Future Demand for Public Services, Driven by an Aging Population, Will Cost the Canadian Government an Additional $93 Billion(1) by 2025, According to New Accenture Report
TORONTO, Nov. 13, 2012 /CNW/ - Costs primarily associated with an aging population are estimated to require the Canadian government—at the federal, provincial and territorial levels—to spend an additional $93 billion (4.1 percent of GDP) to fund public services2 by 2025, according to a new report by Accenture NYSE: ACN, Delivering Public Service for the Future: Navigating the Shifts.
Accenture asked Oxford Economics to project total government spending on public services3 through 2025 in 10 countries—Australia, Brazil, Canada, France, Germany, India, Italy, Singapore, the United Kingdom and the United States. The Canadian cost is projected to total $745 billion, 32 percent of GDP, by 2025. Oxford analyzed the impacts of projected economic and demographic changes on the costs of delivering all public services, including federal, provincial and territorial spending (except debt interest payments and unemployment-related benefits).
The primary driver of the projected expenditure increase is the rapidly aging Canadian population. In 2011, 14.1 percent of the population was 65 years or older. That is projected to increase to 20.6 percent by 2025. The majority, 71 percent, of health spending was funded by the government in 2010.4 In 2008, (the latest available year for data broken down by age group), provincial and territorial governments spent an average of $10,742 per person age 65 and older, compared to just $2,097 for those between age 1 and 64.5 Other factors in the analysis included wealth effects6 —assumptions based on historical evidence that suggests as countries get richer, governments spend proportionally more per person on public health services.
Demand-driven spending estimates were compared against the current trajectory of public-sector spending to identify the 'expenditure gap' in each country by 2025, along with its percent of GDP.
Closing the Expenditure Gap
The research also establishes estimates of labour productivity in the public- and private-services sectors in eight of the countries (where the information was publicly available) to help inform estimates of the efficiency savings that are required in the Canadian public sector to help close the expenditure gap.
Improving efficiency is a key factor that supports both labour productivity and total productivity across economies. Increasing efficiency and productivity will enable public-sector services to deliver desired outcomes at lower costs.
With the looming expenditure gap, the demand to improve public- sector efficiency has never been greater. Canada could save as much as $95 billion in annual expenditures by 2025 by increasing public- sector efficiency by less than 1 percent (.92%) a year — more than enough to close the gap.
"Ninety-three billion dollars in projected additional costs for Canadian public services by 2025 leaves government leaders—at the federal, provincial and territorial levels—with a difficult new reality," said Claudia Thompson, who leads Accenture's Health & Public Service business in Canada. "We believe increasing efficiency in the public-sector must be part of the solution; it gives government leaders an option beyond just the traditional choices of cutting services and raising revenue and, as our research showed, citizens want government to provide services in a more cost effective way."
Accenture also surveyed citizens on their satisfaction with public services. A poll of 5,000 people, conducted across the same 10 countries by Ipsos MORI, showed that 54 percent of Canadian respondents said they are satisfied with the services they receive from government, compared to a global average of 36 percent.
Canadian citizens were asked what they considered most important for government to focus on to improve public services in the future and the majority of respondents cited, "provide services in a more cost effective way" (44 percent) and "plan for the long-term, not just the next few years" (38 percent), as their top priorities. Interestingly, Canadian citizens were far more likely than the global average (24 percent) to choose planning for the future as a priority, indicating that the high costs of public service delivery occupies a top place in the mind of the Canadian public.
Canadians are evenly split in terms of their confidence (49 percent confident/47 percent not) that their government will be able to deliver public services that meet people's needs and expectations over the next five years. That confidence decreases with age as 56 percent of people under 35 years old are confident that government can deliver compared to 44 percent of those aged 35 or older.
Navigating the Shifts
Delivering Public Service for the Future is part of an on-going series of research studies Accenture is developing to analyze key issues and trends that affect global governments. The Accenture report provides examples and practical advice for governments to enhance public-sector productivity by embracing four major structural shifts from:
- Standardized services to personalized services—tailoring public services to the specific needs of each citizen to drive better outcomes at sustainable costs.
