Mr. Francesco Sorbara (Vaughan—Woodbridge, Lib.):
Mr. Speaker, I will be splitting my time with the member for Winnipeg South.
Our government is committed to strengthening the backbone of the economy, the middle class, and those working hard to join it. It is with this commitment that our government has delivered on a number of platform promises that were made to hard-working Canadians.
I am proud to stand and speak to Bill C-26, an act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act. This legislation would strengthen Canada's pension system and was a key promise we made to ensure a secure and dignified retirement for all Canadians. I congratulate the Minister of Finance, who delivered on this commitment by working in close collaboration and common purpose with our provincial and territorial partners.
It must be noted that provincial leaders of every major political party, Liberal, New Democratic, and Conservative, worked diligently on coming to this historic agreement that would benefit generations of Canadians, including my two young children, Natalia and Eliana.
What is at stake is simple. We must strengthen our pension system to reflect the realities that exist today and ensure a dignified and secure retirement for all Canadians.
To start our discussion on the proposed legislation, I believe it is best to review Canada's retirement system as it stands today and why a strengthened CPP is required to address trends that are leaving so many Canadians unprepared for their post-work years. Today's multi-pillared system includes old age security and the guaranteed income supplement, which are paid out of general government revenues and act as a basic income floor for low and middle-income Canadians. The CPP and QPP are funded through mandatory employer-employee contributions, and, in the 1990s, the CPP shifted from a pay-as-you-go system to a pre-funded platform. Finally, we have private workplace pensions and discretionary individual savings, including tax-free savings accounts and registered retirement savings plans.
Despite this multi-pillared approach to the retirement system, a number of trends are emerging that are leaving millions of Canadians unprepared for retirement and potentially facing a material drop in their standard of living.
Extensive analysis conducted by the finance department found that around one-quarter of families nearing retirement, approximately 1.1 million families, are facing a drop in their standard of living. Furthermore, it is estimated that as many as five million Canadians do not have access to a workplace savings arrangement, and many of these middle-class Canadians are at a greater risk of under-saving for retirement. We must act to ensure that all Canadians have a secure and dignified retirement.
In addition, younger Canadians today face circumstances not faced by prior generations in terms of saving for their retirement. Canadians now entering the workforce will face the prospect of changing jobs several times in their lifetime, and a portable pension plan that facilitates job mobility is now a necessity in this changing job market.
Since the 1970s, we have seen a material decline in the overall participation in private sector registered pension plans, as well as an ongoing shift from defined benefit to defined contribution plans. Statistics Canada estimates that total private sector workplace registered pension plan coverage has declined from 35% to levels now approaching 20%. Frankly, fewer private sector companies are offering workplace pension plans, and many companies have closed or wound up their defined benefit pension plans.
Defined contribution plans are not in their exact nature true pension plans, as they expose individuals to investment risk and swings in the beneficiary's pension plan assets, and a subsequent shortfall in pension savings. Also, a low interest rate environment, which influences the present value of liabilities and has placed cash flow demands on companies to maintain solvency ratios, combined with, frankly, unfavourable accounting rules on pensions, has hastened the move by many companies away from defined benefit pensions.
Our government, in collaboration with the provinces, has taken a carefully targeted approach with this legislation to address the issues I have laid out while striking the important balance between short-term economic considerations and long-term economic gains.
What does an enhanced or stronger CPP mean for Canadians? Quite simply, it means a secure and dignified retirement for millions of Canadians. It means that individuals retiring can worry less about making ends meet and more about spending time with their loved ones, including grandchildren.
Once fully in place, this CPP enhancement would increase the maximum CPP retirement benefit of approximately $13,000 by up to 50%. In today's dollar terms, the proposed enhanced CPP represents an increase of nearly $7,000, to a maximum benefit of nearly $20,000.
The enhancement in this legislation would do two things to make this happen for contributors. First, it will increase the share of annual earnings received during retirement from one-quarter to one-third. This means that individuals making $50,000 today over their working lifetime would receive approximately $16,000 per year in retirement instead of the roughly $12,000 today. Second, it would increase by 14% the maximum income range, to approximately $82,700, so that those who earn more would receive more in retirement.
Enacting these changes with Bill C-26 would result, as estimated by the Department of Finance, in a reduction of families at risk of not having adequate retirement savings by one-quarter, from approximately 24% to 18%, when we consider all pillars of the retirement income system.
To ensure that these things are affordable, we would phase them in over seven years, starting in 2019 through to 2025, so the impact is minimal and gradual. As noted by David Dodge, former governor of the Bank of Canada, “The fundamental challenge [facing decision-makers] is how to provide for adequate retirement income for the future population of elderly people without imposing an undue burden of taxation on the working population and the business sector.”
We have struck this right balance. For example, an individual with earnings of $50,000 will contribute about $6 more a month in 2019, and by the end of the seven-year phase-in period, contributions for that individual would be about $40 per month. Additionally, and this is very important, we would ensure that low-income Canadians would not be financially burdened as a result of the extra contributions. We would enhance the working income tax benefit to roughly offset incremental CPP contributions with little to no change in disposable income, while still securing higher retirement income for low-income Canadians.
A strong CPP will be good for Canadians, and will also be beneficial to the Canadian economy overall. As estimated by the Department of Finance, greater CPP benefits would increase spending by retirees, providing for a boost to economic output. It is estimated that GDP would increase slightly, from 0.05% to 0.09%, and employment levels are projected to be permanently higher, by approximately 6,000 to 11,000 jobs, based on 2015 levels of employment. In addition, higher aggregate saving rates through enhancing CPP would increase the amount of capital available for investment.
The Canada pension plan is a solid program, and actuarially sound. It is fully funded for future generations. The most recent report noted that 5.3 million Canadians received approximately $38.7 billion in payments while contributions totalled nearly $45 billion. It cannot be understated just what advantages the CPP offers. The CPP as a retirement vehicle for Canadians is, in my view, a model for the world. These advantages include that CPP provides a secure, predictable, and stable benefit. Canadians will not outlive their savings, and benefits are not subject to shocks. CPP benefits are fully indexed to prices, so inflation will not reduce the value of a pension. CPP is fully portable, and it fills the gap of a decline in workplace pensions. Overall, CPP is an efficient way to save.
