CPP REORM PUNTED BEYOND THE 2015 ELECTION
At a meeting of federal and provincial ministers of finance on Monday, the federal government punted CPP reform well into the future, certainly beyond the 2015 election. Despite what appears to be a consensus among provincial finance ministers for more study on the nature and timing of reform, the federal government vetoed the idea by saying global economic growth was too uncertain and the domestic economy was too "fragile". According to Flaherty, the CPP premium is a payroll tax and increasing CPP premiums over the next two to three years would slow growth and kill jobs.
There is no evidence to support these arguments. Indeed, when CPP rates were doubled in the late 1990s, economic growth and job creation were not affected at all. Moreover, with EI premium rates scheduled to decline significantly in 2017, if not earlier, there would be room to raise CPP rates without any major net impact on employers and employees, depending on the nature of the CPP enhancements.
EI premiums are a payroll tax. But CPP premiums are quite different in that they guarantee a payment in the future on contributions made while working. EI does not guarantee the contributor anything and indeed most people who contribute never receive any EI benefits.
Certainly economic growth has been pretty mediocre for the past three years, thanks to slowing global economic growth and fiscal restraint by all levels of government. Nevertheless, international financial institutions and think tanks are now forecasting a more robust recovery beginning in 2014. Indeed, Mr. Flaherty is hoping for this otherwise he may miss his target of eliminating the deficit in 2015-16.
Mr. Flaherty should stop making excuses that the economy is too fragile and that higher CPP premiums would further kill jobs and growth. If he is so concerned about the fragile state of the economy, why have his last four budgets introduce major restraint measures, which according to the PBO is having a negative impact on growth and jobs?
But he didn't. He went further to make one of the most extraordinary statements for any Minister of Finance. The Ottawa Citizen reported the following comment by Mr. Flaherty.
"One of the things that I don't believe in is governments making commitments far down the road ... and that was the kind of proposal that was being brought forward. We'll study it some more; we'll look at triggers. So maybe two years from now, three years, five years, six years, whatever". "It's a fool's game to try to make those predictions (about a good time to boost CPP). I think we wait and see".
It would appear that Mr. Flaherty does not support making policy based on predictions and commitments too "far down the road". What does he think Ministers of Finance and governments are supposed to do? Why did he support changing the age of entitlements for OAS and the escalator for the Canada Health Transfer? More importantly, why did he make a commitment in 2010 to eliminate the deficit in 2015-16?
Was Mr. Martin wrong to have implemented major reforms to CPP in the late 1990s, because they represented commitments too "far down the road"? Clearly not. The CPP is now recognized as one of the best public pension plans in the world. But it is also a system that needs enhancement. It also needs a government that is willing to face that challenge.
Regrettably, the Conservative government is not up to that challenge. Indeed, it never had any intention of beginning a process of CPP reform. Provincial finance ministers were fooling themselves if they thought this might happen. The only thing that matters to Mr. Flaherty is his commitment to eliminate the deficit in 2015-16. The government will do nothing over the next two years which could possibly jeopardize this commitment. Any excuse not to do CPP reform will be used no matter how ridiculous or unfounded.
Middle-income earners are simply out of luck.