Mandatory increases to CPP contributions not supported by Canadians

Whether or not Canadians should be forced to save more for retirement

Whether or not Canadians should be forced to save more for retirement — an issue that affects the pocketbooks of all working Canadians — is shaping up to be a big federal election issue. Déjà vu all over again?

So let’s start with a little history. For the past decade, a growing awareness of the massive unfunded liabilities of public-sector pension plans, which tend to be far more generous than those offered in the private sector, has been putting pressure on politicians to do a better job controlling public-sector compensation.

The union response, led by the Canadian Labour Congress, was to mount a campaign to convince finance ministers across Canada to consider a mandatory increase to the Canadian Pension Plan. Pushing for a mandatory CPP increase distracts attention from overly generous public-sector compensation plans. It also helps reduce the unfunded pension liability of public-sector pension plans because when the portion that comes from CPP is increased, the obligation from the public-sector pension fund is lower.

The CLC was successful at getting a CPP increase on the agenda of a meeting of finance ministers from across Canada in 2010 and subsequently getting some support for increasing CPP from the federal government and many of the provinces. By 2013, it looked like an increase might have the support it needed (two-thirds of the provinces representing two-thirds of the population) to be approved.

At this point, small business owners really started lighting their hair on fire as it looked like they were headed for a payroll tax increase with no public consultation. Currently, Canadian employers and employees each pay 4.95 per cent of payroll costs (on earnings between $3,500 and $52,000) to the existing CPP. Increasing these costs wasn’t seen as palatable to business owners or their employees. Survey results from over 8,000 business owners in 2013 indicated that a mandatory increase in CPP would cause businesses to consider wage freezes and reduce investments in the business.

An Angus Reid public opinion poll, conducted at around the same time, confirmed that Canadians agreed with small business owners that there were better ways for the government to help Canadians save for retirement. Only 18 per cent felt that introducing a mandatory increase in CPP was the best option, while 54 per cent supported tax relief. Both business owners and the general public indicated that forcing them to save more for retirement would take money from other important priorities, including, ironically, other ways of saving for retirement.

In December 2013, the issue was temporarily put to bed when former federal finance minister Jim Flaherty declared the time was not right for a CPP increase. Now, it is back as an election issue with the federal NDP, Liberals, and Green party all supporting a mandatory CPP increase while the Conservatives oppose a mandatory increase but would consider allowing Canadians to voluntary increase their CPP contributions.

Another important wrinkle: After there was no agreement to increase the CPP contributions, Ontario Premier Kathleen Wynne decided to “go it alone” and introduce an Ontario Retirement Pension Plan that would increase employee and employer contributions by up to $1,643 each, a 40-per-cent increase on existing CPP premiums.

So it’s a safe bet this will be a hot topic when the premiers get together this month (July 15 – 17) in Newfoundland for the Council of the Federation meeting. It’s another safe bet that small businesses across Canada will protest strongly if the premiers decide to join Wynne in her policy folly. Helping Canadians save for retirement is widely supported. Forcing them to do it through an increase to a mandated government payroll tax is not.

Laura Jones is Executive Vice President of the Canadian Federation of Independent Business. She can be reached at laura.jones@cfib.ca. Follow her on Twitter @CFIBideas.

 

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