Boomers' grandkids face outsized tax burden, suggests study

An analysis of the current and future finances of Canadian provinces has found an imbalance between generations

Boomers' grandkids face outsized tax burden, suggests study

Compared to Boomers, members of the millennial generation have been dealt a tough financial and economic hand to play. Increasing costs of education, ballooning debt, and a challenging labor market are just some of the obstacles that have been reported to get in the way of young people’s financial journeys today.

That reality has come into sharper focus with the release of a new study from the CD Howe Institute. Using a technique called generational accounting, an expert from the institute assessed the lifetime fiscal burden on current and future generations given demographic and economic projections.

“[T] he projected lifetime fiscal burdens of the youngest generation (born since 2005) and future generations are very high,” wrote Parisa Mahboubi, senior policy analyst at CD Howe. The projected lifetime fiscal burdens of those generations, she noted, are higher than for any other generations, particularly the ones born from the mid-1950s to the 1990s.

“Generally speaking, babyboomers and their children fare well in this scenario, but the grandkids of babyboomers do not,” she said.

Feeding this imbalance is the acceleration of population aging over the past decade due to declining fertility and improving life expectancy. An aging population, Mahboubi noted, dampens growth in government revenue while putting pressure on government spending, particularly through greater strain on healthcare and public pensions.

The study assumed that healthcare spending will grow by 1.3% annually, though it saw a risk arising if that were to grow by 3.3% annually, the same rate that registered from 1996 to 2010. If that were to happen, it would “shift the resulting tax burden to future generations and render a large and untenable imbalance.”

In particular, younger individuals are expected, on average, to pay more in taxes than they receive from transfer payments, as well as health/education services. Meanwhile, seniors are anticipated to receive net benefits for the rest of their life.

The study also found substantial variations between males and females in terms of the net tax burdens they face. The net tax burden on males, regardless of age, was significantly larger than on females, though the gap diminishes significantly among older cohorts.

“To ensure future intergenerational fairness and sustainability, policies that improve labour market outcomes of youth, women and immigrants, and that encourage a longer working life, should be supported,” Mahboubi said.


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