Finance Committee on Nov. 15th, 2016

[The Chair, Liberal, Wayne Easter]

The meeting is called to order. Thank you.

Pursuant to Standing Order 108(2), subject matter of Bill C-26, an act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, we have witnesses here today to speak on Bill C-26.

First of all, welcome everyone. We would like to hold witnesses to about five minutes, if we could, so that we have plenty of time for questions.

Pat Trask, I believe you're going to be first, with the Saskatchewan Seniors Association Incorporated. Good to see you. You and I used to be colleagues 25 years ago.

[Pat Trask, President, Saskatchewan Seniors Association Inc.]

That's right.

[The Chair, Liberal, Wayne Easter]

Welcome. I know this is your first appearance, but we're not as tough as the NFU used to be in those days.

[Pat Trask]

Thank you, Wayne.

As Wayne said, my name is Pat Trask. I'm from Saskatchewan. I live in Saskatoon now. I represent the Saskatchewan Seniors Association.

I'm the president of that group and just got that job in June, so I'm not up to par yet with everything I'm supposed to know. Indeed, it was late Friday when I was summoned to replace someone else. I didn't have a lot of background information and I downloaded all my stuff, but I decided I'm not up to par on everything you want to discuss or ask questions on.

As I said, I represent the seniors and the seniors always need more money. They are right on board with us in asking for the increase in the Canada pension plan. I apologize that I'm not a good working part of this committee tonight, but I would answer any questions if you want to know anything about my background or about Saskatchewan in general.

[The Chair, Liberal, Wayne Easter]

All right. We'll go to questions with you later. Is that what you're suggesting?

[Pat Trask]

Whenever.

[The Chair, Liberal, Wayne Easter]

Okay, good. Thank you, Pat.

We'll hear from the Canadian Federation of Independent Business.

Ms. Morneau—excuse me, I mean, Ms. Moreau.

[Monique Moreau, Director of National Affairs, Canadian Federation of Independent Business]

Thank you, Chair. That's becoming a common mistake for me, so I will reinforce that I am not related to our cherished finance minister.

Thank you for the opportunity to be here today to share the small business owner perspective on premium increases to the Canada pension plan. You should have a slide presentation in front of you that I'd like to walk you through in the next few minutes.

As many members know, CFIB is a not-for-profit, non-partisan organization, representing more than 109,000 small and medium-sized businesses across Canada. Our members represent all sectors of the economy and are found in every region of the country. It's important to remember that Canada's SMEs employ 70% of Canadians working in the private sector, are responsible for the bulk of new job creation, and represent about half of Canada's GDP. Addressing issues of importance to them can have a widespread impact on job creation and the economy.

The CFIB takes its direction solely from our members through a variety of surveys throughout the year. In all previous member surveys on this topic, a strong majority of our members have told us they will be directly impacted by CPP premium increases.

The state of the economy has a big impact on small businesses and the middle class. One of the surveys that CFIB conducts is our monthly business barometer. Our latest barometer shows that small business confidence dropped in October, sitting at 57.7, one point down from its previous barometer in September. Ideally, we want to see this indexed between 65 and 70 when the economy is growing at its full potential.

Although employment plans tend to fluctuate seasonally, this October's downward turn was far sharper than usual. As you see on slide 4, the blue line shows the percentage of respondents planning to hire, and that is 10. The red line is those planning to lay off, which is 21. Normally, we like to see these lines quite far apart, as we did in earlier 2016.

Like many other government programs, the biggest issue around CPP increases is awareness. As you can see, 40% of Canadians think the government pays into their portion of CPP, and nearly three-quarters of Canadians don't realize that current retirees will not benefit from the proposed expansion. In fact, nearly one-quarter of current retirees wrongly believe that they will see larger CPP benefits as a result of the proposed expansion. It is unclear to most Canadians that it will take up to 40 years of increased premiums in order for a worker to see the full impact of these increases in their CPP benefits.

Small business owners don't have money hiding under the mattress waiting for government tax hikes. If CPP/QPP is increased, even if it results in higher future benefits, two-thirds of business owners indicated they would feel pressure to freeze or cut salaries, while nearly half would be forced to reduce investments in their businesses. This impact comes at a time when the government is trying to encourage innovation, investment in business, and job creation in small firms.

