Federal Debt. and what 's never discussed ...Unfunded Liabilities

As of the writing of this post Canada's Federal debt sat around  $572 Billion  based on the debt counter to the right, unfortunately that is but part of the story.

In addition to the national debt, Canadian governments have committed themselves to providing programs that are not fully funded. In simple terms, as a country we have promised to provide a host of programs which current tax rates leave unfunded. Which means, the money to pay for them needs to be found in years to come.

But Frustrated Joe, whats the big deal? All we need is more immigration and to increase taxes a bit to cover all of this. Right?

Unfortunately  a bit won't cover it, here are some numbers to ponder.....

First example, one that we are all  familiar with is the Old Age Security (OAS) program.  Long considered the "cornerstone" of Canada's retirement income system. Old Age Security pensions are available to all Canadian citizens and legal residents 65 years and older, providing they have lived in Canada for a minimum of 10 years of their adult lives (a qualification period our left leaning friends over at the NDP want to see reduced substantially as they feel it is unfair to recent immigrants of retirement age).

When first conceived and put in place OAS was based on the assumption that the demographics existing at the time (1960s) would remain a constant. It was considered good social and economic policy to collect a small amount of money from a large group of younger workers to benefit a small group of relatively poor retirees. Nice concept, unfortunately the demographics changed more than anyone predicted. In 1956 the percentage of Canadians over 65 years old was only 7.7 % , that increased to 13.3 % by 2006 and is predicted to hit 26.5% by 2040.

The problem with Old Age Security benefits is they are paid for out of current and ongoing federal tax revenue and there is no "nest egg" set aside. Translation....  more retirees being supported by fewer people in the workforce. This change in the makeup of Canada's demographics will continue to increase the portion of federal revenues needed to fund OAS benefits. It is estimated that the difference between the cost of promised benefits and the expected future revenues , the current unfunded liability for OAS stands somewhere in the range of $350 billion.

Another  major unfunded liability is our good friend, Canada's Healthcare System.
In 2006-07, Healthcare consumed 19.1 per cent of total federal, provincial and local government revenue. Given that those over 65 years old account for approximately 44 per cent of all health spending, and the fact that the percentage of the population over 65 years old will increase dramatically, the portion of revenue currently used to pay for it will fall short in the future. Thus unfunded liability for health care comes in at around at $370 billion.

Unfortunately we are not quite done yet. I still haven't brought up the issue of the Canada Pension Plan, current estimate put it's unfunded liability in the range of $500 Billion!

So her's the quick math,
OAS - $350 Billion, Healthcare - $370 Billion, and last but certainly not least the Canada Pension Plan at $500 Billion. Total Unfunded Liability = $1.22 Trillion
My head hurts........ worse yet how do I break the news to my teenage son that his generation is going to be responsible for paying this.