Mr. Speaker, I want to say a few words on the bill before the House.
We are beginning a debate on our pension policies and where we should be going. Bill C-2 is the first of two bills to come before the House. Bill C-2 deals with the increase in premiums to the Canada pension plan and the reduction in benefits to the plan.
The second bill that will come before the House very shortly will be on seniors benefits. This bill will abolish the current old age security pension, the guaranteed income supplement, the tax credit for pensioners and the age benefit. When the government abolishes that it will instead introduce a seniors benefit. I believe that will be very controversial legislation which will create a lot of interest right across the country. Part of the major debate that will go on in part two will be public pensions versus private pensions.
I want to begin today be giving a bit of the history of the Canada pension plan as we know it today. It was passed into law in 1966. Nine provinces are part of the Canada pension plan, while in Quebec has the Quebec pension plan which is very similar to the CPP. It is the Caisse de dépôt et placement du Québec.
The Canada pension plan is a pay as you go plan. It is a defined benefit plan and pays out around $17 billion per year in benefits to Canadians, including the pension benefits, survivors benefits and disability benefits. The plan has reserves of about two years of funds which is around $40 billion. That $40 billion is, in large part, lent to the provinces at interest rates that are lower than they can achieve elsewhere for infrastructure, such as the building of schools, hospitals and universities.
The plan pays out a fully indexed pension to people 65 years and older. It provides survivor benefits, death benefits and disability benefits to people who are unable to work. It has also been a highly successful plan in meeting the objectives of 1966. If we look at seniors poverty in this country we will find that there are a lot fewer people living in poverty today than there were 30 years ago. In 1960 some 33.6 percent of seniors were living below the poverty line. In 1995 some 10.9 percent of seniors were living below the poverty line. When one compares that to any other category of Canadians, that is a very significant accomplishment over the last 30 years.
We do not have figures for poverty for the Canadian population in general or of child poverty or for other categories, but for seniors that has been a remarkable accomplishment over the last 30 years.
The whole philosophy behind the Canada pension plan is that it is a social program. Its purpose is to divert a share of the national economic output toward retired people each and every year so people can retire with dignity. At the inception of the plan in 1966 and even today there are many people who do not have adequate private pension plans through an RRSP that they build up for themselves. Their sole means of income, outside of the old age security pension or the GIS is the Canada pension plan. Therefore, the main philosophy behind the CPP is to divert part of today's national economic output into a decent retirement fund for people when they retire.
It is very similar to diverting a share of our national income to fund medical care in Canada, to make sure that regardless of one's financial means, we have universal accessibility to decent health care. It is similar to diverting a share of our national income toward education to ensure that we have an educated people.
To summarize this, it is diverting a share of our output toward the common good, to try to equalize the opportunities of condition in Canada, to try to have a more equal society where people do not have to worry about such fundamental needs as food, clothing, shelter and medical care. That is basically the philosophy behind the plan. That is why our party over the years has been a very strong supporter of the Canada pension plan, the Quebec pension plan and public pension plans in general.
We are now into a debate on private pension plans versus public pension plans. We are very much in favour of public pension plans as is the NDP government in Saskatchewan and British Columbia, the trade union movement and progressive people right across the country.
On the other side are the supporters of private pension plans. Here we find the old allies, the Fraser Institute, the C.D. Howe Institute, the Canadian Taxpayers Association and of course their mouthpiece in Parliament, the Reform Party. These are people who would like to abolish altogether the Canada pension plan and replace it with sort of a super RRSP plan which would be a defined contribution plan.
The ultimate end of this would be to widen the gap between the rich and the poor, much of which would be done through tax funded support. RRSPs as tax write-off are a tremendous tax expenditure for the government. RRSPs cost Canadian taxpayers about $17 billion in tax expenditures and the CPP benefits also cost about $17 billion. There is equilibrium.
But under a totally private plan or the Reform Party private plan or the Fraser Institute plan the tax expenditures would escalate. People who are wealthy could take the greatest advantage of this. It would be sort of a Robin Hood in reverse where the poor are giving to the rich so that the rich can retire in comfort in condos in Florida and elsewhere around the world.
Bill C-2 moves us partially toward a private plan. It is really a transition toward a partially vested plan. It also has in it the privatization of the administration of the plan. I want to look at a few details of that this morning.
First, one of the major concerns I have about the changes to the Canada pension plan is the whole issue of premiums. Premiums will increase 73 percent over the next six years. The combined employer-employee premiums will increase from today's 5.85 percent of insurable earnings up to 9.9 percent, an increase of some 73 percent in six years. The maximum contribution will go from $975 to about $1,635.
I am really concerned about the rapid escalation of the premiums for a number of reasons. First, the burden of refinancing of CPP will fall mainly on low income people and women, because a disproportionate number of women receive low incomes. It will fall mainly on people who are least able to afford it. That is a very regressive way to try to salvage the Canadian pension plan.
Much of the burden will fall on small business. An increase of 73 percent for small business is a burden that many of them cannot afford. It is a burden that will drive some of them underground in how they conduct their business and whom they hire. That is a concern to us as well.
Finally, the major increase will be a particular burden for young people as much of what we are going to have in the CPP is going to be an intergenerational transfer of wealth or income from younger people to their parents or their grandparents. That is something we have to take a serious look at when this bill goes before the committee.
The other part about the premiums that worries me in terms of regressivity is that year's basic exemption which is now about $3,500 a year under this bill will stop being indexed. As time goes on, without indexing the basic exemption, more and more of the burden will fall on low income people as the funding of CPP becomes less and less progressive. Again, that deviates from the original principle of the Canada pension plan which has tried to provide a pension for people when they retire but to do so on premiums that are progressive and affordable by low income people.