- Reactive to insight driven—using information and technology to identify and solve problems.
- Public management to public entrepreneurship—leveraging the scale and assets of government for maximum impact in the economy.
- Piecemeal efficiency to whole-of-government mission productivity—taking actions across all government agencies/ministries to eliminate duplication and rethink how public services are designed and delivered to improve efficiency.
Learn more about Accenture's work with governments Delivering Public Service for the Future.
The Oxford Economics modeling framework considered the long-term impacts of economic and demographic changes on the future demand for public services in 10 countries: Australia, Brazil, Canada, France, Germany, India, Italy, Singapore, the United Kingdom and the United States. A demand- driven projection of public-service delivery expenditure is produced using demographic projections from the United Nations, anticipated price inflation for healthcare goods and services, combined with the impact that the rising wealth of a nation has on government expenditure.
Public-service delivery expenditure is total public-sector expenditure conducted at the national and sub-national level -- after the deduction of debt interest payments and unemployment-related payments. It is the amount of funding available to deliver public- sector services defined by the Classification of the functions of government, (COFOG), which was developed (in its current version) in 1999 by the Organization for Economic Co-operation and Development and published by the United Nations Statistical Division as a standard classifying the purposes of government activities.
The expenditure gap is calculated by comparing the demand-driven projection with the current trajectory for public-service delivery expenditure. The current trajectory is based on existing public-sector delivery models operating within existing and planned austerity measures, and a more sustainable growth path for government expenditure given projected country-level demographic, GDP, jobs and revenue growth. The trajectory assumes that government economic policy moves towards delivering a more sustainable budget deficit over the longer-term by reducing the deficit to a level that stabilizes debt compared to GDP by 2025.
The estimate of the annual efficiency savings required to close the expenditure gap by 2025 is defined as the difference between the growth rates of the demand-driven projection and of the current trajectory for public service delivery expenditure in the period 2010 to 2025.
The research also compared labour-productivity growth for the public- and private-services sectors in eight of the countries (where the information was publicly available). Labour productivity is defined as the value added contribution to an economy per given labour input (i.e. employment).
Ipsos MORI, a global market research company, conducted a survey of 5,000 people in 10 countries in February 2012 as part of its omnibus survey Global @dvisor.
Accenture is a global management consulting, technology services and outsourcing company, with 257,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.
1 All figures in local currency unless indicated. Currency conversions
from U.S. dollars in economic modelling used 2010 conversion rates
3 Public services expenditure is defined here as total government spending at the federal, state and local levels, less debt interest payments and unemployment related benefits
6 The wealth effect is modeled by estimating the GDP increase per head and resulting effect on public sector health spending
7 Public services expenditure is defined here as total government spending at the federal, state and local levels, less debt interest payments and unemployment related benefits
Image with caption: "Public Service Expenditure by 2025 by Country in U.S. Dollars and Local Currency (CNW Group/Accenture)". Image available at: http://photos.newswire.ca/images/download/20121113_C7277_PHOTO_EN_20520.jpg
Image with caption: "The current trajectory of Canadian spending on public services could total an additional $93 billion or US$90 billion by 2025. The current trajectory for public service delivery expenditure reflects government spending and economic growth, which consider existing and planned austerity measures and assumes that governments revert to a more sustainable level of spending relative to GDP by 2025. (CNW Group/Accenture)". Image available at: http://photos.newswire.ca/images/download/20121113_C7277_PHOTO_EN_20522.jpg
Image with caption: "Canadian public-sector labour productivity - a measure of value added to an economy per given labour input - has decreased 0.2 percent per year, on average, since 2001, well below productivity growth seen among the private services sector at 1.1 percent. (CNW Group/Accenture)". Image available at: http://photos.newswire.ca/images/download/20121113_C7277_PHOTO_EN_20524.jpg