Finance Committee on Sept. 19th, 2016

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Good afternoon, everyone.

Minister, I applaud you for reaching a consensus with provincial colleagues on an agreement to expand the CPP. Well done. Millions of Canadians in the future will look back at this and say it was a momentous day, as I do today.

You commented on a couple of things. I actually share this passion for pensions. I led a pension study for a major rating agency in Toronto and did some work on this on the panel for the accounting body here in Canada as well, so I understand your comments about lower interest rates and what they have done to defined benefit plans and how lowering rates makes the present value of those liabilities much higher than it was in past years. I also understand winding up or closing defined benefit plans for new employees or closing the plans altogether.

Of the three pillars that exist in Canada, one is not as strong as it once was. Expansion of the CPP makes business sense, makes fundamental sense, and, most importantly, makes sense for middle-class Canadians and those Canadians at home whose children will be entering the workforce in future generations. I tie that back to my children, who at one stage won't be entering the workforce because the nature of work will have changed for them. There will be much less work, and one of the key aspects of the CPP is its portability.

The one aspect I'd really like you to comment on is the gradual implementation of the CPP and how that, part and parcel, will not have a negative effect on the economy, in that it will allow Canadians to adjust and in the longer term will actually have a positive effect on both employment and long-term GDP growth. It's that long-term thinking that our government has stated we will do for Canadians. This agreement you have reached, for which I applaud you again, is a signature event of which we should be proud.

Thank you.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much for that question.

We recognize that the perspective Canadians need to have in order to make confident decisions for their families is a sense of security in the long term. We know that confidence among individuals and among businesses is critically important. For individuals, it means confidence that they are going to be able to retire in future; for businesses, it is confidence that their employees are going to be able to continue working for them and won't seek other employment because they are concerned about their long-term futures.

Putting in place a pension plan, an enhancement to the Canada Pension Plan that can make a real difference for individuals over the long term, was our goal, and doing that, we recognize, is very much a long-term goal. We're doing something today that we can be proud of because we're really focusing on how we can help the next generation and the generations after that. We're making a long-term decision that goes past any electoral cycle, and we're doing it in a way that helps those people who are coming after us in much the same way that people in the 1960s put the Canada Pension Plan into place and improved the old age security and the guaranteed income supplement and did something that over the long term would significantly change poverty among the elderly. That is the perspective.

On your question regarding how to put that into place, we worked with the provinces. We spoke to the provinces about their individual financial situations. We worked to make sure we could put this into place in a way that would not in any way jeopardize businesses across the country, because we want to ensure there is confidence among business owners, large and small, and because we recognize provincial and national economic challenges. By starting in 2019 and by doing this over a seven-year period, we know people will be able to enhance their contribution gradually and in a way that's entirely manageable, which will allow them to have significantly more savings than when they started and to face a retirement that will be much more secure.

[The Chair, Liberal, Wayne Easter]

You can ask a very quick question, Francesco. You have 30 seconds.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

That's tough sometimes.

More on the technical side, I was really happy to see the increase to the working income tax benefit for low-income Canadians so that their retirement income will not be impacted. If you want to elaborate on that, that would be great.

[Bill Morneau, Liberal, Toronto Centre, ON]

One thing we want to ensure as we put in the new enhancement to the Canada Pension Plan is that it will help Canadians across all spectra of earnings ranges. We want to ensure that people in the low-income range don't put more money into the Canada Pension Plan and not get the benefit afterwards because their income is too low. By putting in place an approach to increase the working income tax benefit, we ensure that lower-income Canadians are as well off as, or better off than, they would have been before this plan. We don't want to have an outcome that would in any way put them in a more difficult situation.

This new enhancement will be positive for those Canadians who are now at a low income and then earn more during the course of their lives. For those who stay in a low-income situation over the long term, the working income tax benefit will make sure they are not in any way disadvantaged by this change.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Mr. Liepert is next, and then Mr. Ouellette.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Thank you, Minister.

We've heard a lot of words, but I'd like to focus on numbers a bit.

In the past year you've certainly been quite vocal about the middle-income tax cut, which works out to about $1 per day. If my numbers are correct, this tax increase to the CPP is considerably higher than that. In fact, if my numbers are correct, if someone earns about $30,000 a year, they would pay about an extra $500 a year in CPP premiums but would receive no middle-income tax reduction.

You mentioned a government promise, but there was also a promise in the last election campaign to reduce the small business tax by 1%, if I recall. That was reneged on, and now you've added a small business tax in the way of CPP employer contributions.

