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What does the federal budget tell us about Canada’s social deficit?

What does the federal budget tell us about Canada’s social deficit?

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The federal budget 2019 and Imagine Canada’s work on the social deficit have important features in common.

Both use forecasts of important economic and demographic variables to anticipate the choices and challenges that will face governments and charities in the future. To what extent is the view presented in the budget 2019 consistent with our analysis that Canada faces a looming social deficit?

The social deficit is the gap between projected demand for the services of charities and nonprofits, and the financial resources available to them, if current trends continue. Imagine Canada projects a gap of $25 billion by 2026. Unlike government deficits, or personal debt, the social deficit won’t show up on a balance sheet; instead, it will express itself in longer wait times for services, charities and nonprofits cancelling or limiting access to programs and services, and in increased workloads for already overburdened staff.

Budget 2019 assumptions

The analysis underlying the 2019 federal budget gives an encouragingly positive picture of Canada’s economic performance and prospects, albeit with some caveats. 

  • Canada’s 1.9% annual growth in GDP in 2018 remains good compared to G7 countries. It is second only to the tax-cut-fueled growth of the U.S. economy. It is less, however, than global average economic growth, which exceeded 3%
  • Job creation has been robust, with unemployment at its lowest level in 40 years. Some 900,000 jobs have been created since 2015.
  • Inflation remains manageable in the 2% range or lower.  
  • Even with a spending budget, forecasts call for a debt to GDP ratio of 30% or less – excellent by global standards.
  • Canada remains a resource-based economy and low oil prices affect growth prospects and the value of the Canadian dollar
  • Immigration is a positive for the economy, making up for slowing population growth and contributing to labour force participation which is the highest it has ever been.  

Link to the social deficit

The budget analysis is consistent with the assumptions underlying Imagine Canada work on the social deficit. 

  • Canada’s economic performance looks good in comparison to other countries but is lower than it has been for many years. From the late 1980s to 2012, the economy grew at the rate of about 2.5% per year. Comparing our performance today to the performance of others today cannot disguise the fact that we are in a lower growth period. In fact, the social deficit forecast of 1.8% annual growth in GDP now looks a bit optimistic
  • As the social deficit analysis points out, lower growth in GDP means lower growth in disposable income which, in turn, means lower growth in donations. For example, the budget says nominal GDP will be $12 billion less than forecast in 2018 budget. Since donors give about 0.5% of GDP, this translates to missing $60 million for charities compared to what could have available. And this doesn’t account for the fact that growth rates were already decreasing in 2018.   
  • One of the underlying reasons cited in the social deficit analysis for lower economic growth is the lower labour force participation rate that results from an aging population. The budget analysis points out that the labour force participation rate is currently at an historic high largely because of immigration. However, it remains to be seen if immigration will continue to offset the impact of ageing in the longer term.  

So what does it all mean?

In sum, the budget 2019 reinforces the view of the world contained in our social deficit analysis. Interestingly, in view of current debates on the impact of artificial intelligence and machine learning on society, neither the budget nor the social deficit envisions a world of accelerated, almost excessive, productivity increases driven by technology, displacing workers and creating massive problems of income distribution. Instead, both foresee a world of slower, although positive, growth and hard choices for both charities and governments. 

If we want to maintain and improve our current standard of living, and the ability of charities and nonprofits to continue to deliver the services individuals and communities require, we will need to look for new policy and economic approaches. Governments – especially provincial governments – will likely have less fiscal flexibility in coming years, which will have an impact on charities and nonprofits. Our 30 Years of Giving research indicates the likelihood of ongoing challenges related to giving and philanthropy. Governments, charities, and nonprofits are going to have to build a new kind of relationship, one where governments do a better job providing charities and nonprofits with the regulatory tools they need to find new ways of generating income and investment.

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