The federal budget 2019 and Imagine Canada’s work on the social deficit have important features in common. Both use forecasts of important economic and demographic variables to anticipate the choices and challenges that will face governments and charities in the future. To what extent is the view presented in the budget 2019 consistent with our analysis that Canada faces a looming social deficit?
Budget 2019 assumptions
- Canada’s 1.9% annual growth in GDP in 2018 remains good compared to G7 countries. It is second only to the tax-cut-fueled growth of the U.S. economy. It is less, however, than global average economic growth, which exceeded 3%.
- Job creation has been robust, with unemployment at its lowest level in 40 years. Some 900,000 jobs have been created since 2015.
- Inflation remains manageable in the 2% range or lower.
- Even with a spending budget, forecasts call for a debt to GDP ratio of 30% or less – excellent by global standards.
- Canada remains a resource-based economy and low oil prices affect growth prospects and the value of the Canadian dollar.
- Immigration is a positive for the economy, making up for slowing population growth and contributing to labour force participation which is the highest it has ever been.
Link to the social deficit
- Canada’s economic performance looks good in comparison to other countries but is lower than it has been for many years. From the late 1980s to 2012, the economy grew at the rate of about 2.5% per year. Comparing our performance today to the performance of others today cannot disguise the fact that we are in a lower growth period. In fact, the social deficit forecast of 1.8% annual growth in GDP now looks a bit optimistic.
- As the social deficit analysis points out, lower growth in GDP means lower growth in disposable income which, in turn, means lower growth in donations. For example, the budget says nominal GDP will be $12 billion less than forecast in 2018 budget. Since donors give about 0.5% of GDP, this translates to missing $60 million for charities compared to what could have available. And this doesn’t account for the fact that growth rates were already decreasing in 2018.
- One of the underlying reasons cited in the social deficit analysis for lower economic growth is the lower labour force participation rate that results from an aging population. The budget analysis points out that the labour force participation rate is currently at an historic high largely because of immigration. However, it remains to be seen if immigration will continue to offset the impact of ageing in the longer term.