COVID-19 overreaction has pushed us to the tipping point
Our debt is rising and our population growth is slowing. The result will be a massive fiscal burden on taxpayers in decades to come

By Gerard Lucyshyn
Direc­tor of research
Fron­tier Cen­tre for Public Policy

Cau­ght betwe­en a rock and a hard pla­ce. This best sums up the posi­tion that Alberta’s Uni­ted Con­se­rva­ti­ve Par­ty govern­ment found itself in as it anno­un­ced new, stric­ter lock­down measu­res for Christmas.

The govern­ment is attemp­ting to bend the rising curve of COVID-19 infec­tions. Pre­mier Jason Ken­ney and his most tru­sted mini­sters lined up to deli­ver the hor­ri­ble news to Albertans.

They reas­su­red Alber­tans that they didn’t reach that deci­sion ligh­tly and that they who­le­he­ar­te­dly pre­fer­red not to impo­se such measu­res, howe­ver, they belie­ved it was necessary.

This was quite a bold anno­un­ce­ment, espe­cial­ly when many Alber­tans were looking for­ward to some respi­te during Chri­st­mas fol­lo­wing the past shock-and-awe year; not to men­tio­ned the UCP’s dwin­dling poll num­ber pla­cing them behind the NDP.

Sin­ce Chri­st­mas, the govern­ment has exten­ded the harsh measures.

The pre­mier and each mini­ster have cle­ar­ly arti­cu­la­ted the enor­mo­us effort, deba­te and strug­gle they went thro­ugh in making such heavy-han­ded deci­sions. Howe­ver, one would have tho­ught they would reali­ze, indi­vi­du­al­ly or col­la­bo­ra­ti­ve­ly, that harsh measu­res usu­al­ly have con­se­qu­en­ces and are not the way to go, regar­dless of the unre­len­ting pres­su­re tac­tics from social and main­stre­am media.

Histo­ry has tau­ght many leaders that alar­ming the popu­la­tion leads to recur­si­ve bad public poli­cies and non­sen­si­cal rules. Ove­rze­alo­us govern­ment reac­tio­na­ry measu­res cau­se con­fu­sion, which turns into fear and then into anger.

One exam­ple of such a les­son sur­ro­unds a quic­kly writ­ten book in 1968 by Ame­ri­can bio­lo­gist Paul Ehr­lich. In his book, The Popu­la­tion Bomb, Ehr­lich pre­dic­ted mass world sta­rva­tion and reso­ur­ce deple­tion due to over­po­pu­la­tion. This pre­dic­tion sent well-inten­tio­ned poli­ti­cians cla­mo­uring aro­und the world to solve the impen­ding crisis.

By the end of the 1960s, many coun­tries aro­und the world were expe­rien­cing lar­ge incre­ases in life expec­tan­cy and rising fer­ti­li­ty rates. Popu­la­tion growth rates were star­kly incre­asing, feeding into the fear that an immi­nent popu­la­tion explo­sion would lead to reso­ur­ce deple­tion and worl­dwi­de sta­rva­tion. The fear quic­kly mani­fe­sted into govern­ment action: a glo­bal popu­la­tion con­trol program.

The mis­sion for govern­ments aro­und the world was to insti­tu­te measu­res they belie­ved were best to bend the sharp popu­la­tion growth curve and pre­vent immi­nent thre­at to man­kind. Some measu­res to curb popu­la­tion growth inc­lu­ded fines, deduc­tions from sala­ries, with­dra­wal of mater­ni­ty leave, one child per fami­ly laws and ste­ri­li­za­tion incentives.

Not unli­ke our poli­ti­cal eli­te today, the poli­ti­cians of the past were try­ing to keep eve­ry­one safe. The effort to bend the popu­la­tion growth rates appe­ar to have paid off and have been decre­asing ever sin­ce. Unfor­tu­na­te­ly, it turns out that such well-inten­tio­ned public poli­cy measu­res have play­ed a cen­tral role in a new cri­sis many coun­tries now face: dec­li­ning fer­ti­li­ty rates.

Dec­li­ning fer­ti­li­ty rates and aging popu­la­tions dri­ve the fear that in the near futu­re the­re will not be eno­ugh wor­kers to pay taxes to sup­port govern­ments, pen­sions and health-care sys­tems. Poli­ti­cians are now adop­ting popu­la­tion growth incen­ti­ves such as baby bonu­ses, child tax incen­ti­ves, mon­th­ly welfa­re or nutri­tio­nal allo­wan­ces, prio­ri­ty housing, edu­ca­tion, medi­cal care, and expan­ded mater­ni­ty benefits.

Sounds a tad recursive.

The respon­ses to the COVID-19 pan­de­mic saw all coun­tries enga­ge in simi­lar stra­te­gy: mas­si­ve spen­ding to fight COVID-19 and the clo­sing down of the eco­no­my. The­se measu­res have dra­sti­cal­ly redu­ced eco­no­mic acti­vi­ty and tax reve­nu­es, ending 2020 with mas­si­ve debt levels, record levels of unem­ploy­ment and eco­no­mic sys­tems in shambles.

It’s expec­ted that deve­lo­ped coun­tries will have a median incre­ase of the­ir debt-to-gross-dome­stic-pro­duct ratio aro­und 17.5 per cent whi­le deve­lo­ping coun­tries will incre­ase the­ir debt-to-GDP ratios by appro­xi­ma­te­ly 12 per cent, and low inco­me coun­tries by eight per cent. The­se incre­ases in debt levels will push most coun­tries bey­ond what eco­no­mi­sts refer to as the tip­ping point.

The tip­ping point is whe­re a coun­try­’s debt-to-GDP ratio is at such a level that it nega­ti­ve­ly affects annu­al real growth. That point is esti­ma­ted aro­und 77 per cent debt-to-GDP.

It appe­ars Cana­da is alre­ady past the tip­ping point with debt-to-GDP expec­ted to rise from the 2019 level of 88.3 to 131.5 per cent by 2022.

Now con­si­der the Cana­dian demo­gra­phic pro­jec­tions betwe­en now and 2068. Cana­dians reaching the age of 65 and older will make up betwe­en 21.4 and 29.5 per cent of the popu­la­tion by 2068 (com­pa­red to 18 per cent in 2020). The wor­king popu­la­tion, age 15 to 64, will dimi­nish to aro­und 57.9 to 61.4 per cent (com­pa­red to 67 per cent in 2020).

With rising debt levels exce­eding the tip­ping point and the futu­re wor­king popu­la­tion dra­sti­cal­ly drop­ping, this cer­ta­in­ly magni­fies the poli­ti­cal elite’s posi­tion betwe­en the pro­ver­bial rock and a hard pla­ce. On the bri­ght side, at least vac­ci­nes are on the way.

Whi­le most would agree that some­thing had to be done, per­haps as we shel­ter-in-pla­ce looking for­ward to 2023 (the next Alber­ta pro­vin­cial elec­tion) we will take time to serio­usly reflect, weigh and jud­ge the poli­ti­cal leader­ship on how they han­dled this crisis.

Gerard A. Lucy­shyn is vice-pre­si­dent of rese­arch and a senior rese­arch fel­low at the Fron­tier Cen­tre for Public Policy.