Finance Committee on Sept. 19th, 2016

[Leah Anderson]

These reforms are very much in line with the objectives of the government. The CPPIB is an arm's-length agency set up to manage investment funds. The policy being put into place is separate and distinct from the investment of those funds. Going forward, how best to manage them will be a key issue we will need to take up with them.

[Steven MacKinnon, Liberal, Gatineau, QC]

For people's benefit, could you just situate a $1 trillion pension investment management organization in world terms and global terms? How big would that make the CPPIB, for example?

[Leah Anderson]

I can comment on where it is currently. In terms of the other public pension plans, it's currently about seventh in the world.

[Steven MacKinnon, Liberal, Gatineau, QC]

So this will not negatively affect that standing.

We'll have a chance, I know, to hear from CPPIB—or I assume we will, Mr. Chairman—in the context of reviewing the legislation that the minister is going to bring forward. I know we've asked as well that CPPIB and their new president come before us to introduce themselves. We look forward to that discussion.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. MacKinnon.

Mr. McColeman, you have five minutes.

[Phil McColeman, Conservative, Brantford—Brant, ON]

Thank you, Mr. Chair.

I'm going to read a quote from something I was reviewing this morning. It's dated August 30, 2016, and it's from the Canadian Vehicle Manufacturers' Association. It's a preamble to the specifics of the question that I want to ask you. It's section 3 of their pre-budget submission, which says:

Increases to the costs of doing business in Canada, including the proposed increases in CPP employer contributions (payroll taxes), will negatively impact Canadian automotive competitiveness with other jurisdictions where costs are lower. Certainty and predictability are key factors when global investment decisions are made.

As part of the announced Canada Pension Plan...enhancement, it is important that the government recognize the fact that auto manufacturing companies already provide high quality private pension plans to their workers. If CPP premiums are increased as proposed, this will result in significant increases to auto industry payroll expenses at a time when there are already competitiveness challenges for the industry in Canada versus other competing jurisdictions.

That leads into my question, which I'll ask you as government officials. Have you done a full analysis before this legislation of the impact of premium hikes on such things as business competitiveness, household income, jobs, and GDP, or will you be doing that and modelling it, as you say, in current economic circumstances before legislation is placed before the Commons?

[The Chair, Liberal, Wayne Easter]

I don't think Mr. McColeman is asking for the policy decision, which is a government matter. This question is related to what officials may be able to answer without getting into the government decision itself.

[Nicholas Leswick]

Thank you for the question. I want to assure the committee that we did do our due diligence in trying to model the impacts, and as I described to the other member, we do this from an economy-wide, enterprise-wide perspective in trying to understand both the behaviour of firms—not sector specific, as your quote alludes to—and also the behaviour of households as well, as they respond to this new policy change. I want to say that the results of our modelling are effectively congruent with those of the Conference Board and other people who are doing this type of analysis.

In trying to plainly state it, while there will be this short-term impact between year zero through 12, it would be a very modest short-term impact and an impact that would be mitigated by this long phase-in period to allow firms the opportunity to adjust wages, profits, and prices to the new CPP enhancement. Ultimately the short-term impact would be quite modest, as I stated in probably the most easily understood raw nominal value, which is about $1 billion on a $2.4 trillion economy.

That is not to dismiss it, but that negative impact would then dissipate after year 12, and the economy, from a total output perspective, would start to reap the benefits through increased consumption as a result of larger post-retirement incomes. You know the efficiency of the CPP vehicle, so people would be substituting their savings into a portable, efficient, low-management-fee plan.

I could go on, but this is what our models tell us, and as I said, our models are comparable to those of others who are scrutinizing it.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I noticed that in presenting this information to us today, you've used the word “modest”. Please define “modest” to me in economic terms.

[Nicholas Leswick]

Again, I'm not trying to be dismissive, but we're talking about a $1 billion short-term output impact on a $2.4 trillion economy. If you put a 0.05% impact on output against the sum total of budget 2016 measures, which contributed to 0.5% of GDP growth, in comparative terms, in relative terms, it's quite small.

[Phil McColeman, Conservative, Brantford—Brant, ON]

It's an interesting term for you to use, because it leads one to think that instead of complete objectivity, what some people see—especially people who are in business, such as the vehicle manufacturers here in Canada, and other small business people—is what I would say is a significant impact. That’s from the information we have from CFIB and others, which represent a broad number of businesses across the country, and the Canadian Chamber of Commerce as well.