Employed Canadians also oppose a CPP hike. Nearly 70% indicated they opposed an increase if the consequences meant a freeze in their wages or salary, while 83% were opposed to the plan if increases led to a cut in their wages or salary.

As you can see, if employed Canadians had extra money to save for retirement, they would first invest in RRSPs and TFSAs over other savings vehicles such as the CPP/QPP. Small business employers also favour such saving vehicles if they have the opportunity to contribute toward the retirement savings of their employees.

If the government is trying to help Canadians save more for retirement, only 18% of Canadians are choosing mandatory CPP increases. There is a variety of other options available, including reducing taxes, creating new incentives for savings, and allowing employees to voluntarily contribute to their own CPP/QPP. Putting pressure on financial institutions to lower their management fees for retirement savings vehicles is also an important consideration.

It is clear that Canadians are uninformed about CPP and want the government to consult with them before proceeding with their plans to expand. Nearly 80% of Canadians, many of whom form the middle class, want to share their views with government. Small business owners also want the opportunity to engage with government on this issue, as 90% of them indicated.

We strongly recommend that the federal government encourage their provincial counterparts to engage in consultation. We also ask the federal government to recall their promise made in budget 2016, where they said, “The Government will launch consultations to give Canadians an opportunity to share their views on enhancing the Canada Pension Plan.”

Finally, if the government does intend to go ahead without consulting Canadians, we suggest they adopt the following mitigating measures.

First, they exempt the first $27,000 of income from additional CPP increases, similar to what the Quebec government is proposing. Second, they could offer up tax savings by sticking to their promise to reduce the small business tax rate. Third, they implement a permanent, lower El rate for small businesses. Lastly, they exempt self-employed Canadians, who pay double the amount of CPP, from these increases.

This concludes my remarks. Thank you for the opportunity. I'm happy to take your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Moreau.

Turning to the Canadian Labour Congress, we have Mr. Yussuff and Mr. Roberts.

[Hassan Yussuff, President, Canadian Labour Congress]

First of all, Chair, members, good afternoon.

Thank you for the opportunity to appear before you today. It's a pleasure for me to speak to the bill. I'm very proud to be here today in regard to this discussion.

The Canadian Labour Congress speaks on behalf of 3.3 million workers across this country. Every day in this country, unions bargain pensions on behalf of our members. The labour movement believes that all workers should be able to retire in dignity after a lifetime of work, regardless of whether or not they have a union. The Canada pension plan is a critical part of retirement security for Canadians. The universal CPP delivers a secure and predictable benefit in retirement and is protected against inflation. The problem is that the CPP benefit was set too low when it was created in 1965. It pays a benefit of just 25% of pensionable earnings below the average wage. We have been fighting to improve the CPP from the very beginning. Seven years ago, the Canadian Labour Congress, in 2009, and its member unions decided to once again redouble our fight to expand the Canada pension plan.

If we had not campaigned tirelessly for the last seven years to expand the Canada pension plan, we would not be here today having this discussion. There is no exaggeration in regard to this point. Both our allies and opponents acknowledge that the labour movement was pivotal in getting this agreement. In the beginning, we had little support. Not a single province supported the expanding of the CPP. The federal government was opposed, and as always, the banks and the insurance companies opposed any expanded CPP.

We were not deterred. We mobilized our activists across this country. We educated our members and the public about an expanded CPP. We patiently explained to anyone who would listen why it makes sense to expand the Canada pension plan. Gradually, we began to win over seniors, students, anti-poverty organizations, provinces, and politicians. The Federation of Canadian Municipalities unanimously endorsed our call to double the Canada pension plan. The Canadian Federation of Students backed our proposal. Pension experts and economists were on our side. Newspaper editorial boards endorsed the expanded CPP. Polls showed that Canadians supported an improved CPP in every region, in every age group, and in every income bracket, regardless of party affiliation.

Gradually, the provinces came to understand why Canadians need a better CPP. Only the federal government stood in its way. At one time, even then, the late finance minister Jim Flaherty supported an expanded CPP. The labour movement made CPP expansion an election issue in the last election in 2015. We helped change the federal government. I am happy and proud to say that the labour movement's consistent efforts are what got us here today.

