Unfunded liabilities

PensionThere’s a foreseeable threat to the financial well-being of Canadians. It is representative of failings found throughout our political system, our economic system, and even among our voting public. This threat comes in the form of unfunded liabilities — those obligations that have no funds set aside to pay for their future costs. According to a 2014 report by The Fraser Institute on Canadian Government Debt, there are currently $2.24 trillion dollars owed in Canadian unfunded liabilities, existing chiefly in the pension and the health care systems.

How are these obligations being fulfilled? They’re not! Instead, the government is financing our unfunded liabilities, year after year, through increased taxes and, too often, by deficit spending. These obligations should’ve been paid over time from the outset, but, for various reasons, the obligations now far exceed the amount of money that was put aside to pay for them. For example, massively underestimated funds for the payment of future pensions.

Now, it’ll be up to future taxpayers (some not even born yet) to pay for the liabilities that shouldn’t have been incurred. With a collapsing birth rate, longer life expectancy, and a slow growth, low interest economy, it’s obvious the math for this social equation won’t add up. Only through the use of inflation and deficit spending can the equation be balanced, but only temporarily.

Unfunded liabilities will likely end with one of two options. First, it may be that, through strong political change and voter discernment, obligations are reformed so as to be financed through investment, and include allowing for larger private involvement. This might require the majority of people to work for a few more years, and to get less assistance from the government. Reforms will be difficult, and will result in hardship for Canadians.

The second option is to “kick the can down the road” for as long as possible. This outcome might lead to an abrupt collapse of the pension system, and a brutal re-organization of the health care system. Obviously, this would have a profound impact on our society. How would the retired members of a family fare if their pensions were to be suddenly cut-off? What would happen if hospitals were to close, and medication costs increased dramatically? Obviously this would be an unacceptable outcome.

I believe we have a responsibility to reform our system before collapse, or we’ll face unnecessary hardship due to the laws of arithmetic and economics.