As a sector, we are often focused on the present. In the last few decades, charities and nonprofits have grown more quickly than the economy as a whole, as the sector has met rapidly growing needs. This rapid growth has been based largely on demographic and cultural factors – an aging population, robust immigration, and cultural change. The relationship between charities and nonprofits and the economy is a healthy and synergistic one, in which charities and nonprofits create jobs and growth and in turn are supported by revenues from donations, from government transfers and from earned income all underwritten by revenues originating in an expanding broader economy.
As we look towards the future, to a world in which this relationship will be impacted by fundamental changes in the economic and demographic outlook. We foresee a Canada in which demand for what the sector does continues to increase rapidly (and perhaps accelerates) with an even more rapidly aging population, the retirement of the baby boom generation, continued immigration, the integration of refugees and ongoing changes in family structure and culture.
Imagine Canada (along with the Conference board and the Parliamentary Budget Office) also foresees a long-term slowdown in the rate of economic growth based on weak productivity performance, declining labour force participation rates and lower prices for resource commodities.
Putting demand and revenue projections together creates a daunting picture for all sectors – charities and nonprofits, governments and businesses. Charities and nonprofits will feel the impact of slower economic growth from at least three different directions:
- Government transfers are an important source of revenues for charities. But government too will feel the effect of slower growth and demographic change. Governments (especially provincial governments) are forecast to experience persistent and growing deficits creating the need for difficult decisions to either raise taxes or to reduce program spending (including perhaps downloading responsibilities to charities and nonprofits.)
- Slower growth will reduce disposable income of consumers and affect their ability to spend including the spending that makes up earned income for charities and nonprofits.
- Slower growth in disposable income (and business profits) will impact the ability of households and business to donate to charities and nonprofits.
For charities and nonprofits, Imagine Canada foresees a growing Social Deficit, an ongoing problem in meeting the needs of Canadians. From one point of view, this is not a new concept- charities and nonprofits are painfully aware of their inability to meet all of needs they face. But with social missions, this gap is hard to measure – there is no marketplace and no dollar measures. Instead organizations see unmet needs, overworked staff, congestion and waiting lists.
What is new is the work Imagine Canada has done (announced today) to attempt to put a dollar value on this deficit moving forward. Using data from the period 1998 to 2007, and making realistic assumptions about the impact of slower economic growth on revenue streams for a sector facing growing social and cultural demands, our forecast is a social deficit of up to $23 billion in 2026 (based on slightly accelerated growth in demand and lower assumed revenue from governments). This is a measure of how much additional revenue charities and nonprofits would need to maintain its 2014 level of service relative to demand. To mix metrics and metaphors, this is a measure of how much faster the sector will need to run in 2026 to stay in the same place.
Discussion Paper: Charities, Sustainable Funding and Smart Growth
Through a series of scenarios that project the state of the charitable and nonprofit sector in 2026, chief economist Brian Emmett identifies a looming social deficit.
The challenge of financial sustainability is not just a problem for charities and nonprofits. It is an all-of-society problem arising from the impact of demographics and economics on the ability of governments and charities and nonprofits to meet the social objectives of Canadians. The question is of the broadest nature: how can the nonprofit sector, government and the private sector, all of whom face a similar problem of ends and means, work to achieve the prosperous, equitable and environmentally responsible society that Canadians want? There is no magic bullet remedy for challenges of this scope. It will require broad structural reforms in the way governments think of, fund and regulate the charitable and nonprofit sector.
Imagine Canada’s analysis has three broad implications for charities and governments:
- Under all reasonable assumptions, there will be a growing gap between what is expected from charities and nonprofits and what they can do with reasonable projections of trends in revenue. A structural social deficit facing Canadians and the nonprofit sector ranging up to $23 billion in 2026 – a number that implies either substantial unmet social, cultural and environmental demands in 2026 or a significant increase in revenue generation.
- A significant increase in revenue implies broad structural reforms both in the way governments fund and regulate the sector and in the tools charities and nonprofits use to fund themselves.
- It is past time for governments (and nonprofits themselves) to recognize the sector’s importance as an economic force and treat it as an important solution in policies designed to stimulate smart growth, productivity and employment.
Charities and nonprofits, too, need to pay attention to broader economic issues and policy. The projected structural social deficit is generated in part by lagging economic performance and charities and nonprofits have a vital interest in policies and programs that address fundamental economic issues of productivity and growth. Charities and nonprofits have an interest not just in the amount of economic growth, but also its quality. The overlap between the smart growth agenda (growth that is equitable, inclusive and environmentally responsible) and the mission-driven charitable and nonprofit sector is significant. It offers the potential both to highlight the contribution of charities and nonprofits to smart growth and for charities and nonprofits to benefit from many of the policy options proposed to promote smart growth. Charities and nonprofits should therefore be involved in and strongly supportive of smart growth initiatives. Economic issues, as well as social justice and environmental responsibility, deserve a place in the advocacy efforts of the charitable and nonprofit sector.
About the Author
As the Chief Economist for Canada’s Charitable and Nonprofit Sector, Brian Emmett is tasked with measuring the impact of the sector and bringing economic issues facing charities and nonprofits to the forefront of public policy decision makers. Mr. Emmett is an economics graduate of the University of Western Ontario and the University of Essex in England, and has enjoyed a long and distinguished public service career. He was Canada’s first Commissioner of the Environment and Sustainable Development in the late 1990s and worked extensively on Canada’s Green Plan. He also served as Vice-President of the Canadian International Development Agency (CIDA) in the early 2000s and has been an Assistant Deputy Minister in a number of federal government departments.
The position of the Chief Economist for Canada’s Charitable and Nonprofit Sector is made possible through funding received by Bank of Montreal, The Counselling Foundation of Canada, The Muttart Foundation, and an anonymous donor.