Critics tirelessly continue to make the same arguments against expanding the CPP. They say that most Canadians don't need a better pension. They say that rising house prices and RRSPs will provide Canadians with dignity in retirement. They say the sky would fall if contributions were to rise modestly over a gradual phase-in period. These arguments have been discredited in the past. They have been rejected by Canadians.

Bill C-26 is the result of a long struggle, and we are proud to see it proceed. This is a historic achievement on behalf of Canadians and our country. For the first time in 50 years, the Canada pension plan benefits will improve.

I want to thank personally Minister Morneau and the provincial governments for their hard work and leadership in getting us this deal.

The bill before you today, Bill C-26, isn't perfect by any stretch of the imagination. For instance, we fail to see why the child-rearing dropout provision isn't extended to the enhanced benefit. This may have been an oversight and it needs to be fixed before the legislation is adopted by the House.

We urge the committee to include a child-rearing provision in the new benefit, but make no mistake; Bill C-26 is a historic and significant improvement in the CPP benefits for working Canadians. At a time when public pensions are in retreat around the world, Canada's leadership sends a beacon to working people everywhere. This is a proud moment that we Canadians can celebrate.

On behalf of the congress, thank you very much for inviting us to present before the committee today.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

With the Confédération des syndicats nationaux, we have Ms. Joncas, Ms. Lévesque, and Mr. Enault.

Ms. Lévesque, I believe you're leading off. Go ahead.

[Francine Lévesque, Vice-President, Confédération des syndicats nationaux]

Mr. Chair, on behalf of the CSN, representing nearly 2,000 unions active mainly in Quebec, I would like to thank you for allowing us to appear before the Standing Committee on Finance on the important topic of the future of Canada's pension plans.

From the outset, I want to commend the initiative and the elements of the bill because they are designed to improve the financial security of Canadians when they retire. We think this is a very important goal. When they retire, most Canadians rely on the Canada Pension Plan as their main source of income.

The bill contains two main measures, which we support. The goal is to increase the income replacement rate from 25% to 33% and to increase the salary considered in the income replacement rate.

While we support those two measures, we feel that it should take a little less time to implement them. For many years to come, the majority of Canadians with a significant lack of income at retirement will not benefit before all this is fully implemented.

While this is a step in the right direction, we believe it is important to consider some other elements and to significantly consolidate the other pillars of the retirement income protection, private plans and other aspects, such as the guaranteed income supplement and the old age security program.

For the poorest workers, it would have been desirable that the preferred measure to guarantee the improvement of their income should not be fiscal, but rather integrated into the pension system, since they are not immune to much faster and frequent changes in tax rates. If perhaps we had taken a little more time, we could certainly have looked at options to raise the income level, while not imposing any form of additional contributions for lower income workers. The latter are those whose income is less than 50% of the maximum pensionable earnings.

The other measure that is of great concern to us is the integration with private plans. In our view, the current proposal is a step forward, but it is basically an upgrade, considering that the last few years have been rather difficult for pension plans with the many cuts and reductions.

Right now, employers must also maintain their company's pension plan. Where none exist, we think steps must be taken to establish them. The main challenge we face is to ensure that, for all the pillars of retirement income, we do not receive something from one hand that is taken by the other. We must not end up in a situation in which the retirement income of the worst-off workers is not improved, when all is said and done.

In conclusion, we welcome the bill. However, although this reform is not enough to solve all the problems within Canada's pension system, it is a step in the right direction. Increasing the income replacement rate from 25% to 33% is a step in the right direction, but this will not allow a large proportion of workers to reach the levels of savings required to ensure adequate income replacement upon retirement.

Several recent reports have noted the challenges of private pension plans and Canadians' low level of savings. It is believed that Canadian employers are increasingly shirking their obligations, which include putting adequate pension plans in place and contributing to their employees' retirement savings. This is because no law exists in Canada requiring employers to pay into a company plan as is the case in a number of OECD countries.

Requiring contributions from workers and employers encourages the establishment of adequate pension plans, which is not achieved by strict reliance on individual savings. International experience demonstrates not only the ineffectiveness of voluntary and individual saving measures, but also the difficulties people encounter while trying to understand, manage and determine the contributions required and the best investment choices on their own. All of that speaks in favour of strengthening the three pillars of Canada's pension system.