Finally, the CPP Investment Board operates at arm's length from the government, with a mandate to invest CPP funds in the best interests of plan members. It is a model that is independent, transparent, and accountable. It is well regarded around the world for its impressive record of investment performance and management excellence, with a 10-year annualized rate of return of 6.8%.
In closing, Bill C-26 is the next step forward in ensuring that all Canadians retire in a secure and dignified manner. I ask my colleagues to join with me in advancing this important piece of legislation that was brought forward in a collaborative approach between the provinces and the federal government.
Mr. Gary Anandasangaree (Scarborough—Rouge Park, Lib.):
Mr. Speaker, I am proud to speak this afternoon about Bill C-26, an act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act. I am proud to stand today in fulfillment of one of the key election promises that Liberals made about a year ago. These changes would make life better for a new generation of retirees.
In today's dollar terms, passage of this bill would mean that the maximum CPP benefit would go from $13,110 to nearly $20,000 per annum. This would represent the single largest change in the CPP in a generation. A change of this magnitude requires the consent of seven out of the 10 provinces, and we have that.
This proposal is a long time coming. On June 10, 2010, the former minister of finance for Ontario, Dwight Duncan, wrote to the then minister of finance seeking expansion of the CPP. I would like to quote his letter, which states, “Ontario supports a pan-Canadian approach to the reform that will provide tomorrow's seniors with better, lower-cost tools to maintain their standard of living in retirement.” Notwithstanding repeated requests for action, the previous government simply failed to advance this issue federally.
The Province of Ontario decided to go ahead on its own, with the Ontario retirement pension plan. As the program was rolled out and ready for implementation, our Minister of Finance took charge and developed a newly expanded CPP program.
This is a historical development for our country. While it is not the solution for all of our pension and retirement woes, it certainly is a great leap forward. The next generation of Canadians needs to live with independence, dignity, and pride in retirement.
I would like to take this opportunity to commend and thank our Minister of Finance and all of his provincial counterparts for reaching this historic agreement on retirement security for Canadians.
Under Bill C-26, contributions would gradually increase, starting in 2019, to a total of an additional 1% of earnings for employees and 1% of earnings for employers by 2023. For self-employed persons, contributions would also slowly rise to a total of 2% of earnings by 2023. Employee contributions would be tax deductible. For the first time since 1965, income from the CPP would increase from 25% to 33% of a person's pre-retirement income, to a maximum income threshold of $82,700.
In addition to the changes to the CPP, our government has already implemented two key changes that would help retirees. First, we increased the guaranteed income supplement for single seniors by 10%, to a maximum annual top-up benefit of $947. We know that Canadians work hard and deserve to retire in a timely manner, and, as such, we rolled back the eligibility for old age security from 67 to 65 years old. Even then, for many, the thought of retirement itself is highly stressful because many will not able to maintain their pre-retirement standard of living.
I want to take a moment to review the current options for retirement income. There are essentially two types of retirement funds available for Canadians. One is provided and administered by governments and the other by individuals and corporations. Most Canadians have an element of both. The public scheme includes the guaranteed income supplement, old age security, and the Canada pension plan.
I will focus on the second option, which comprises a range of registered employer programs, often set up by employers for the benefit of their employees and a host of private investment options, such as RRSPs, TFSAs, and other investment instruments.
For the generation before us, retirement was part of the life cycle. If you had a well-paying, secure job, you took retirement for granted. Workplace pensions were the norm, but with changes to the global economy, fewer and fewer Canadians now work in jobs that have registered pension plans. In fact, since 1993, the percentage of Canadians with workplace pension plans has dropped from 30% to just over 23% today. This downward trend is likely to continue.
Additionally, the trend has been away from defined benefit plans, like the CPP, which guarantees set payments, to defined contribution plans that provide pensioners with much less security. Now many Canadians are on their own for their retirement. They have to use RRSPs, TFSAs, and private investments through multiple investment vehicles, and that is if they are lucky.
The private options have several limitations. First, the current challenge in the job market is not the same as it once was. It is much more difficult for people in their twenties to find a job, let alone one with a good pension plan. In 2012, the unemployment rate for youth in Ontario was a staggering 16.9% and in some communities, including mine, it was much higher than that. If the youth in our communities have to work in low-paying jobs in which they cannot earn a good living until they are in their late twenties or even in their thirties, how can we expect them to start saving for their retirement?
Second, even if an individual has investments, they have faced a very vulnerable market in recent years. Members will recall the financial meltdown in 2008. As a lawyer at that time, I met many families who were exceptionally stressed about their future. They were worried about losing as much as 40% of their portfolios. Many, in fact, have still not recovered from that loss.
Third, there is the issue of historically low interest rates. Today, we have many retirees who saved up, were diligent, and are now facing a decade of historically low interest rates. I searched the popular portals for the best possible advertised interest rates today. The current maximum payout is 2% per annum. They are the lucky ones. For a family that worked hard and was able to save $500,000 and placed it into a bond or a GIC, the maximum payout is $10,000 per year. The chances are that historical low interest rates will be around for a while, so those with modest or even good savings will not be able to meet their needs.
I think it goes without saying that one of the major benefits of the CPP is the exceptional management provided by the CPP Investment Board. Even in these most volatile times, the CPPIB is one of the best run investment firms in the world. They have managed Canadian retirement funds for 50 years with prudence, and yet in the last five years alone they have yielded an annualized return of 10.6%.
I know that my friends opposite feel that the changes to the CPP will be an additional burden on our employers and may limit job creation. Up until last year, I ran a law firm with about 20 employees at the peak of my practice. I prided myself in making payroll each and every pay period. For most small businesses this is often the test. I ran the firm for 10 years, and during this time my employees were the reason for my success. Without employees, I would not have been able to succeed, and I can assure hon. members that all small business succeed because of who they have working for them.
Most small business cannot afford to set up private defined benefit systems or extended health coverage. Most of us rely on our publicly funded and administered programs, which are the envy of the world. Between student loans, the high costs of housing and transportation, and the day-to-day expenses of running a household, there simply is not enough money to save for retirement.
That's why an expanded CPP system is good for small business. They can continue to retain good staff, be good employers, and be assured that a well managed investment board is the custodian of their and our future retirement. I contend that the peace of mind and security of a better retirement will ensure a more productive workforce.