This brings me to another point. It is the whole question of the affordability of the Canada pension plan. If we listen to the Reform Party and its friends at the C.D. Howe Institute or the Fraser Institute, we would think that the CPP is going to be flat broke and that we cannot afford it, that it has to be abolished. I say that is rubbish.
Even the actuarial report that the government used in order to craft its changes shows that the CPP is affordable. The actuarial report in 1995 that the government used was based on some pretty low common denominator indicators. The figures used were based on a flat wage increase and a very high unemployment rate. The government tried to project this in a linear way for 30-odd years. It has now come up with all the figures for changing the Canada pension plan. It was a very pessimistic snapshot of what our country will look like economically in 30 years. Despite that, the plan is still affordable.
We do not pay more than other OECD countries for our public pension plans. In fact if old age security, the OAS and the CPP are combined, in 1995 about 5.3 percent of the national income went into those two plans. This will rise to about 8 percent by the year 2030.
The World Bank said just recently that some 9.2 percent of the GDP of the OECD countries was spent on public pension plans. In 30 or 35 years Canada will be spending about the same or even less than what many OECD countries are spending today. I do not think there is any debate that Canadians cannot afford a public pension plan.
In addition to the rapid rise in premiums and how regressive the burden of these are going to be, we are also concerned about the reduction in benefits. Under the new plan benefits will be decreased by around 10 percent. People, particularly young people, will be paying more in premiums and then seeing a reduction in benefits. I am concerned about that and the political support a public pension plan will receive. You can only go on so long increasing premiums and reducing benefits before the political will is not there any longer to support the idea of the Canada pension plan. That should be of concern to us as parliamentarians as well.
Disability pensions will become more difficult to obtain. This is one of the better parts of CPP and it is one, I suppose, of the cases we get as members of Parliament most often. We hear about the problems people have applying for CPP disability benefits.
Under the current legislation a person has to be working for at least four of the last six years to qualify for CPP disability. Under the changes in the bill, that person must work for two of the last three years or five of the last ten years before qualifying for CPP disability allowances. It will be more difficult for some people who now qualify and will not qualify under changes to the legislation.
Another point is the whole question of survivors and death benefits. The maximum today is $3,580 for someone collecting survivors' benefits. It will now be reduced to some $2,500, again making it more difficult, particularly for women who are, more often than not, the recipient of those benefits.
These are some of the concerns we have as this bill goes on to the committee stage. Basically, the burden of the funding changes in CPP will fall most unfairly on low income people, on women. It will hurt disabled people. It will hurt getting young people to support the Canada pension plan.
At committee we have to come up with some amendments that will try to make this bill more progressive, that will lessen the burden for young people, lessen the burden for low income people and reinstate the death benefit and the disability benefit to where they are presently in the Canada pension plan.
I want to comment, very briefly, on the increase of the size of the reserve fund for CPP. Currently the reserve fund would cover CPP payments for over two years, about $40 billion. Under the bill, there is a plan to increase this to 3.8 years which would be about $126 billion.
Under this new idea, which also includes an investment board appointed by the government from the private sector, we see the idea of a very serious transition in the philosophy of the CPP from a pay as you go plan to a partially vested plan. Under the partially vested plan, the provinces will no longer be able to borrow money at the same rate at which they borrow it now to invest in their infrastructure for schools, universities and hospitals.
That is a negative because the provinces, being able to borrow money at a lower rate, have built the country into a stronger place and have made investments for all of us across the board and helped strengthen the economy. That will be gone. That might not greatly affect provinces like British Columbia, Alberta or Ontario that have borrowing rates that are lower because their bond ratings are higher than the average. It will really hurt the four Atlantic provinces because their borrowing rates are more expensive. When that happens it will be more difficult for them to build schools and hospitals. It will create more inequity in the country once again.
This is a part of the bill that might not seem to be that important to the ordinary person on the street but it will really affect Newfoundland and the other Atlantic provinces and to a lesser degree places like Saskatchewan and Manitoba which from time to time do not have the same bond rating as an Alberta or British Columbia.
The other point that concerns me is that in the Quebec pension plan under the Caisse de dépôt et placement there is a regulation that says it has to invest in the domestic economy, to try to improve the economy of the province of Quebec in order to give that province a break. Again, in this bill there is no reference to trying to look at the economic priorities of the country and investing in the domestic economy in this new fund.
Eighty percent of the fund must be invested in Canada but again there are no guidelines. We should be looking at maximizing the creation of jobs or minimizing unemployment. It does not talk about what kinds of investments should be made but leaves that to the private board.
Another concern is that the Minister of Finance publicly indicated the 80 percent rule where 80 percent of pension moneys must be invested in the country is likely to be increased. My guess is that it will be increased in the next budget or the budget after that. That will also be a concern. What is being created here is a huge pension fund that will be $126 billion in six years and up to over $300 billion after nine or ten years. That will be a huge fund. That money should be invested in the main in this country.
Another thing to be noted is that while the premiums are more difficult for people to pay and the payouts will be less, there will be some job creation in this new bill. That will be basically for the banks, the stockbrokers and the bond dealers that will be investing this new fund of $126 billion. The premiums are estimated by some to be around $500 million for that work.
These are some of the concerns we have at second reading. They are concerns we would like to explore at the committee stage.
I am really concerned about the line the Reform Party is taking on totally privatizing the Canada pension plan and turning it into a system of super RRSPs. Reformers are talking about a mandatory plan—
