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If finance ministers are set on raising CPP premiums, they need to take measures to help small businesses survive

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By Dan Kelly

Published in the Financial Post July 4, 2016

 

Despite 22 years of lobbying politicians at all levels of government, I generally remain an optimist about our political process and the intent of our political leaders. But sometimes it is tough to maintain my mostly sunny ways.

As one of a few Canadians who has had a ring-side seat for the cross-Canada discussions and deal-making associated with the new plan to expand the Canada Pension Plan, I’ve found the past few weeks particularly challenging.

I do not criticize politicians for examining the adequacy of the retirement system or even those who feel that adding to future CPP benefits with near-term premium hikes is the right answer. Both the Ontario and federal governments campaigned on such ideas. That’s democracy and I respect it. However, the closed door deal-making, absence of any form of analysis, cancellation of promised consultation and political brinkmanship to suit Canada’s largest province are wrong.

On June 20, nine of the country’s finance ministers reached an agreement in principle to increase CPP premiums for all Canadians. While many think of CPP as a federal program, any changes require the approval of two-thirds of provinces representing two-thirds of the population.

The increased premium to be phased in from 2019 to 2025 will see benefits increase to cover 33 per cent of employee earnings, phased in over a whopping 40 years. The earnings threshold will rise to $82,700, from $54,900. That means between the employee and employer, a job paying $27,500 will have to kick in an additional $500 a year to CPP, at $55,000 another $1,000, and at $85,000 a whopping $2,200.

I’m not sure where finance ministers think these billions are going to come from. Polls show most Canadians don’t save more for retirement because they can’t afford to, after paying their many other taxes, rising bills, mortgage payments and children’s sports and education.

It is also increasingly clear that the governments don’t understand how close to the edge many small businesses are operating. Many of them report they will have to fund their premium hit through reduced wages, hours or jobs.

While it’s troubling to see a deal that makes a shaky Canadian economy even worse, it’s also alarming to see that it skips some critical and promised steps.

It is a relief Ontario plans to abandon its Ontario Retirement Pension Plan (ORPP) — to my mind, one of the most economically destructive plans I’ve seen in decades — but I am saddened it was used to create a false sense of urgency to whipsaw other provinces into signing a deal on a proposal they hadn’t studied.

In addition, the 2016 federal budget, after cancelling promised and legislated small business corporate tax cuts, said it will work to make a decision on CPP by the end of 2016 after the federal government launched “consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.”

If this is such a great deal for Canadians, why scrap the promised consultation period?

The Canadian Federation of Independent Business is asking the premiers to delay signing a final deal on the CPP. Four weeks is not enough time for governments, economists, business owners and Canadian workers to assess and understand the impact this hike will have on the economy, and it remains to be seen if any government made an effort to assess the impact before signing the deal.

My biggest concern around the agreement in principle is that it appears to have been made in a vacuum, behind closed doors and far from Canadians’ economic reality.

A devastating resource price drop continues to be felt across Canada. Alberta and Ontario seem set to impose new carbon taxes or pricing, and the feds may not be far behind. Newfoundland and Labrador is facing the worst economic crisis since it joined Confederation. And external factors, including a shaky post-Brexit European Union and an unstable Chinese economy, have significant implications for Canada’s economy.

If premiers won’t stand up to Ontario on behalf of small business owners there are still other ways they can help ease the impact of the proposed CPP hike on employers and the economy.

In a letter issued to the premiers and the Prime Minister last week, CFIB put forward amendments to be considered. Chief among these is an exemption for the self-employed, who pay double the rate of CPP of other Canadians. It also recommends that Quebec’s proposal to exempt additional premiums on the first $27,500 of income be adopted Canada-wide to better serve the agreement’s targeted demographic — middle-class earners — and mitigate the harm done to low-income earners and their employers.

If governments are dead-set on this hike, CFIB urges them to commit to measures that will lessen the negative impact on small businesses. The federal government could reinstate the promised small business corporate tax rate cut cancelled in its budget. Provinces can help by cutting small business payroll taxes and freezing minimum wages.

This is an unfortunate way to begin an era of what has been heralded as collaborative, evidence-based policy environment. And while the federal and Ontario governments campaigned on mandatory pension enhancements, other provinces did not. If you agree Canadians are owed a say and some careful analysis, I urge you to call your provincial government representative to ask for a delay until December. Canadians deserve nothing less.

This story was originally published in the Financial Post.