Time to put Flaherty on the spot [ CPP ]
Posted on December 16, 2012 in Social Security Debates
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TheStar.com – news/Canada
December 15, 2012. By Martin Regg Cohn, Queen’s Park Columnist
When Finance Minister Jim Flaherty debates pension reform with the provinces Monday, he’ll be counting on Canadians to tune it out so he can wait it out — yet again.
We will all pay a price for his inertia and our indifference: The day of reckoning for retirement incomes is coming, and Flaherty’s shameful procrastination on pensions won’t prepare us for what must inevitably be done — sooner rather than later.
The real scandal is that, after two years of delay, concrete reforms are finally within reach. Yet Flaherty seems determined to sabotage the process.
A 30-page discussion paper obtained by the Star lays out a clear path for affordable action. Prepared by federal officials after a year of painstaking consultations with their provincial counterparts, the document is remarkably clear-minded:
Canada can, in fact, afford to shore up its disappearing pension system. A “modest” expansion of the solid but paltry Canada Pension Plan could plug the gaping holes in our outdated retirement security framework, the document shows. Ottawa and the provinces are well positioned to boost the CPP because current retirement payroll costs are far lower than in other industrialized countries — yes, including the U.S.
Most Canadians probably don’t realize the CPP pays only 25 per cent of the average industrial wage (currently about $50,000) — capping pension payments at a mere $12,500 a year. For the vast majority who lack private pensions, and who have not saved adequately, the gap is growing.
Flaherty fobbed the problem off on officials two years ago. Now, unexpectedly, the bureaucrats have come back with sensible answers — no matter how much Flaherty tries to distract us:
We could raise the CPP’s “replacement rate” from 25 to 35 per cent of current income. And we could boost the eligible earnings ceiling from $50,000 to about $75,000.
Doing so would go a long way to narrow the pension shortfall (estimated at an average of $6,200 per person a year) — the amount by which retired Canadians will be unable to meet their needs annually. It still falls short of union demands for a doubling of CPP payments, but it is a worthy starting point.
The benefit? Instead of limiting CPP payouts to $12,500 a year currently, middle class Canadians could effectively double their annual pension down the road — virtually wiping out the shortfall in savings.
This could be achieved with a relatively modest increase in premiums of about $1,000 a year for the highest-paid employees (employers would pay half of the cost through payroll taxes), or about $540 a year (cost-shared with employers) for workers earning about $50,000 a year.
The business lobby squawks reflexively at any increases in payroll taxes because that would hurt the economy. Flaherty and his fellow Tories in Ottawa chime in that this just isn’t the right time to reform the CPP.
If not now, when? The world of pensions is collapsing around us. Traditional “defined-benefit” pensions that reliably promise to pay a fixed amount in future — really the only payments worthy of the name “pension” — are being phased out in the private sector. The registered savings and pooled plans offered up as alternatives are merely Potemkin pensions — glorified savings plans that expose workers to the risk of stock market volatility and the madness of high management fees charged by Bay St.
Give the bureaucrats credit for at least having the guts to speak truth to power Monday. In the document to be presented at a federal government retreat in Meech Lake, the officials demolish the myth that we cannot afford to act.
“Canada’s current social security contributions and payroll taxes are relatively low compared to other OECD (Organization for Economic Co-operation and Development) countries,” the paper notes pointedly.
Currently, Canada allocates a mere 5.5 per cent of its economic activity (GDP) to social security and payroll taxes. If all the improvements outlined in the paper were phased in, the percentage would rise to 6.3 per cent. Even under this improved scenario, Canada’s contributions would still be low by OECD standards — and remain at the very bottom of the G-7 group of industrialized countries.
Yes, there is global economic uncertainty. “Nevertheless, the Canadian economy continues to expand, enjoying one of the best performances among G-7 economies,” the report adds.
“There would be a short-term negative impact on the economy and employment that would gradually disappear over time. In the long term, an increase in CPP benefits would bring economic benefits by increasing retirement income and consumption possibilities for seniors.”
Why are increases unfathomable? The paper points out that Quebec, which runs its Quebec Pension Plan separately from the CPP, is already raising its contribution rate from the current 9.9 per cent (both QPP and CPP) to 10.8 per cent over the next five years.
Despite all the solid evidence and reasoned arguments, Flaherty continues to block progress. He announced yet again Friday that “this is not the time to put another burden on employers and dampen employment prospects of Canadians,” citing the supposed “softness of the economy.”
Cynically, Flaherty is now insisting on unanimity amongst the provinces for any CPP reforms (the actual requirement is only two-thirds of the provinces representing two-thirds of Canada’s population). That leaves Alberta with an effective veto, given its traditional resistance to reform.
After two-and-a-half years of huffing and puffing and procrastinating, it’s time for Flaherty, always with his elbows up, to stop ragging the puck and passing the buck. It’s also time for the provinces — and working Canadians — to put him on the spot.
< http://www.thestar.com/news/canada/article/1302903–time-to-put-flaherty-on-the-spot >
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