Closing Quebec’s prosperity gap with the rest of Canada would result in $8,000 more per year per household, according to a new report from TD Economics.

To do so, TD Economics says the province must invest more of its resources in capital equipment, education and infrastructure, as well as reduce the regulatory burden, personal and corporate taxes and better facilitate the integration of immigrants into the workforce.

Getting Quebecers to work longer hours to increase their standard of living would also narrow the productivity gap, but does not take into account many other elements that contribute to prosperity levels, TD Economics says.

“An economy that invests more of its resources in capital equipment, education or infrastructure tends to have an easier time translating each hour worked into production of goods and services,” says Don Drummond, senior vp and chief economist of TD Bank Financial Group. “As such many of the challenges reside at the societal level, rather than with individual workers.”

The report points to a number of positive developments towards a more prosperous Quebec. Successive government initiatives have led to lower deficits and unemployment rate, as well as modest tax reductions and more funding for priority programs. Today, the province possesses an “enviable list of assets” including a diverse economy and high quality of life.

“Quebec can parlay its comparative strengths into prosperity. By doing so, rising incomes will generate the revenues for government to strengthen social services and enable companies to increase salaries and benefits for its workers,” says Drummond.

A number of looming challenges threaten the province’s future standard of living.

An aging population represents a major threat, notwithstanding the recent spike in Quebec’s average fertility rate. This trend will also place enormous pressure on the funding of health care services, given that the cost of care is estimated to be five times more expensive for someone aged 65 and over than someone under 65 years.

Another risk to Quebec’s economy is competition from both developed and emerging nations. This will have a significant impact on the manufacturing sector, which has long been a driving force behind the province’s prosperity. The province’s textile industry has already been hit extremely hard. However its impact will broaden to other areas of capital-intensive, manufacturing, including newsprint and pharmaceuticals.

TD Economics is optimistic Quebec can address these and other long-term challenges by investing more resources in education and infrastructure and improving the business climate, all with the aim to generate greater prosperity throughout the province.

It calls on on individuals and businesses in Quebec to recognize their over-reliance on large government funding programs.

The report concedes that many people may balk at the idea of paying more upfront for government services, but one of the ultimate objectives of the user pay system is to lower the province’s high income-tax burden, which remains one of the key barriers to working, saving and investing in Quebec. Lowering this burden is fundamental to higher incomes and greater standard of living.

“The view that governments are in a position to provide large subsidies needs to be replaced by one that supports targeting assistance to those most in need,” said Don Drummond. “Ultimately the government must meticulously scrutinize where and how it spends taxpayer dollars to ensure that programs and services provide the greatest value for money.”