After a lifetime of working, we must do more to ensure that people are able to retire with dignity. We cannot leave this to the marketplace alone. Governments, especially, the federal government, must lead in filling these gaps.
Today 24% of families nearing retirement age are at risk of not having enough savings to maintain their standard of living when they retire. With Canadians living longer than ever, many Canadians also risk outliving their retirement savings. By enhancing the CPP, we will reduce the number of Canadians without sufficient retirement savings.
In closing, I would like to applaud the Minister of Finance and departmental officials for introducing a bill that is so well thought out. It is a piece of legislation that is truly good for Canada. When people look back on this Parliament, the enhancements made to the CPP will certainly be one of its legacies. By taking the steps now to improve retirement security for Canadians, we can ensure that more Canadians can retire with peace of mind.
Mr. Gérard Deltell (Louis-Saint-Laurent, CPC):
Mr. Speaker, it is an emotional thing for me to speak to this bill in the House because it is the first time I am rising as the official opposition finance critic.
Last week, I had the pleasure of asking the government a number of questions, but I did not get any answers.
On this matter, let me pay my respects to the hon. leader of the official opposition for her confidence in giving me this crucially important role in the caucus and this democracy.
When we are talking about finance, we are talking about the heart of the country, because everything depends on our capacity or lack of it to pay for policies.
Also, I am very pleased to succeed, as well as I can, the MP for Milton who served so well as critic. We all know how well she served as a senior cabinet minister in the Harper government.
Bill C-26 does have one thing going for it: it shows just how far apart philosophically the current government and my party are.
That difference is crystal clear to us, because this proposed policy and bill show the Liberal vision for public money. For the Liberals, it is a good way to pick up money from the wallets of hard-working people. It is a good way to pick-up money from entrepreneurs and those who create jobs and wealth. However, Conservatives prefer to leave the choices and give the tools to citizens to have money in their pockets, to have money to put to other purposes, and especially to put money aside for their retirement.
The good thing about Bill C-26 is that it clearly illustrates the difference between our Conservative vision and that of the Liberals. The Liberal Party thinks it is a good idea to take more money from people and from entrepreneurs, but we think it is better to give people the tools to save money and put some aside for retirement.
What is this bill about? Basically, it would increase workers' contributions from 9.9% to 11.9%, and it would be 40 years before those workers see any tangible benefit.
That is what this bill would do. I summarized it pretty briefly, but since this is about pensions, and since anyone filing a tax return knows how tricky things can get when the time comes to pin down exactly what kind of room to manoeuvre the government has and what the rules are, I will talk about the specific rules in the bill.
At the moment, Canada pension plan premiums are set at 9.9% of pensionable earnings per employee, that is, between $3,500 and $54,900 annually, up to a maximum contribution of $4,959.90 a year, to be shared equally by employee and employer. I will come back to this a little later. It does not stop there, because over the next 40 years, CPP benefits will rise from 25% to 33% of income replacement in retirement in eligible cases. In order to fund those benefits, as I mentioned earlier, the government is going to raise pension plan premium rates from 9.9% to 11.9% beginning in 2019. In addition, the maximum yearly rate for pensionable earnings will rise to $82,700 in 2015, and earnings between the current and future annual maximums will be subject to a contribution rate of 8%. As a result, premiums, which are divided between employer and employee, will rise to $2,200 per worker. Obviously, those are a lot of figures and data. Many factors are at play here, so it is important that we do this right.
Now that the table has been set and everyone has the figures, let us really get to the heart of the matter and look at why, from our point of view, this bill is a bad idea. Increasing the Canada pension plan will leave Canadians with less money in their pockets. As we have shown, it could mean as much as $1,100 for some employees. That is the employee's share, but the employer's share will double that amount, for a total of $2,200 per employee who works in a plant, office, or any business. Families with two working parents will have $2,200 less in their budgets to raise their children and will have to make certain choices.
Another thing: entrepreneurs do not exactly have an affinity for this government, which imposed the carbon tax. The Liberals promised to lower the corporate tax rate from 11% to 9%, but they broke that promise. Our entrepreneurs are paying even more.
With the Canada pension plan bill, entrepreneurs will now have to spend more than $1,000 per employee. If this amounted to anything then at least we could say that everyone is doing their part. The problem is that it will take 40 years before this truly comes into effect. This changes nothing in the immediate future and does nothing for seniors who really need help immediately.
That too is the crux of the matter. There is nothing wrong with having a long-term vision for the Canada pension plan. We all know that there will be far fewer workers in the job market five, 10, 15, or 20 years from now, or so the demographics suggest. We have to take the necessary measures.
However, the necessary measures being proposed by the current government seek to take even more money out of everyone's pockets. When we formed the government, we implemented positive and constructive initiatives that were based on individual choice. That is the big difference.
Whereas this government thinks it knows what is good for people, we think that people know what is good for them, and we give them the tools to save. The TFSA is one such tool, and I will come back to that later. These two visions are completely different. What is good about this bill is that at least the burden is appropriately shared.
Let us take the example of Mr. Smith or Ms. Smith, who is employed, or even my son-in-law, whom I saw on the weekend, and who is a nice guy by the way. Some households will pay up to $2,200 more per year.
Those just getting started in life—as we refer to those who have just finished school—all have a bit of student debt, and that is not unusual. However, when they enter the job market, they want some help. They do not want to have less money in their pockets. They definitely do not want a government that imposes new rules and that will take $1,100 out of workers' pockets. That is what the government will do.
This bill is not good for young people entering the job market who have to pay back student loans. It will also be harder for young families to save enough money to go on vacation and enjoy life with new babies and so on. It will definitely be harder for businesses to create jobs and give their workers raises because they will have to shell out an extra $1,000 for each employee.
That is $1,000 less that could have gone to pay raises, $1,000 less per employee that could have been spent on training; and $1,000 less per employee that could have been spent on productivity-boosting equipment. It is also $1,000 less toward hiring people, creating jobs and wealth, making businesses even more productive, and enabling them to share all that talent and potential with the world given that our country basically relies on export. Companies will have $1,000 less to invest in their future and the future of their employees.
Our vision, which I clearly described earlier, is to trust people. We are aware of that issue and so was our government. Our predecessors, former finance ministers Jim Flaherty and Joe Oliver, considered the situation and took steps to implement measures to allow people to save and make the choices they felt were necessary, rather than having the government impose a system on them. That is the big difference between our vision and that of the current government.