I'd just like to get your response. Are my numbers correct? If they're not, please correct me, because I want to work from facts, but I haven't seen anything that shows those numbers as being incorrect.

[Bill Morneau, Liberal, Toronto Centre, ON]

Let me start by saying that an enhancement to the Canada Pension Plan is savings. There is nothing about a tax here. This is money that's being put aside into the Canada Pension Plan to enhance people's eventual retirement outcome. That $30,000-a-year person you're talking about will have, after this is fully in place, an extra $2,400 per year of retirement income, assuming their earnings stay constant, and they will have an after-tax increase in their contribution to their pension, again once this measure is fully mature, of $8 on a biweekly basis. Those are some numbers for you to keep in your head: $8 on a biweekly basis after tax for that $30,000-a-year person, and an additional $2,400 annually in terms of the amount of money they'll receive from the Canada Pension Plan.

With respect to the things we've done this year, I will tell you that we have moved forward on an agenda that's trying to help middle-class Canadians and trying to help Canadians who are struggling to get by. The reduction in taxes impacts nine million Canadians, putting them in a better situation, but it doesn't impact every Canadian. For some of those lower-income Canadians, especially families, the Canada child benefit will make a very material difference. If that $30,000-a-year person had one child, that person would get $6,400 after tax from the Canada child benefit. I think you can work out how much of a significant benefit that is for that person in that situation.

We recognize that to make a difference, to bring in what we call inclusive growth, to help middle-class families, will involve multiple things. It's going to involve helping people in the short term with a tax reduction. It's going to involve helping families in the short and medium term with an enhanced Canada child benefit. It's going to involve helping people in the long term to know that they're going to have the savings they require to eventually retire in dignity.

Along with that, we're going to be focused on how we can make investments to grow the economy so that we can also improve their situations through enhanced work opportunities in the long term.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I know you mentioned that you concurred with one of your colleagues on a question on working with the Ontario government. Certainly in Alberta everything I've heard from the socialist government and the labour unions is advocating for this move, but I haven't heard anyone in small business advocating for this move, so I'd like to know who you're talking to. Specifically, have you met with the CFIB on this issue? I haven't found anyone in Alberta who's prepared to support this initiative, outside of the NDP and the big unions.

[Bill Morneau, Liberal, Toronto Centre, ON]

We believe this historic agreement will be met with continued appreciation across this country. We've found that Canadians are strongly supportive. We've found that business people are supportive. We can say that the Ontario Chamber of Commerce said that they were encouraged by the finance minister's decision to move ahead with national pension reform. We can say that the Canadian Life and Health Insurance Association “welcomes Canada's Finance Ministers' commitment to moving forward with addressing the gaps in retirement savings by Canadians”. We can tell you that we are seeing support across the country for what we know is a long-term improvement in Canadians' retirement outcomes and, better yet, it is being done in a gradual way that assures that our economy can continue to be strong.

[The Chair, Liberal, Wayne Easter]

Thank you, Minister.

Mr. Ouellette is next.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Minister and Deputy Minister, for coming.

Just offhand, my favourite childhood fable was the grasshopper and the ant. I read it to my kids all the time. It's important to think about saving for the future.

When Manitoba signed the agreement, they raised the issue of the death benefit. Funerals are really expensive. Could you describe in a bit more detail if there are any ongoing negotiations about that benefit, and if there's the possibility of an increase?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

We had a full discussion around the table in June with the provinces about the best way forward in enhancing the Canada Pension Plan. I will say that Manitoba was a constructive voice at the table. They were a new government, in place only for a very short time period. They said they needed a little more time around that table in order to make sure that they could consider the impact. I was very pleased that not that long after our agreement, they came and said, yes, they were supportive of the Canada Pension Plan enhancement, which was a very positive outcome.

They also pointed out a number of things they thought we should look at. As you know, the approach to managing the Canada Pension Plan is one in which we work together with the provinces. There's a triennial review of the plan, which is coming up this December. They proposed that we look at several possibilities for improving the plan in order to best meet the needs of Canadians in retirement, and one of those was to look at this particular measure. We agreed that we would do the analysis, which the finance department is currently doing, in order to have a discussion about whether that is an appropriate thing for us to consider.

We will look at those ideas from Manitoba as well as any other ideas that come forward, because our ongoing imperative is to ensure that this plan is successful for Canadians. By that we mean that it provides the benefits Canadians need and does so in a way that ensures we maintain a program that's funded for the long term, as it is today, so that we can protect people from retirement challenges.

We look forward to that discussion in December. We're not doing this on our own but in collaboration with the provinces, and we'll see where we get to on that particular question.

