According to a report by Canadian broadcaster RBC, high immigration rates are helping to mitigate the economic impact of Canada's aging population, even though they have exacerbated housing affordability challenges.
Carrie Freestone, an economist at RBC, said Canada's retirees are still consuming goods and services, including health care, the Canada Pension Plan and retirement savings, creating an imbalance between demand and what the economy can produce. As fewer people pay into public services and more become recipients, Freestone said the gap between government tax revenues and the money needed to fund services is widening.
“That's a problem,” she said in an interview. “When fewer people are working and producing goods and services, but more people are consuming, there is a mismatch between supply and demand.”
Given recent cuts to Canada's immigration policy, the country's population is expected to be 2.5 percent smaller in 2027 than originally estimated if policy remains unchanged, the report said. The cap on the number of non-permanent residents means that 1.1 million fewer people will be living in Canada by 2027.
The report suggests that the cap will lead to a 0.9 percent decline in Canada's working-age population and increase the dependency ratio, which measures the number of dependents per 100 working-age people.
The federal government has capped the intake of international students for 2024, reducing the number by 35 percent from 2023. It also announced that open work permits will only be available to the spouses of international students in master's and doctoral programs. The changes were prompted by the strains on the economy, including the housing market.
However, many people are unaware of the economic consequences that an ageing population and low birth rates can have, such as a shortage of workers, Freestone said.
According to Statistics Canada, 2022 was the lowest year on record in Canada, with only 1.33 children per woman.
If costs for health care, OAS and social programs increase, government deficits may increase, which in turn may lead to tax increases to offset the deficits.
Instead, Freestone said, this problem could be more easily solved by allowing working-age immigrants into the country, even if this would happen more slowly.
“Our population continues to grow every year and the number of permanent residents also increases every year,” Freestone said.
“That's good.”
The U.S. faces similar problems as the number of older people outnumbers younger taxpayers, Freestone pointed out. However, the two countries have taken different approaches – Canada increased immigration while the U.S. kept immigration numbers low.
As a result, Canada's age-related unfunded liabilities were $70,000 per person in 2018, while in the United States they were $236,000 per capita in 2018, according to the CD Howe Institute, the report shows. An unfunded liability is the gap between a pension fund's assets and its estimated benefit obligations.
“That's a pretty big difference,” Freestone said. “In the U.S., that unfunded liability is about three times the size of the U.S. national debt – almost three times the size of the economy itself.”
The housing affordability problem is a supply problem that has been developing for decades, Freestone said. “It's not the three years of bringing so many immigrants into the country that have exacerbated the problem.”
She said the solution to the housing crisis lies in building more housing and finding more construction workers and skilled workers.
“It is important to ensure that immigration is targeted,” Freestone said, adding that Canada could do a better job of recruiting skilled workers.
This report by The Canadian Press was first published May 30, 2024.