Obviously, that is why we decided to increase the guaranteed income supplement. This year, the government implemented that measure. That is a good thing. Well done. It does not happen every day, but I am pleased to say that the government followed the path that we laid out when it comes to the guaranteed income supplement for seniors. That was the right thing to do and the government implemented that measure in the budget.
I remember that we were doing a lot of interviews after the budget was tabled and a reporter told me point-blank that there must be something good in this budget. In that sort of situation, it is not always easy to come up with an answer and one has to think quickly. My thoughts immediately went to our seniors, because we knew that it would be a good thing to help them by increasing the guaranteed income supplement. That is what we did and the current government implemented that measure. Well done.
Another difference between our vision and that of the current government is that we invented what is called the tax-free savings account or TFSA. We are very proud of that. I remember quite clearly the moment that this measure was announced. I can still see my colleague from Bellechasse—Les Etchemins—Lévis, who by the way announced yesterday that he would be running for leadership of the Conservative Party. I wish him every success in that endeavour.
When he was minister, he said that people would really want that, especially people in Quebec. He was quite right, given that the tax-free savings account was one of our government's finest achievements to encourage people to save. This helped make progress on old age pension amounts. That is why we support incentives aimed at helping people save for their retirement.
The proposed measure means that the government will have to manage between $2,000 and $2,200 from the employer and employee. Can we really trust the Liberal government to manage our money? Need I remind everyone that this government was elected on a promise of small $10-billion deficits, but then presented a budget that will create a $30-billion deficit? TD Bank estimates that it could even reach $34 billion. Last week the Prime Minister said he was not really sure how this was all going to turn out in the end. Business owners are being asked to shell out $1,100 more per employee. I am not convinced that the Liberals are in the best position to properly manage public funds.
That is why we think that it is much better to trust people and allow them to make their own choices, critical choices for the future, than to take $1,100 per worker per year directly out of the employers' pockets.
If the government ever moves forward with this bill, the increase in CPP contributions will hurt the economy. There will be an estimated 0.4% to 0.7% reduction in employment, or 1,000 fewer jobs per year for 10 years. These estimates come from the Department of Finance Canada, not from a right-wing think tank.
The gross domestic product will drop by 0.3% to 0.5%, business investment and disposable income will drop by 0.3% to 0.6%, and long-term private savings will go down 7%.
That is not what we would call an economic stimulus for creating employment and wealth. It is hard to do worse than a reduction in employment, GDP, investments, disposable income, and private savings. All these economic development factors appear together in the same sentence and it is all bad news. It is hard to do worse when it comes to creating wealth and employment.
The Fraser Institute found that a 1% point increase in the CPP contribution rate reduces private savings by nearly 1%.
When Canadians workers who get up in the morning, work hard, and want value for their money realize on Thursday that they will now have $1,000 less a year in their pockets because of the government and its changes to the CPP, they will certainly not be inclined to save. We are not the ones saying it. It is the Fraser Institute.
The less people save, the more at risk they become. That is the difference between our vision and the Liberal government's. The Liberal government is telling people what is good for them. We trust people because we believe that they know what is best for themselves.
Let us talk about entrepreneurs. According to the Canadian Federation of Independent Business, 70% of small business owners do not agree with the proposed CPP hike, which could have a direct impact on their business. The Canadian Federation of Independent Business, meaning the entrepreneurs who create jobs and wealth and know how to manage a company, are telling us that this is not a good idea.
Furthermore, 90% of small businesses believe it is important that public consultations be held before finalizing any agreement. Where, how, with whom, and how many times were public consultations held? We did not really get much of an answer.
A C.D. Howe Institute report indicates that the Liberals' plan will not benefit low-income earners. This independent economic institute says that their contributions will increase, but the net increase in retirement benefits will be low because the higher CPP benefits will be offset by a clawback of GIS benefits.
In other words, what the government takes with one hand, it may not necessarily give back with the other. That is the problem. That is why we established the guaranteed income supplement, and it has been a big help to those in a difficult situation. That was a positive move.
The Liberals are so much in agreement that they adopted our approach. Well done. However, Bill C-26 will take more out of people's pockets, which will put them at greater risk.
That is why Canadians do not like this bill. According to Angus Reid, only 9% of Canadians have been following this debate. That is worth noting. We are not talking about something that might happen at some point. This will affect all Canadians and all workers, yet a mere 9% of them are aware of what is going on in the House right now.
According to a poll conducted for the Canadian Federation of Independent Business, the majority of Canadians know nothing about the funding structure of the Canada Pension Plan. It turns out that 70% of working Canadians oppose an expanded CPP. More than one-third of employed Canadians say they cannot afford the proposed hikes. More than 80% of Canadians want the government to hold more consultations before making a decision.
That is the reality we are dealing with today because this measure will affect all Canadian workers. We have to do something to ensure that people at least know what this is about. We need to take our time and debate this important issue thoroughly.
Let us look at the situation facing seniors. According to the McKinsey firm, 83% of Canadian households should maintain their current standard of living in retirement. According to Statistics Canada, the number of low income seniors has dropped from 29% in 1970 to 3.7% today. That is the lowest poverty rate in the world. This very interesting fact deserves to be recognized.
According to the C.D. Howe Institute, Canada's savings rate has climbed from 7.7% of one's salary in the 1990s to 14.1% today. Poverty among seniors is therefore declining, twice as many Canadians are saving, and the savings rate is double what it was 20 years ago. Those are all good things.
Poverty rates among seniors have dropped and Canadians are saving more. We believe in reasonable, positive incentives to encourage saving, rather than coercive measures that take money out of taxpayers' pockets.
That is why Dan Kelly, president and CEO of the Canadian Federation of Independent Business, said that it was extremely disappointing that the Minister of Finance is putting workers' wages, hours and jobs in jeopardy.
The chief economist at the Canadian Federation of Independent Business said that the agreement would have a serious adverse effect on workers and the Canadian economy. According to him, the announced changes, including higher contributions, could put salaries, working hours, and Canadian jobs in jeopardy. This is not good for the economy.