[The Chair, Liberal, Wayne Easter]

Go ahead.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Chair. I appreciate that.

I'm wondering if you could describe in a little bit more detail the working income tax benefit and the benefits for low-income Canadians, as well as some of the investments that will be made for low-income Canadians and how those investments will offset some of the potential costs of this increase for low-income Canadians.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

As I mentioned in my opening remarks, we intend to increase the working income tax benefit for the benefit of low-income Canadians. We have not finalized all of the details on exactly how that will work. That is something that the finance department and Paul Rochon, my deputy, are working on now.

The intent is to ensure that lower-income Canadians who have a constant low income throughout the course of their careers find themselves either no worse off or else better off through this CPP enhancement. That's what we're intending on doing. I'm confident we'll come to some details that we can release in the not-too-distant future.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Before you depart, Minister, with regard to the process going forward, as you're well aware, this meeting was called as a result of a motion by four members and a committee meeting. You may not be in a position to answer this question, but I've been led to believe that this will not take place through an order in council but that it will be legislation. If that's the case, then there would be the opportunity to hold hearings on the matter. We as a committee will be doing pre-budget consultations. We have this issue before us today, and there may be a request for witnesses and other hearings on this issue. If in the not-too-distant future we'll be looking at actually dealing with legislation on this specific issue, then that will be a fairly open and transparent process, I would think. Can you give us an answer yet on whether we'll be dealing with legislation?

[Bill Morneau, Liberal, Toronto Centre, ON]

Mr. Chair, we don't know the exact timing yet, but our intent is to introduce legislation in this session.

[The Chair, Liberal, Wayne Easter]

With that we thank you, Minister, and we'll take a five-minute recess while we wait for officials to come to the table.

Thank you very much, Mr. Deputy and Mr. Minister.

[The Chair, Liberal, Wayne Easter]

We'll come to order again.

We're still on the Canada Pension Plan. I want to thank the Department of Finance officials for coming. With us are Mr. Leswick, assistant deputy minister, economic and fiscal policy branch; Mr. Purves, general director, federal-provincial relations and social policy branch; Ms. Anderson, general director, financial sector policy branch; and Mr. Jovanovic, general director, tax policy branch.

Welcome, folks. My understanding is that you don't have a presentation and that we're going to go straight to questions.

Go ahead, Mr. Sorbara.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Mr. Chair.

I have a couple of questions, and if we can get some clarification or a further explanation, that would be great.

In terms of the projections that were taken into account and used in modelling, perhaps you folks could give some colour on that side in terms of the long-term impact of the full implementation of the CPP. I believe the numbers do come out positive at the end. As an economist myself and someone who has used these models before, I'd like a little bit of colour around that aspect.

[Nicholas Leswick, Assistant Deputy Minister, Economic and Fiscal Policy Branch, Department of Finance]

Thank you very much for the question, Mr. Chair.

In the department, we use general equilibrium modelling techniques. In short, they fully characterize the relationships between firms and households in the economy. They look at firms from the perspective of input and output—meaning things like capital, labour, and material inputs—and at households from the perspective of income and consumption.

With regard to the CPP enhancement, we're looking at the behaviour of firms as they respond to higher contributions. Likewise we're looking at the behaviour of households as they respond to wage adjustments.

From a GDP perspective, as we detailed in the backgrounder, in the short term, in years zero through 12, there would be a very modest impact. From a GDP perspective, it would be in the order of magnitude of 0.05%, which, in terms of raw nominal values, is about $1 billion on a $2.4 trillion economy. Those impacts would dissipate through to 2031 when effectively those negative impacts would turn positive. In 2031 and going forward, effectively the various positive impacts would come online. Those would be the consumption by now higher-retirement-income-earning individuals as well as increased economy-wide savings feeding through to lower interest rates and increased investments.

That's the GDP modelling in a nutshell. From an employment perspective, it's pretty much the same thing as well. The short-term impacts would dissipate over time, and then they would be overwhelmed by the more positive long-term implications after that first 12-year period.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you for the answer, Mr. Leswick.

After the first five years of the gradual implementation take place, there's a two-year top-up period. With regard to the mechanics of the contributions of those, can you give me some granularity on the terms of the tax deductibility for the new employer CPP contributions in terms of the top-up? I believe there's some information on that.

[Miodrag Jovanovic, General Director, Tax Policy Branch, Department of Finance]

I'm sorry if I'm not answering correctly, but I'm not 100% sure I completely understood the question. Is it with respect to the tax treatment of the employer's contribution to the new enhanced CPP?

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Yes.