A new report from the CD Howe Institute says that the impact of Canada’s changing demographics is upon us, and policy reforms are needed to accommodate the effects.

The study finds that demographic change threatens to push the cost of Canada’s current government programs for health, education, seniors and families from 17% this year to more than 24% of GDP over the next 50 years. And, it estimates the present value of the implicit liability at about $2.8 trillion, which will be borne by the provinces.

In order to afford these sorts of programs in the future, it calls for a variety of reforms, including more fiscal discipline, partial prefunding of health programs, growth-friendly policies, and possible new provincial taxes.

“While prefunding the entirety of these demographically sensitive programs combined is not practical or desirable, some programs with predictable cost increases – such as drug subsidies for elderly patients – might lend themselves to this approach,” it says. Additionally it says that “Short-run spending restraint and longer-run reforms, both in financing and in cost control, are needed to deal with a challenge on this scale.”

“Ultimately, provinces will levy higher consumption taxes – perhaps even death taxes – as they seek revenue sources that will support, rather than hold back, the income growth that will let Canadians pay their demographic bills,” it adds.

Finally, the report insists that policymakers should not be complacent about this looming threat. “… those who advocated a relaxed attitude toward the interaction of demography and public programs lulled too many Canadians into a false sense of security,” it says. “The fiscal glacier that was once decades away is almost upon us. The time is now for fiscal and service delivery reforms that make these services sustainable at tolerable cost.”

IE