuade regions, if they are lagging, to change some of their practices and policies, because much of this information, as you have indicated, is not about doing new things but undoing things we have already done that are working in obverse ways — the law of unintended consequences? We are trying to make our economy more productive but doing exactly the reverse of that
Mr. Brown: There is a lot of regional disparity today. It is not my area of expertise, but the wealth that exists in Alberta versus almost any other part of Canada is obvious. It is obvious that there are depressed areas. Newfoundland, the fishing community and provinces that depend on primary resources have had a tough time. What do we do about it? I will come back to a theme. I do not believe that balancing payments is the answer. I believe that making sure that every Canadian has the opportunity to achieve a lofty goal is the answer. Let the boats rise with the tide.
Mr. Henripin: Probably by leaving this province, sometimes.
The Chairman: Which province?
Mr. Henripin: Look at the choice of the immigrants. They all go to Ontario, Alberta now, although not so much, Quebec and British Columbia, but almost nothing in the Maritimes.
The Chairman: Are you saying worker mobility is a good thing or a bad thing?
Mr. Henripin: I think it is a good thing. It is necessary.
The Chairman: One of the answers to increasing productivity is increasing worker mobility.
Senator Angus: The Senate should move to Nova Scotia.
The Chairman: Or to Cape Breton Island.
I want to thank you for the discussions here. This concludes our hearings on this topic. It does not prevent anyone who is watching, any outside expert watching this on the Internet or on the broadcast, from getting their views to us. We will take them all into account. I thank Senator Massicotte and the rest of the committee for allowing us to proceed on this. I particularly thank the witnesses today for adding a different aspect to the information that we thought we had already plumbed. I now consider the hearings of our second round table on demographics to be concluded.
Senator Goldstein: I want to thank you, on my own behalf and, I believe, on behalf of everyone on the committee, for having determined that this was a useful round table to engage in. Thank you, Senator Massicotte, for having suggested it to the chair. I also want to thank the chair and the clerk for bringing before us, without exception, absolutely outstanding witnesses who have been helpful, useful and informative. I am grateful for the opportunity.
The Chairman: Senator Goldstein, you are a welcome addition to our committee.
The committee adjourned.