Fear and loathing in Atlantic Canada

Atlantic Canada is at a critical crossroads. The region’s aging and declining population is about to leave a huge hole in the workforce, leaving local businesses scrambling to find workers to replace retirees. At the same time, provincial debt is growing, credit ratings are deteriorating and programs are being cut. The following statistics, provided by the Canadian Federation of Independent Business (CFIB), are intended to sound the alarm about the looming financial crisis.

The grey scale
The working age population is traditionally considered to be those between 15 and 64 years. As more Atlantic residents reach retirement age (65 years), there will be fewer potential workers. Without sufficient workers to replace those retiring, it will be a huge challenge to just maintain the current economic output—growing it will be almost out of the question.

Working age residents (15-64) as a % of the population
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Source: Statistics Canada, Table 051-0001 (years 2001-2016) and Table 052-0005 (years 2017-2038), medium-growth projections (1991/92- 2010/11 trend)
Free Falling

Population projections for Atlantic Canada aren’t rosy, with only P.E.I.’s forecast to grow over the next two decades. For small businesses this means a smaller workforce to draw from and fewer customers to sell to. “The demographic tsunami is upon us. Atlantic Canada needs a long-term fiscal strategy to deal with the very real, very expensive challenge of a swelling older cohort being supported by a shrinking work force and diminishing tax base,” says Jordi Morgan, CFIB’s vice-president, Atlantic Canada.

Population Change 2017 vs. 2038
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Source: Statistics Canada. Table 051-0001

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Time to get active

Participation in the labour force is one of the main drivers for economic growth. But the Atlantic region currently has participation rates that are below the national average. “Our economy has really benefitted from abundant labour over the past 50 years—first from the baby boomers coming of age and then from women entering the workforce in record numbers. Improving our participation rates really needs to be a key policy plank of any government agenda,” McGrath-Gaudet says.

Participation rates (2016)
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Source: Statistics Canada. Table 282-0002
How low will it go?

Université de Moncton public policy expert Richard Saillant predicts that the aging population in the region will lead to stagnant economic growth, and that’s bad news for small businesses. “It is reasonable and prudent to assume that economic growth will be slower given the population shift towards fewer workers,” McGrath-Gaudet says. “It’s vital that governments ensure they are creating an environment of economic competitiveness, but that they are also planning for years of slower growth in their revenues.”

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Source: Statistics Canada, Table 384-0038, Sailant (2016)
Deadly debt

Low interest rates since the 2008 global recession have allowed governments to increase their borrowing while limiting the impact on annual budgets. However, net debt in each Atlantic province has grown substantially since 2001. With interest rates climbing, future borrowing or refinancing of loans will be more costly. Atlantic Canada’s provincial governments need to rein in spending, and quickly. “Happily piling up more debt because money is cheap is a recipe for disaster,” Jordi Morgan says. “Even with microscopic interest rates, our debt servicing costs continue to grow along with the size of government spending. We simply won’t be able to sustain the governments we have built without meaningful efficiencies.”

Net debt by province (In $millions)
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Source: Provincial Public Accounts, 2001-2015; Provincial Budgets, 2016
Upping output

Another way to keep Atlantic Canada from heading into the financial abyss is to increase worker productivity—the amount of economic output produced per worker. “The only way that we will be able to achieve any significant economic growth given our new demographic reality is to ensure we are being more productive,” McGrath-Gaudet says. “That means more economic output per hour worked. This is most often the product of improved technology and equipment or improved skills within the workforce. When we talk about ‘innovation,’ that’s where we need to focus.”

% annual productivity growth, by province
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Source: Statistics Canada, Tables 384-0038 and 282-0002

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Spending spree

Provincial government expenditures have also risen over the past 15 years. All Atlantic Canada provinces have averaged annual spending growth since 2001 that is roughly double the two per cent annual rate of inflation. And an aging population means costs for health care, seniors housing and other programs to support seniors are likely to grow. But how will our governments continue to pay for it all without raising taxes that hurt the competitiveness of small businesses?

Growth in total expenditure by province (in %)
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Source: Provincial Public Accounts, 2001-2015; Provincial Budgets, 2016

1 Comment to “Fear and loathing in Atlantic Canada”

  1. […] to an aging workforce. In Nova Scotia, work age residents used to comprise 70% of the population. By 2038 they are projected to be 56% (Stats. […]

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