For all those reasons, we welcome the initiative and we look forward to further reflection to continue moving forward and ensure that all Canadians have a better retirement income.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Lévesque.

From the Canadian Union of Public Employees, we have Mr. Janson.

[Mark Janson, Senior Pensions Officer, National Office, Canadian Union of Public Employees]

Thank you, Mr. Chair, and thank you to the committee members for having CUPE here today.

CUPE is Canada's largest trade union. We have 639,000 members across the country. Pensions are a very big deal for our members. Half of our members don't have good defined-benefit plans in their workplace, so this is an important issue for our members, their families, and their communities.

The labour movement, as the CLC representative said, has long been a champion of Canada's public pension system, and of seeing it grow. At a similar committee hearing to this in 1965, labour representatives appeared and said that they endorsed the creation of the Canada pension plan that year, but were sharply critical of the too-limited level of the benefits that were provided. The 25% replacement rate that was set out that day remains today.

At the time, labour representatives called for CPP benefits to be doubled. The government did not listen and implemented what we saw as a very modest pension system. In choosing a very modest public pension plan, Canada really put all their eggs in the basket of a private pension system that needed to work very well.

The CPP just turned 50. This is a good time to look back. We now have 50 years of evidence showing us quite clearly that this private pension system wasn't working very well for most Canadians. We've never had a situation where most Canadians had a pension at work. Today, six in 10 Canadians don't have a pension at work. Those who do have pensions are seeing their plans become less generous and less secure over recent decades. The individual systems of the RRSP and the tax-free savings account simply aren't working for most Canadian workers. You add all this up and it's no surprise that study after study showed we were facing a big problem, that Canadians simply weren't saving enough and that future generations of retirees were looking at very steep drops in living standards unless something was done. That problem was projected to get worse with each subsequent generation.

Clearly, something had to be done, so in 2009, as the CLC said, the labour movement revived our 50-year campaign to see CPP benefits increased. The labour movement and CUPE were very strongly supportive of the deal that was struck in June. We recognize changing the CPP is not an easy thing to do. The two-thirds/two-thirds rule makes this harder to do than changing the Canadian Constitution, so we applaud the federal government and the provincial governments for sitting down and getting that job done.

Like others here, while we recognize this as an important step forward, we also can't escape the fact that we were calling for a doubling of CPP benefits. The increase provided in Bill C-26 goes only about a third of the way to getting there. CUPE is still going to continue to fight for better public pensions for all Canadians.

Like the CLC, we are extremely concerned about the dropout provisions in Bill C-26. The child-rearing dropout and the disability dropout provisions, which I know you discussed at committee yesterday, have been long-standing provisions of the existing CPP. In Bill C-26 we were surprised to see that these provisions would not apply to the expanded portion of CPP. At first, we thought this must have been oversight and should be an easy fix, but yesterday departmental officials confirmed that this was actually intentional.

These two provisions have been long-standing aspects of the CPP. The child-rearing provision was introduced under the Liberal government of Pierre Trudeau in 1977 with much fanfare. Ministers of the day said the provision “would ensure that a contributor who remains at home to care for young children will not be penalized for that period during which he or she has low or zero earnings” and that “parents should not be penalized under the CPP for undertaking a socially desirable and necessary task”.

This child-rearing provision has mostly been used by women. It has helped women narrow, but not close, the gap between what they earn under the CPP and what Canadian men earn under the CPP. On average, for every dollar a Canadian man earns, a Canadian woman earns about 70¢ in the CPP. That's with the child-rearing provision intact. If the child-rearing provision were not there, that 70¢ would certainly be lower.

It's the same point on the disability dropout. This has been a long-standing provision of CPP. Since day one, this has been part of the Canadian pension plan. It ensures that workers who are forced to collect CPP disability payments do not see their CPP retirement payments suffer as a result. They're simply allowed to drop those years of zero or low earnings from their CPP calculation.

In our view, these are very important principles within the CPP. They're equity provisions within the plan. They've worked well for decades, and we don't see why they should not continue to work well into the future under the expanded CPP. They're still going to apply to the base CPP going forward; they should apply on the same basis to the expanded CPP.

