Question

According to Statistics Canada, by 2056, it is projected (based on a medium growth scenario) that there will be only 2 working-age people for every senior in Canada.” Briefly explain the implications of this fact for federal government spending as a percentage of GDP in 2056.

Answer 1

If in 2056, there are only 2 working-age people for every senior in Canada, it means that the dependency ratio is going to be very high. This will lead to an increase in federal government spending. The primary reason is that there are lot of old people in the economy who will need social security payments. This will be a big portion of government spending. Add to that the additional welfare spending such as healthcare which also increases with more senior citizens. There will also be a decrease in the purchasing power in the economy as there is lesser people who work and earn enough to demand more goods. Thus, in order to avoid slowing growth and even a recession, the government will have to boos demeand by increasing its expenditure to comhensate for the shortage in private exoenditure.