Today’s youngest and future generations will face very high net tax burdens: higher than those of any other generations, especially those born from the mid-1950s to the 1990s, says a new report from the C.D. Howe Institute.
In Intergenerational Fairness: Will Our Kids Live Better than We Do, author Parisa Mahboubi uses generational accounting to compare the projected lifetime fiscal burdens of the current and future generations.
“Generally speaking,” says Mahboubi, “Babyboomers and their children fare well in this scenario, but the grandkids of babyboomers do not.”
Looking to the future, the report also finds that future generations of Canadians are expected to face a slightly lower lifetime tax burden than the newborn generation.
However, that balance is precarious and susceptible to change. For example, both higher-than-expected interest rates and lower-than-expected population growth would make future generations worse off and lead us back to generational imbalance. Also, should the cost of public healthcare grow at a faster pace than the 1.3 percent rate assumed in the report’s baseline scenario, for example at an average 3.3 percent rate (as happened during the period of 1996 to 2010), it would shift the resulting tax burden to future generations and render a large and untenable imbalance.
Generational accounting is a tool for evaluating the sustainability of fiscal policy by assessing the relative benefits and costs accruing to different birth cohorts. It shows the amount of expected taxes and transfers current generations will pay and receive over their remaining life span. It also predicts the amount of net taxes that future generations will have to pay for governments to finance their programs and service their debts.
The report recommends governments ensure continuing fiscal sustainability by restraining the growth of public health care spending and by supporting policies that improve labour market outcomes for youth, women and immigrants, and encourage a longer working life.
Parisa Mahboubi is Senior Policy Analyst at the C.D. Howe Institute.