We wonder whether the provinces were aware that these provisions would not apply when the deal was signed in June, and whether they know now. The discussion yesterday at committee clearly showed this has not been costed by the chief actuary's office or Department of Finance officials. We would suggest it's a pretty simple first step, which could be taken at the committee, to find out what this is going to cost on that side of the ledger, but then on the benefit side of the pension ledger to run some numbers to find out what this is going to mean for women going forward, or for Canadians with disabilities, in terms of the CPP cheques we expect they're going to receive under the expanded portion of CPP. These are important principles. They've applied for decades and they should absolutely continue to apply.

Thank you for your time.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Janson.

Turning then to questions, we have a seven-minute round.

Mr. MacKinnon.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

My thanks to the witnesses for being here today. Welcome to the Standing Committee on Finance, and thank you for sharing your views with us.

My first question is for Ms. Moreau, who, as usual, faithfully reflects the views of her members.

I also consult with the leaders of small and medium-sized businesses not only in my riding, but also across the country. They are far from decrying this new plan, as you have done. They are saying the same thing as the projections from the Department of Finance. Based on those forecasts, the impact will be modest for both sides. In the short term, the reform will have a very small impact on employment. However, in the long term, it will be a good thing for jobs and growth in Canada.

How do you explain the gap between the very pessimistic view you have described in your presentation and the econometric projections based on real data from the Department of Finance?

[Monique Moreau]

Thank you for the question.

First, we agree that everyone should have a retirement income that allows them to live a comfortable life after working for many years. I'm presenting the position of 109,000 members, although they may have different opinions.

You have heard of the efforts made to improve the Canada Pension Plan. The CFIB has always tried to present the position of SMEs. Some of those companies will not be able to absorb the cost of the changes. As I explained, two-thirds of our members indicated that they will have to review their current number of employees and salaries, as well as their ability to hire. In the long term, we will see what happens.

Let me point out that the government has not given us enough information on this. It did not consult, as promised, with SMEs and Canadians. In our view, the impact of those measures on SMEs should be mitigated. If there are still repercussions for several years after the reform, we invite the government to support companies for a period of five, 10 or 15 years.

[Steven MacKinnon, Liberal, Gatineau, QC]

We do indeed have to take into account the views of Canadian businesses and entrepreneurs. Let me tell you that there have been consultations. The provinces have done that, and we are holding one today. The figures, deductions and tables are all known. It will take a number of years to implement the new deductions.

Do you not think there's a gap between the disastrous scenario you're describing and the economy-based data that we have received?

[Monique Moreau]

There may be a lack of communication. As I said, we did a survey with a third party, Ipsos, which surveyed 2,000 Canadians. They believe that the government contributes to the CPP and QPP. We are talking about almost half of the respondents. If the information you have indicates that it will not get to that point, I encourage you to share it with the public. Despite the changes that will be made, it is clear that many Canadians do not understand how the system works right now on either side. I think a lot of awareness needs to be raised on the issue.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, duly noted, Ms. Moreau.

Since I'm a member from Quebec, I will now turn to Ms. Lévesque.

Quebec has started its own exercise on pension plans. What are your thoughts on the enhanced plan that Quebec intends to implement?

[Francine Lévesque]

Thank you for the question.

In Quebec, we have to make specific representations to our government, given that we have a special plan, but the content of what we are saying is along the same lines as what we have said before you today on the Canada Pension Plan. We believe it is important to take measures to increase the percentage of contributions to the Quebec pension plan. We also believe it is important to ensure better plan coverage.

On those issues, we are saying exactly the same things. We believe that measures must be taken factoring in all the generations. We must avoid costs for future generations. We express this view in the debate on Bill C-26, as well as to our government. Its work is still ongoing and we are waiting to see how it plans to change its pension plan.

[Steven MacKinnon, Liberal, Gatineau, QC]

This is a fine example of co-operation and consensus in both Quebec and Canada.

[Francine Lévesque]

In any case, it is a fine example of consistency on our part.

[Steven MacKinnon, Liberal, Gatineau, QC]

Okay.

[Francine Lévesque]

We are saying the same thing.