Yves-Thomas Dorval, from the Conseil du patronat du Québec, says he is concerned about the new direction of the Canada pension plan and its impact on the Canadian economy. He says that there is no universal solution for encouraging retirement savings. On the contrary, this could have an adverse effect on economic activity, employment, and salaries.
As far as seniors are concerned, Charles Lammam from the Fraser Institute wrote that instead of spending political energy debating CPP expansion by falsely believing that many middle- or upper-income Canadians are not saving enough for their retirement, the focus of public debate needs to shift to finding better ways to help financially vulnerable seniors.
That is why our party opposes this bill. We do not think it is a good idea to take even more money out of workers' pockets and to force businesses to give even more money to the government.
We think that the best way to encourage people to save for a decent retirement is to give them the tools they need to make the choices that affect them. They are the ones who are in the best position to know what is good for their retirement, not the government.
That is why our government implemented positive measures, such as the guaranteed income supplement and the TFSA, which allow people to make their own informed choices. Rather than imposing a new tax on Canadians, we helped them to save for their retirement.
All this government wants to do is meddle in people's lives even more and take money out of taxpayers' pockets. We trust Canadians' good judgment. That is why we oppose this bill.
Mr. Terry Duguid (Parliamentary Secretary to the Minister of Families, Children and Social Development, Lib.):
Mr. Speaker, I will be splitting my time with the member for Brampton East.
Let me start by saying I am so honoured to rise in the House today to speak to Bill C-26, an act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act, and the Income Tax Act.
To begin, here are a few basic facts about this program that has served so well for decades. It is a mandatory, contributory, social insurance program that provides partial income replacement for workers in Canada and their families in the event of retirement, disability, or death.
It began operation in 1966, and is overseen by federal and provincial finance ministers. Half a century ago, it took vision, diplomacy, and negotiation to reach this historic agreement. The then minister of national health and welfare, the hon. Judy LaMarsh, was the champion of this program, a senior member of the Lester B. Pearson government that brought us so many of our modern-day social programs.
The CPP covers employed and self-employed Canadians. Quebec has the separate but comparable Quebec pension plan. Contributions are collected on earnings above the year's basic exemption, $3,500, and up to the year's maximum pensionable earnings or $54,900 in 2016.
This is not the first time the CPP needed modernization. In the 1990s, as life expectancies began to lengthen and unfunded liabilities increased, the need to make important adjustments became clear. This change also required significant co-operation. Then federal finance minister, the Right Hon. Paul Martin, helped by his Winnipeg parliamentary secretary, David Walker, worked with provincial counterparts to do what was in the best interests of Canadians, and the CPP was significantly improved.
Today, again, we face the need for change. The proposed enhancement makes a couple of important changes. We will increase the amount of retirement pension from one-quarter to one-third of pensionable earnings, as well as the survivors' and disability pensions, and the post-retirement benefit, subject to the amount of additional contributions made and the number of years over which those contributions are made. We will increase the maximum level of pensionable earnings by 14% as of 2025. We will provide for the making of additional contributions beginning in 2019 and phased in gradually over seven years.
What is the reason for this change? Why have we brought forward the need to modernize and enhance the CPP?
First, a significant minority of Canadians approaching retirement age are not saving enough. Many middle-class families without workplace pensions are at risk of facing financial insecurity in retirement. Only 15% to 20% of middle-income Canadians are retiring with enough savings, according to a study from the Broadbent Institute. These individuals, now age 55 to 64, will face a dramatic drop in their standard of living, and many will fall into poverty.
Furthermore, most working Canadians today do not have a workplace pension. This suggests that in the not-so-distant future, more retiring Canadians will be at risk of falling into poverty as well. The bottom line is that the average CPP benefit is simply not enough to ensure Canadians the secure and dignified retirement they deserve. The previous government did not act, even though the writing on the wall was clear.
Second, the economy of today continues to undergo significant transformation, rendering a far different landscape than the one for which the original CPP was designed, most notably, the decline of workplace pension plans, as I have already mentioned, low interest rates on savings plans, and the changing nature of work. The latter refers to increasingly contract-based job markets.
We must recognize these changes and ensure that our social insurance programs address the ever-changing needs of Canadians. On June 20, 2016, Canada's finance ministers reached a historic agreement to make meaningful changes to the CPP. These will allow Canadians to retire with more money in their pockets. The bill would make the necessary legislative changes to implement this historic agreement.
The enhancement would be fully funded, which is a requirement of the existing CPP legislation. As a result, the enhanced portion of the retirement pension would accumulate gradually as additional contributions are made. The full replacement rate of one-third of lifetime pensionable earnings would be reached after 40 years of additional CPP contributions. It is important to note that the proposed enhancement represents a separate addition to the CPP. Benefits under the current or base CPP would continue to be paid as before, based on a contribution rate of 9.9% on earnings. The new or additional CPP benefit amounts, based on two new contribution rates of 2% and 8%, effectively serve as a top-up to base CPP benefit amounts.
Importantly, the bill would be phased in slowly over seven years with the fully adjusted contribution requirements not coming into force until 2025. This would allow businesses the flexibility and long-term planning required. Total benefit amounts would be calculated using the same formula as under the base CPP.
These changes are long overdue and were promised in our election platform, thus representing the fulfilment of the needs of Canadians to secure their retirements and to provide greater financial security to vulnerable members of our society.
It is important to note that Canadians back this change. According to a recent Forum Research poll, over 65% of Canadians support making changes to the CPP.
I look forward to continued debate on the proposed legislation and to working with members on all sides of the House to ensure its passage. Given the buy-in from provincial ministers across the country, nine out of 10 provinces, this truly represents a non-partisan, national consensus, one which I hope all my hon. colleagues can get behind and support.
Mr. Raj Grewal (Brampton East, Lib.):
Mr. Speaker, it is good to be back in Ottawa after a week of travelling with the finance committee. Today's debate is a very pressing one. The changes that our government are proposing to enhance the Canada pension plan are important to every working Canadian. Not only are they important, but they are much needed.
We know that today, one in four families nearing retirement, which is 1.1 million families, risk not saving enough for retirement. In particular, middle-class families without workplace pension plans are at greater risk of under-saving for retirement. A third of these families are at severe risk. To address this, a historic agreement was reached with the provinces in June to make meaningful changes to the CPP that would allow Canadians to retire with more money in their pockets. These enhancements would be phased in over a seven-year period, starting in 2019. Once fully in place, the CPP enhancements would increase the maximum retirement benefit by about 50%.