I know Ontario came out because they didn't want the ORPP and Kathleen Wynne's plan. That said, I'm a little bit surprised at the use of the word “modest”, because some people's “modest” is other people's “significant” impact, depending on the scale of operations you have and such.

Can I ask you this question? Ontario was going down the road of implementing a plan. It had spent about $70 million in terms of its government taxation spending in Ontario, Ontario taxpayers' money, toward setting this plan up. I won't talk about the other aspects of tearing it down, which cost more money than you can believe. Again, maybe it's modest in some people's minds.

Did you use any of the information and research that Ontario did to set up the ORPP in coming to any of your modelling or your projections?

[Nicholas Leswick]

It's difficult for me to answer. We worked collaboratively with the provinces throughout this process. I can't say specifically whether we would have or would not have used any information, but let me go with “no”. While it was a collaborative process, this was analysis that was internal to the Department of Finance Canada. It was our own general equilibrium models and economic models that rendered the results that I spoke to earlier.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. McColeman.

Ms. O'Connell is next.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

In following up on that line of questioning, does your modelling take into account the savings of businesses for other government programs or tax reductions for small businesses, for example, and EI reductions from budget 2016, or is it purely the model of this program?

[Nicholas Leswick]

May I just consult with a colleague behind me so I can accurately answer the question?

[The Chair, Liberal, Wayne Easter]

Go ahead, Mr. Leswick.

[Nicholas Leswick]

Thank you.

It's a model specific to this measure. It doesn't take into consideration the broader suite of other programs that might be more dynamic.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Then in some instances it could be offset altogether by some of the other programs introduced by the government. That's not something I expect you to answer; I'm just throwing it out there that the model doesn't include some of the savings that this government has offered.

I want to talk about some of the numbers behind why we're here and why we're looking to the future. What has the department found in terms of the actual numbers of people not saving for retirement? Do you have statistics on the age range and the number of Canadians in this situation? What is the department worried about in terms of retirement savings? What are those statistics?

[Nicholas Leswick]

If I understand the question clearly, as we laid out in the backgrounder and as the minister mentioned, our analysis looks at Canadian households and their asset/liability profile through the survey of financial security. We take that financial profile and then evaluate what an individual household might have in terms of income sources after retirement.

As the minister said, our three pillars of retirement income are OAS, CPP, and private savings, either sponsored through RRSPs or TFSAs or in the form of other equities such as mutual funds, stocks, or equity that they would have in their household. Then we annuitize this balance sheet in a position against life expectancy of the average Canadian family and individual. Our assessment told us that 25% of individuals are at risk of under-saving when their position is calibrated against a 60% post-retirement income replacement rate.

That varies. There are commentators who believe that you need a lower income replacement rate. If that is so, then obviously the risk of under-saving goes down, but there are an equal number of people and academics who think you may need a higher replacement rate, depending on your income or household profile, and then the risk of under-saving goes up. At that 60% replacement rate, which the majority of literature out there says is a reasonable replacement rate to replace pre-retirement consumption, we believe 24% of Canadian households are at risk of under-saving.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you. Do I—

[The Chair, Liberal, Wayne Easter]

You may have a very short one, Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

My quick question is, why was seven years chosen for the phase-out? Why was it seven years? Why not sooner, or why not a little longer?

[Glenn Purves]

In its entirety we talk about seven years, but the reality is that there is a two-year notification stage plus a seven-year gradual phase-in. We are at 2016 right now and it's going to be fully phased in by 2025, so that's close to a decade. Without speaking for the minister who, with his colleagues, agreed to this in June, something in that order of magnitude was viewed as something that would allow Canadian businesses as well as individuals to prepare for an increase in costs. Having that gradual phase-in was viewed as allowing for industry and individuals to be able to absorb the modest contribution process.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

I don't want to run out of time, but before I turn to you, Ron, I will mention to committee members that Thursday will be the deadline for recommendations for the CRA report that we are working on, which deals with tax avoidance and evasion. We are dealing with that report next week on Monday and Tuesday. If committee members have any recommendations, they should get them in so that we can deal with them effectively next week. We should have them by Thursday. Is that okay?

Go ahead, Mr. Liepert.