Demographic aging is the prime challenge driving federal budget-making, and an intense focus on saving and investment is the right response, says the C.D. Howe Institute in its shadow budget for 2007.

Authors Finn Poschmann, William Robson and Robin Banerjee say that growth in Canada’s working-age population will slow to a crawl in the coming years, and maintaining and raising living standards will require each worker to have access to more and better plant and equipment. Canada needs more investment — and more saving.

To boost that critical investment and saving, the shadow budget identifies a battery of measures, including a tax pre-paid option for retirement saving, a dramatic rise in RSP saving room, a refundable dividend tax credit paid to RPP/RRSP holders of dividend-paying shares, and a capital gains rollover mechanism to help Canadians reallocate their savings portfolios.

A long-term plan offering dramatic corporation income tax relief and unblocking foreign investment in Canadian ventures round out a package of measures in the document. They are aimed at improving the tools available to Canadian workers, and improving living standards now and in the future, it explains.