Enhanced benefits would accumulate gradually as individuals pay into the enhanced CPP. To fund these enhanced benefits, annual CPP contributions would increase modestly over seven years, starting in 2019. I want to remind my colleagues in the House that contribution rates in Canada are much lower than those in other countries with public pension plans. In fact, the CPP contribution rate is about half of the average rate among 25 countries in the OECD that have public pension plans. This remains true even with the CPP enhancement.
What would this mean to Canadians? What would it mean to young workers in their twenties? Recently, I spoke to 20-year-old Canadians and they asked what they would get out of this CPP enhancement. Workers nearing retirement asked me if this would change their pension benefits. Low-income workers worry that any extra contributions will come straight off their paycheques. These are very good questions.
For young workers in their early twenties just starting out their careers, this will be a great benefit for when they retire. By paying into the enhanced CPP, they will have more to retire on. The modest increase in contributions would be phased in over seven years, so people working with constant earnings of $50,000 would contribute an additional $70 per year, or $6 per month, in 2019. By the end of the phase-in period, those same people would be contributing $475 per year, or $40 extra per month.
By strengthening the Canada pension plan, workers will receive more money from their pensions, one-quarter of their eligible earnings to one-third of their eligible earnings. If people make $50,000 a year during their working lives, they will receive about $16,000 each year in retirement instead of $12,000 today. That is $4,000 more right into their pockets. In addition, the enhancement will increase the point at which a person stops making contributions by about 14% in 2025.
I know that some are concerned about the increased contributions and what they will mean to their bottom lines and, most importantly, their paycheques. We thought about this and designed a gradual phase-in, so that contributions would increase modestly over seven years.
We also thought about employers in designing the enhanced CPP. We specifically designed a slow phase-in of the annual CPP contributions, with the express purpose of minimizing the impact and giving employees and employers time to adjust to these new changes.
The great news is that young workers will see the largest increase in their retirements benefits. In fact, we know that young people in general find it difficult to save. Many are working in jobs that do not have company pension plans, which means they have to save for their retirement on their own. The fact is that a tax deduction, instead of a tax credit, would be provided to the employee contribution portion of the enhanced CPP. This would avoid new CPP contributions increasing the cost of savings.
Workers in the middle of their careers or nearing retirement will still benefit from our enhanced CPP, as the increased contributions that are made in 2019 will later go toward an enhanced retirement pension plan.
What about low-income workers who are worried about the effect of increased CPP contributions on their paycheques? How will the enhanced CPP help them? I want to assure my colleagues and low-income workers all across this country that an enhanced CPP would benefit all workers, including those with low incomes.
In order to make sure that low-income workers are not burdened financially as a result of these extra contributions, the government will also enhance the working income tax benefit. The proposed enhancement to the working income tax benefit is designed to provide additional benefits that roughly offset the incremental CPP contributions for eligible low-income workers. Therefore, with this enhancement, there will be no impact on disposable income, and when they retire they will also get a larger retirement benefit payment. The bottom line is that people who are working in Canada, paying into the CPP and planning to retire after 2019, will have more money in their pockets from the CPP retirement pension benefit.
Day in and day out, in my riding of Brampton East, I speak to constituents who call me personally about the issues they and their families face. I often hear that young Canadians are having a hard time finding permanent employment and are worried about their financial future, their financial outlook, and saving for retirement. I hear from young families and established families alike, who are thinking of retirement and realizing they do not have adequate savings. This concerns me, and many of us in this House.
The Canadian Association of Retired Persons estimates that roughly 600,000 seniors are living in poverty in Canada. That is more than the population of all of the city of Brampton. Frankly, it is unacceptable. Our government is doing its part to ensure that no seniors will be living in poverty in the future. We started by reversing the eligibility age of old age security to 65 and boosting the guaranteed income supplement, the GIS, by 10%, to provide almost $1,000 per year more per GIS recipient. That is aimed especially at helping low-income seniors who live alone. However, that is not enough. Associations like CARP have been calling for a CPP expansion for years, and it is about time that we delivered.
We feel that this is a win-win. I urge my honourable colleagues to support an enhanced CPP, which will further help Canadians contribute to a safe and secure retirement.
Mr. Garnett Genuis (Sherwood Park—Fort Saskatchewan, CPC):
Mr. Speaker, it is an honour to join this debate.
I have been listening with some degree of incredulity to the arguments coming from the government side and have to start with a quote, which I believe is from William Pitt, who said that “The facts of life have turned out to be Tory.”
Hearing my Liberal friends talk, they say that people are not saving enough and that if we only took more money away from them, put it somewhere else, and then gave it back to them later, that would solve the problem. There is clearly a misunderstanding on the government side about the fact that this money has to come from somewhere and that the cost of that is going to unfold.
The government members talk about a phased-in plan. However, without appreciating whether it is phased-in over two or seven years, as intended, or longer than that, the cost will still be there for individuals and small businesses. We will still very much see that negative impact.
To start, I will just review where we are in this regard.
The core of the bill would increase the amount that individuals and employers have to pay as part of their CPP deductions. This will eventually, but not for current seniors, lead to higher payouts down the line. Therefore, we are not talking about improving the situation for those currently in retirement; but in the long run, we are talking about a system that would require individuals and businesses to pay in more and pay out more in the future.
In terms of the magnitude of this change, the premiums will increase from 9.9% to 11.9% eventually; the maximum level of pensionable earnings will go up from just under $55,000 to $82,700 by the year 2025; and premiums will rise by up to $2,200 per worker, with the amount collected being split between employers and employees. These are very significant numbers. The costs are significant and will have a significant impact on the economy.
We think on this side of the House that it is a bad idea, and I am going to outline in my speech what I see as five principle reasons why this is not a good idea. The arguments are as follows. First, people can save their own money more effectively. Second, that existing savings vehicles that were cut by the government in fact provide the additional incentives and flexibility to be more useful to people involved. Third, I am going to talk about the economic costs of this plan. Fourth, I will talk about better ways to get help for seniors. Finally, if I have time, I am going to talk about the relationship between liberty and virtue as it relates to this policy.
