Why CPP reform has stalled

After three years of saying the federal government would look favourably at a modest boost to Canada Pension Plan premiums and benefits — if the economy was stronger, and if the provinces would get on board — then-finance minister Jim Flaherty pulled the plug last December.

After three years of saying the federal government would look favourably at a modest boost to Canada Pension Plan premiums and benefits — if the economy was stronger, and if the provinces would get on board — then-finance minister Jim Flaherty pulled the plug last December.

There would be no CPP reform on his watch.

A couple of months later, he retired.

That was after his conditions were met: the economy is getting stronger, and all the provinces and territories (including Quebec) agree change is needed.

Why the turnaround?

Flaherty said an internal study by his own department concluded that boosting payroll taxes would hurt the economy and job growth.

Up to 17,000 jobs, he said, would be either lost or not created, if companies had to boost CPP contributions for their staff.

Well, that is what the study did say, and we’d have to believe him on the rest, until somebody outside the Finance Department could actually read the report.

The report does say there would be harm to the economy, there would be job losses — but only if the reforms were all made in one year. The actual plan, which the provinces all agreed to, is to blend the reforms in over a decade, as economic growth made it affordable.

CBC News made a request for the study and here’s what it really says: “In the long run, expanding the CPP would bring economic benefits.”

“If such an increase is implemented at a time of robust economic growth, as was the case during the late 1990s (e.g. when Paul Martin brought in the last round of hikes) … the impact would be outweighed by the underlying strength of the economy.”

That’s what Flaherty’s report really said.

So why would a guy like Jim Flaherty switch gears like that?

I’ll give you one cynic’s suggestion: because CPP reform would not benefit today’s seniors, only younger workers. Seniors vote, young people don’t. Seniors hold a lot of wealth in mutual funds, which would be affected in the short term by a drop in corporate profits. There is an election in two years. No brainer.

Flaherty also said he did not want to tie a future government’s hands by entering into a reform program that would last longer than one electoral cycle.

That’s why he objected to two cuts to the GST, which affects all government revenue for all time. Oh, but he didn’t object, did he?

National governments make changes that affect the future and tie future governments’ decisions all the time. It’s part of the job.

But on the basis of a deliberate misreading of his own office’s report, Flaherty killed a reform plan that had the unheard-of unanimous support of every province. When was the last time every province agreed on something?

And anyway, why are the provinces meddling in a federal tax program in the first place? That’s not supposed to be their role.

Because it’s the provinces whose hands are being tied here.

Years from now, today’s 30- and 40-somethings will reach retirement age with their careers pockmarked by long periods of unemployment and part-time jobs. They will have spent their early career lives paying for student loans and mortgages, with little or nothing left for savings.

They won’t qualify for full CPP as it now stands (only a minority of retirees do today, even). They will be looking to far more costly social support programs in their senior years. Those would be programs the provinces will have to raise taxes to cover.

If anyone’s hands should be tied to prevent this, it should be those in the federal government’s gloves, not the provinces.

The Canada Pension Plan is among the world’s best and most efficient. Administration costs are very low compared to other national plans (and much less than private plans, while being much more secure) and it is available equally across the country.

Red Deerians who get tired of shovelling snow and move to balmy B.C. to retire take their federal benefits with them. People who move to Red Deer from another province for a job do not have to start their government-sponsored retirement plan from scratch. If everyone adopted Ontario’s go-it-alone plan, they would.

Less than a quarter of Canadians file tax returns with RSP deductions on them. Jim Flaherty wishing it were 100 per cent will never make it so.

Many younger and middle-aged workers have already lost those early savings years that are so important to building the fortune required for retirement on their own. A forced-savings plan like CPP is their best (or only) bet.

Flaherty did Canada a disservice, in the months before he left office, by not considering any future, other than that of his party, two years from now.

Greg Neiman is a retired Advocate editor. Follow his blog at readersadvocate.blogspot.ca or email greg.neiman.blog@gmail.com.

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