Quebec takes lead in pension reform
Posted on March 18, 2011 in Social Security Policy Context
Source: Globe & Mail — Authors: Rhéal Séguin
TheGlobeandMail.com – news/politics
Published Thursday, Mar. 17, 2011. Rhéal Séguin, Quebec
Quebec is hoping to pave the way for the rest of Canada by introducing sweeping changes to how Quebeckers plan for retirement, including a new pension program for workers who don’t have private plans.
The Quebec Pension Plan will undergo major changes and the province will become the first in the country to implement a voluntary retirement savings plan, or VRSP, Finance Minister Raymond Bachand announced Thursday in unveiling the budget.
The pension issue for workers with no private plans has reverberated across the country, with Finance Minister Jim Flaherty securing provincial support last year for a new pooled pension plan that would be managed by private-sector firms. Mr. Flaherty agreed at the time to continue talks on enhancing the Canada Pension Plan as well.
“If Quebeckers wish to maintain their standard of living in retirement, they must save more,” Mr. Bachand said in his budget speech.
He argued, however, that for the VRSP to be even more advantageous, it would need to be adopted nationwide, and called on Ottawa to help pave the way for similar measures across the country in next week’s federal budget.
“I hope the federal government will announce, as of its March 22 budget, the tax legislation amendments necessary to implement these new plans,” he said.
Under the voluntary plan, employees will be enrolled automatically but will be given the option to withdraw. Employers will be forced to offer the plan but will not be required to contribute. The money collected in each workplace will be pooled and managed by financial institutions.
The budget increased the deficit forecast for 2011-12 to $3.8-billion, but Mr. Bachand nevertheless pledged to balance the books by the 2013-2014 fiscal year.
“The government has lost control of spending and in no way will it be able to meet its zero-deficit target,” said Parti Québécois Finance critic Nicolas Marceau.
On the controversial issue of university tuition fees, Quebec announced they would rise $325 a year for four years beginning in 2012. By 2017, tuition fees will be $3,793 a year.
Health-care spending will increase by more than $1-billion to $29.1-billion out of total projected spending of $61.3-billion. Education and programs for the elderly will also get extra money, but all other ministries have been asked to cut back.
Mr. Bachand urged Ottawa to pay the $2.2-billion in compensation for the harmonization 20 years ago of the provincial sales tax and the federal goods and services tax in a deal similar to what Ontario and British Columbia were paid.
“The situation is unfair and must be rectified,” he said.
Quebec is responding to unique demographic pressures when dealing with retirement: Over the next 15 years, the working-age population in the province will decline by 3.8 per cent, while it will increase by 5.5 per cent in the rest of Canada.
So Quebec is following similar reforms to the Canada Pension Plan, with workers being increasingly penalized if they take their pension before they turn 65, and rewarded for each year their wait afterward.
One of the means the government said it will use to bring down the debt will be through sharp increases in royalties from oil and gas as well as mining development.
Taking full advantage of the current mining boom in northern Quebec, royalties are forecast to increase by $540-million over the next five years. However, the government estimated that given the increase in prices for several types of minerals, the province may well get close to three times what it has anticipated, reaching $1.4-billion in revenues, Mr. Bachand said.
Royalties for shale gas development could jump from 10 per cent of a well’s value to 35 per cent. Mr. Bachand said a new rate schedule will be implemented when the announced $7-million strategic environmental evaluation is completed over the next 30 months.
“Once fiscal balance has been restored, we will deposit 25 per cent of all mining, oil and gas royalties above [the] $200-million ceiling in the Generation Fund [to pay the debt],” the Finance Minister said.
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Tags: budget, participation, pensions, standard of living, tax
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