First is the point that people are able to save more money themselves. I raised this point with one of the government members who had talked about how effective the CPP has been, which I would generally agree with, in generating returns. However, what he neglected to respond to is the fact that there are other ways this could have been done. In fact, the government could have explored a voluntary option in which people could choose to contribute more to the CPP and collect more in the future.
Of course, the Liberals could have stuck with, or chosen to enhance, the existing saving vehicles. I will talk more about that in my next point, but the Liberals have chosen not to do that, and I think they have to defend that policy. It is not enough to say that they would like people to have more for retirement. They have to actually defend the policy in terms of why it should be mandatory and not voluntary for the individuals involved.
On this side of the House, we have a general preference for giving individuals as much freedom, liberty, and ability to manage their own resources as possible, for the simple reason that people are generally in the best position to judge what constitutes their own interest, what they are going to need for retirement, what they are going to need in the present, and what kinds of investments will be best for them in the short and long terms. We prefer to believe that individuals are in the best position to judge what is going to be conducive to their own happiness rather than some external actor, in this case the state. The government is less likely to know what is good for me than I am. I think that makes a lot of sense.
This flows from the principle of subsidiarity, that those who are closest to a situation, who are closest to the practice of something, are in the best position to decide what is in their own interest. This is why we favour choice in this case. We favour giving individuals the ability to control their own retirement.
I would note parenthetically that there is some irony in the government's position, in that it clearly is not capable of showing any kind of temperance in the use of public finances, with its deficit that has ballooned beyond all proportion and beyond what it promised in the election, and yet expresses concern that individuals are not saving enough.
This particularly underlines the point that the government and perhaps governments in general are in a less well-placed position to decide about savings for the future than individuals are, and that we should give the power and the ability to individuals to make decisions about their own future.
Second, I would like to discuss existing savings vehicles, because the government has made a choice to cut back on existing savings vehicles and move in the direction of mandatory contributions rather than emphasizing individual choice.
We have in place right now in Canada two primary savings vehicles for individuals: tax-free savings accounts and RRSPs. TFSAs and RRSPs function somewhat differently, of course. With RRSPs an individual saves the tax up front. They pay the tax after they withdraw money from the RRSP at some point in the future, whereas with TFSAs they pay the tax up front, but then they do not pay tax on the interest and they do not pay tax on the money when they withdraw it. These are two different kinds of savings vehicles that may be advantageous to different people in different situations.
Our previous Conservative government introduced tax-free savings accounts and then expanded them. We increased the contribution limit to $10,000 a year. The present government cut back the tax-free savings account. It did not replace it with any other kind of savings vehicle. It reduced the capacity of individuals to be involved in private savings and it has moved in the mandatory direction found in the bill.
The Liberals' argument for cutting back on the tax-free savings account was that only rich people have resources to save. Here is the reality: over 65% of tax-free savings account holders make under $60,000 a year. In fact, almost half of TFSA holders make less than $40,000 per year, and over half of those who max out their tax-free savings account make less than $60,000 per year.
Based on the data we have, it seems that TFSAs are in fact a preferred savings vehicle for those with modest incomes. When we recognize the different mechanics of TFSAs and RRSPs, it is pretty clear why that is, because RRSPs allow us to save on taxes in advance but pay them afterwards. Those who have very high incomes but project that will have relatively lower incomes in the future are more likely to use RRSPs, whereas if an individual expects to have a similar income at their point of retirement or at the point at which they are withdrawing from their TFSA, then they are more likely to get the benefit from a TFSA.
If an individual has a very large income up front, because of the income differential between what they are earning in the present and what they believe they will earn in the future, those with higher incomes are more likely to use RRSPs, relatively speaking. Again, what is in an individual's interest will depend very much on personal circumstances and the variety of different factors that inform their tax situation.
Generally the numbers suggest that TFSAs are not a savings vehicle exclusive to the rich. In fact, they are more likely to be used by those with of modest or lower incomes. That is an important point.
There are a variety of ways the government could consider further expanding the use of voluntary savings vehicles. It could go back to the original amount, the $10,000 a year that we had in place at the time of the election.
I recently met with the Canadian Real Estate Association, which I think has a good proposal for expanding the home buyers plan. A lot of people could withdraw more money from their RRSPs to make an initial investment in buying a home. These kinds of changes to these voluntary savings plans could encourage and increase their use.
We have these existing savings vehicles that I think work very well and create good economic incentives and opportunities for people to make these sorts of investments, and yet the government has made a particular choice to move away from these vehicles, to cut the ability of individuals to invest in them, and has instead moved in this mandatory direction. We think that does not show a proper appreciation for the value of individual liberty and freedom with respect to people's own funds. It also misses the practical opportunities that come with these existing savings vehicles that are working very well.
We favour the incentives of voluntary opportunities that come with things like TFSAs and RRSPs, and we see the value in continuing their use and expanding their effectiveness.
Third, I would like to discuss the specific economic problems that come with the plan that the government has proposed, in which we levy a higher payroll deduction on individuals. I would call it a payroll tax. Some members say it is not a tax because the person will get some of it back in the future. Hopefully, that is true of all taxes, that we enjoy some benefit from all taxes. However, this is money that the government requires be deducted and whether or not we call it a tax, it certainly behaves like a tax in an economic sense insofar as it introduces a certain disincentive.
If I am an employer, with the introduction of this new tax, it will become more expensive for me to hire someone. That will create a marginally greater disincentive to hire that person. In fact, there was a survey done by the Canadian Federation of Independent Business, which has been very vocal on this issue. They represent small business owners. Here is what it found when it did a survey on the ORRP, the precursor within Ontario to the CPP increase. It found that 69% said they would freeze or cut salaries and 53% of businesses indicated they would have to reduce positions to address the increased costs of hiring. That is a really significant impact. More people will likely be unemployed and people will have their wages cut.
I would ask the members of the government, is it worth it? When we have the alternative of voluntary savings, there is no disincentive to employers or individuals working at their voluntary savings, which they control themselves, but that disincentive does exist with the mandatory savings. So, we are getting nothing instead of something.
I want to read a quote specifically from the president of the Canadian Federation of Independent Business about this plan. He said:
|| It is tremendously disappointing to see that finance ministers are putting Canadian wages, hours and jobs in jeopardy and willfully moving to make an already shaky economy even worse.
