Canadian governments are unprepared for the fiscal impact of demographic change as baby boomers move closer to retirement, according to a report released today by the C.D. Howe Institute.

The country faces a net liability of $1.4 trillion to pay for the current package of public programs, says the study, “Time and Money: The Challenge of Demographic Change and
Government Finances in Canada.”

The demographic change, combined with unchanged patterns of age-specific spending will put enormous pressure on government budgets in Canada, says William B. P. Robson, president and CEO of the C.D. Howe Institute. One major result, he says is that today’s younger populace will have to pay higher taxes for their lifetime package of public programs than did their parents or grandparents.

Robson finds that implicit liabilities from healthcare are the biggest long-term fiscal challenge, with the provinces facing an implicit liability of some $1.9 trillion. By contrast, seniors’ benefits will likely have a relatively small impact on government budgets, and a projected decline in the draw of education and child benefits on Canadian incomes will partially offset the rising cost of healthcare.

The total fiscal burden is unevenly spread, Robson notes, with the provinces facing massive increases in healthcare spending, and Ottawa enjoying a net asset position thanks mainly to prospective declines in spending on children.

Meeting the challenge will require fiscal discipline and budget surpluses, partial prefunding for some healthcare obligations and growth-friendly policies that will boost Canadians’ incomes, says Robson, which are ultimately the foundation of Canada’s social programs.