Internal Finance Department study cites benefit, feasibility of CPP expansion
Sunday, Mar 30, 2014 05:00 pm
OTTAWA - Internal research by the federal Finance Department says there would be economic benefits from expanding the Canada Pension Plan and suggests this country could afford an improved plan in a strong economy.
The findings in the fall 2013 document are somewhat more balanced than the bleak message presented last December, when the Harper government seized on the study's job-loss conclusions to dismiss demands from the provinces to improve the CPP.
Kevin Sorenson, the junior finance minister, said various proposals to boost CPP premiums and benefits would kill up to 70,000 jobs, citing the results of the internal study without releasing it.
But a summary of the study's contents, prepared for then-finance minister Jim Flaherty, shows the job-loss claim was based on a misleading assumption.
The research also suggests Canada could absorb any negative economic impact from an improved CPP when the economy is more "robust."
The Canadian Press obtained a copy of the Dec. 13 briefing note for Flaherty under the Access to Information Act.
At a meeting near Ottawa in December, Flaherty categorically rejected proposals from Ontario, P.E.I. and others to improve the CPP, saying Canada's fragile economy could not bear the load, as higher premiums for businesses would dampen job creation.
Earlier this month, Ontario Premier Kathleen Wynne castigated the federal government for intransigence on the issue, indicating her province will go it alone on pension reform.
"In the long run, expanding the CPP would bring economic benefits," says the briefing note. "Higher savings will lead to higher income in the future and higher consumption possibilities for seniors."
Sorenson's public statements last December, including a widely distributed op-ed piece, said various proposals to improve the CPP would kill between 17,000 and 70,000 jobs as some businesses would be overburdened paying higher premiums for workers.
However, those statements did not note that a basic assumption of the internal analysis was that expansion of the CPP would occur within a single year, whereas P.E.I., the NDP and others all proposed phase-in periods of up to 10 years to avoid any shock to the economy.
A spokeswoman for Finance, Stephanie Rubec, called the one-year phase-in "a simplifying assumption adopted to compare the economic impact of various CPP expansion proposals." A longer phase-in would mean a longer negative job impact, she said without providing numbers.
The document also notes that governments would be somewhat insulated from a drop in tax revenues arising from an enriched CPP as workers and businesses received bigger tax breaks for their increase in premiums.
"This reduction would be partially offset by lower pension plan and RRSP contributions, which would result in lower deductions from taxable income for individuals as some substitution from pension plan and RRSP saving to the CPP would be expected."
Rubec declined to provide the study's detailed projections for government revenues under various CPP expansion proposals.
The analysis also acknowledges that CPP improvements can be absorbed when the economy is strong, citing the phase-in of premium hikes from 1997 to 2003 that set the plan on a surer financial footing.
"If such an increase is implemented at a time of robust economic growth, as was the case during the late 1990s ... the impact would be outweighed by the underlying strength of the economy," it concludes.
Canada's economic growth in 2013 was an anemic 1.7 per cent, compared with the average 3.8 per cent in the 1997-2003 period, though the final three years 2001-2003 saw growth averaging just two per cent.
Asked whether the internal study was shared with the provinces, Rubec did not answer directly.
"Federal, provincial and territorial ministers of finance have, since 2010, held a number of discussions on a possible expansion of the CPP," she said in an email.
"There has been an ongoing exchange of information related to potential CPP expansion options including with respect to short- and long-term economic impacts in the context of these discussions."
Sorenson, meanwhile, has reiterated the government's opposition to expanding CPP in the current economic climate.
"With the economic recovery still fragile, we don't believe now is the time to increase costs on workers and employers, actions that would reduce wages, stunt job creation and deter business investment," he said in a statement last week to The Canadian Press.
The Harper government has preferred tax-free savings accounts and pooled registered pension plans, both voluntary savings vehicles created by the Conservatives, rather than mandated CPP improvements.
Melissa Lantsman, spokeswoman for newly appointed Finance Minister Joe Oliver, said Oliver's position on CPP expansion is the same as that of Flaherty and Sorenson.
The CPP, established in 1965, currently provides retirement benefits to contributing workers up to a maximum of about $12,500 annually.
Maximum yearly premiums of about $4,700 are split half-and-half with employers; the self-employed pay the full amount.
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