That is what the Canadian Federation of Independent Business is hearing from its members. That is what it is hearing the impact of this change would be.
The members across the way need to think about the fact there are better alternatives in place with voluntary savings, and that the plan they are proposing will have real substantial costs for business.
My fourth point is that there are better ways to help our seniors.
When we were in government, we pursued tax reductions to make life more affordable for seniors. We said, instead of the government taking more of their money and making decisions about their future, we should be giving tax reductions back to seniors.
Here is what we did when we were in government. We increased the age credit amount by $2,000; we doubled the pension income credit; we introduced pension income splitting; we enhanced and increased funding for the new horizons for seniors program; we launched the Canadian employers for caregivers action plan; we expanded the targeted initiative for older workers; and we undertook measures to protect the seniors who were using financial services.
The government talks about the GIS. Importantly, when we were in government, we increased the amount that the GIS recipients can earn through employment without any reduction in their GIS benefits, increasing the amount from $500 to $3,500. We increased the age limit for the RRSP to RRIF conversion to 71 years of age from 69 years age. We also established the tax-free savings accounts; and we introduced the largest GIS increase in over 25 years, which gave eligible low-income seniors additional benefits of up to $600 for single seniors and $840 for couples.
There are things we can do through the tax system, through tax reductions. However, we can see a difference in philosophy here. The government wants to take control away from seniors and manage more of their money for them. We want to give those resources back to seniors.
The final point I want to make is about the relationship between liberty and virtue, and I think it is an important one, perhaps one of the most under-discussed aspects of this issue.
The government wants to increase state involvement and, therefore, reduce individuals' involvement in retirement planning by expanding the mandatory CPP deduction. However, the underlying objective is replacing private savings with state collection and distribution. This has a negative impact on the development and practice of those virtues that make for a strong society.
As I have argued before, we should generally seek to give to individuals the greatest possible amount of liberty, because individuals can best judge their own interests and are best positioned to be the most responsible managers of their own affairs. At a practical level, individuals generally know their own affairs better than anyone else.
I think there is a deeper and perhaps more profound argument for liberty, both in general and in this specific case—a more important argument than practical effectiveness.
Liberty, in general, can play a critical role in the development and practice of the virtues. A virtue is a positive quality of character, perhaps the most famous being the four cardinal virtues highlighted by various ancient thinkers: prudence, courage, justice, and temperance. Though there may be disagreement about the origins of these concepts, and though they are rarely explicitly discussed in this place, I think we would all accept their importance. A society characterized by wisdom, courage, justice, and self-control is naturally a better society. It is one in which people have the means to more effectively pursue their own happiness and the happiness of others and one in which strong and good communities can fulfill functions that the government otherwise would have to.
Virtues are like muscles. A person who has never had to exercise self-control, for example, will be less likely to know how to exercise it when a situation arises when it is necessary. The more a virtue muscle is used, the stronger it gets.
I generally doubt the ability of government to make all wise decisions. Even if I had more faith in the wisdom of the state, I would still wish for a society with as much liberty as possible, because a society in which the state removes all possible temptation, occasions for injustice, need for courage, etc., is certainly a worse society, because it is one devoid of the practice of virtue, practise that will always be necessary in one situation or another, practise that is necessary to make perfect.
It is clear from some of the comments made by advocates of an extended pension plan that many of those motivating this change actually want to create a society in which private savings for retirement are not necessary, one in which the practice of putting money aside for the future is not necessary, or at least is less necessary, because the government is doing it for them. This removes one of the most vital ways in which many people learn and practise the virtues of prudence and temperance. The process of denying ourselves things we want in order to save for the future is certainly challenging, but recognizing the need for saving and learning to do it helps one become a better person: more wise, more temperate, and more self-controlled. The qualities of character or virtue one learns by saving money are important and useful. They help us develop prudence and temperance in other areas of life.
Any government policy that purports to remove the need for people to develop certain virtues, I would argue, is deeply injurious to the social good. By robbing people of the means to save through this payroll tax, and by communicating to people that they no longer need to save, the current government would take away tools that I see as vital for the creation of a good society.
I do not want people to have savings decisions made for them. I want people to be able to make decisions to save on their own; yes, to receive some support to do so, to receive the agency, and to receive support if they are not able to or choose not to but also to receive the incentives and the information to make prudent decisions with respect to their own money and to live, by the way, in an economy that allows them the opportunity to live well into retirement if they do so.
I do not think we are yet at a point where everyone has the opportunity or the ability to save as much as he or she needs to pursue a good retirement. That is why we need a stronger economy. That is why we need to continue to create opportunities for small business. That is why the tax-cut changes we made that make life more affordable for seniors are very important. Those things are critical for helping all seniors.
I will say this, as well. An economic system with more liberty more properly reflects the dignity of individuals, because individuals are capable of making prudent decisions about their own financial future and should be given the ability by government to do so. They should not have that pulled away from them.
I will say to the government that perhaps instead of removing space for the individual practise of virtue, the government can apply prudence and temperance in its own financial management. Indeed, the hallmark of a good society is one in which the government is more focused on practising the virtues itself than on micromanaging the lives of others. Again, a good society requires virtue, and liberty provides critical opportunities for the development and practice of virtue.
Just to review, here are the points I have made today.
First, I have made the point that people can save money for themselves. It is perverse to hear the Liberals say, “People are not saving enough for retirement, so we will take more of their money away and then give it back to them later”. What they should be doing instead is looking for ways to give people back more of their own money, and indeed, giving them the incentives and the opportunities to save more of their own resources.
Second, I talked about the existing savings vehicles that are in place and that were cut by the current Liberal government. Those include existing savings vehicles like RRSPs and especially tax-free savings accounts, which we saw cut back on, which are used effectively. The government should be looking for ways of expanding them. Again, I mentioned a proposal for the expansion of the home buyers' plan. We can use those existing savings vehicles to very good effect.
Third, I talked about the economic problems associated with the government's proposal. In fact, what they are talking about is going to cost jobs, hurt wages, and hurt small business. It will have a negative impact on the Canadian economy overall.
I talked about there being better ways to help seniors by cutting taxes.
Finally, I talked about how having a voluntary, as opposed to mandatory, system of savings is positive from the perspective of creating a good and virtuous society.
I look forward to questions.