Population growth + inflation: The magic public spending formula?

The CFIB is calling for public spending to increase each year by a formula – inflation + population growth. For example, the NB government spends about $10,000 per person each year. The idea would be that spending in the subsequent year would rise to $10,200 per capita and so on – inflation + population growth.

As an idea thrown out there, it’s not particularly bad but the problem is that health care costs – public sector and private sector are growing at almost three times the rate of inflation – not just in NB but across North America.

And if your population is stagnant or slowing – that means in real terms public spending would be frozen every single year (real meaning accounting for inflation). Because New Brunswick’s population in 2011 is about the same as it was in 1998 that would mean no real increase in public spending – top line – in 13 years (assuming this model had been put in place in 1998).

I think you can see the problem. Inflation + population growth when you have a healthy population growth rate is one thing but inflation + population growth with a flat or declining population would be extremely difficult.

I threw out the idea of a GDP-based measure for health care spending (i.e. it won’t go about x% of GDP) and that wasn’t received very well but I think most people realize there has to be a way to restrain the growth of health care costs.