Debates of Oct. 22nd, 2002

Canada Pension Plan

[Monte Solberg, Canadian Alliance, Medicine Hat, AB]

Mr. Speaker, I want to thank my friend, who is very knowledgeable about this, for pointing that out.

It points to the political hazard that occurs when the federal government gets involved with big pools of money like this, ostensibly money that is supposed to look after the retirement incomes of Canadians. Inevitably the government starts to consider what is best for it as a political outcome. That is the problem. That is why we advocate that this money should be disbursed. That is why we have advocated this idea of Canadians owning their own accounts to some degree. The money should be disbursed because the government inevitably uses taxpayers' money for reasons other than what it initially was designed for.

If the point is to enhance retirement incomes, to ensure that Canadians get the best possible return, to ensure that disabled Canadians get the best possible pension, then how can the government justify below market rates of interest to the provinces in this plan, just like it was in the last plan? The problem is that it has forgotten what this money is for and it is starting to use it for its own political interests. That is the problem.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I am pleased to rise and join the debate on Bill C-3. The bill is basically completing the implementation of the Canada pension plan reform that was started in 1996. We know the policy and the platform of the Alliance members opposite, and that is to set up private pension plans. They talk about distributing it to Canadians so that everyone has their own account and their own private plan. If we look at it in more detail we do know who benefits from that. It is all their buddies, the investment advisors and the brokers on Bay Street. They have modelled it after what they have in Chile. We all know what happened in Chile. The plan did not work.

What we have in Canada is probably one of the most respected pension schemes, pillar approaches to pension management in the world. It is recognized around the world. It is based on the three pillars: the old age security program, the Canada pension plan, and the employer-sponsored pension plans, RRSPs. These pillars are closely integrated and form a cohesive approach to retirement planning and income.

The bill would transfer the balance of the assets that were held by the federal government to the Canada Pension Plan Investment Board. It would complete the process. The board would be able to manage this portfolio in a balanced way. It has a clear mandate to optimize the returns for the contributors to the pension plan. It would remove one of the bottlenecks or ways that it was hamstrung previously when it had to invest in provincial government bonds and was receiving a less than optimal return for the contributors to the pension plan.

We need to go back a bit in history as well to the mid-nineties and perhaps earlier where many Canadians were concerned about the sustainability and the soundness of the Canada pension plan. The government launched an extensive consultation process across Canada, talking to various experts and Canadians in general, the provinces and territories. There were two main approaches that were under debate: first, the government could have increased the premiums; and second, it could have reduced the benefits. However, the government, in its wisdom, decided to do a combination of both. There was some modification of benefits but there was also an increase in the premiums to a level of a 9.9% contribution rate.

Contrary to what the members opposite say, there have been three actuarial reports since those measures were undertaken that have confirmed the soundness, the actuarial soundness, of the Canada pension plan. We now know that the Canada pension plan is on a sound footing and that Canadians can rest assured that their pension requirements will be met through the Canada pension plan.

When we look at investment returns, we need to look at it over the medium to long-term. I know in my own account I look at mutual funds. Some mutual funds have achieved high rates of return in the short run but over the medium to long-term are not as successful. Therefore, we need to give the board an opportunity to prove that it can optimize and diversify this portfolio of investments. I am sure that it is up to the job because, as my colleague pointed out, it has a capable, independent and arm's length board that is managing this portfolio. The bill would transfer the balance of the assets to the control of the board so that it could manage a diversified portfolio in a sound way, one that spreads risk and manages risk in a much more cohesive way.

This board would have a sound governance that it is designed to achieve. We hear a lot about corporate governance these days. The board of directors would be independent and accountable. There would be quarterly reports. There would also be an annual report to Parliament. The policies of the investment board would be open and transparent. It would hold public hearings every two years. There is a website so that Canadians can dial up and see how the fund is doing.

This board has a mandate to operate in the best interest of CPP contributors and its beneficiaries. It is very much like any large pension plan that has the ability to diversify into bonds and equity investments. Today's market has been badly hit, so in this market any pension board that is beating the market is doing very well and once the market returns to a sounder footing, I am sure that the CPP board will achieve some excellent results.

I would like to comment on the three pillars because the bill is fairly routine in the sense of completing the implementation of the CPP reform and transferring the balance of assets to the board. I would like to look at the old age security program and the GIS. I have many constituents in my riding who are on fixed income. In my area property taxes have increased and I have a number of constituents who have worked hard all their lives who are living in modest suburban homes and are finding that on a fixed income the pressures on them to maintain their property taxes and their standard of living are severe. It is something that we need to look at in terms of seniors and how they are able to cope, people who are on fixed incomes.

We know that the old age security is adjusted by inflation and the GIS but perhaps we should be looking at that in a more comprehensive way. Doing so would have a cost attached to it. Canadians do not want to go back into deficit but it is something that the government should be mindful of. Likewise I hear from many Canadians in my riding, of modest income, who are concerned about the clawback provisions, individuals who have worked hard all their lives and contributed to a private pension and to the CPP and suddenly now because they are at an income that is not excessive but at a modest income level, a lot of these pension benefits are taxed away. That is something over time that the government should be looking at to see if there is a way to remove a disincentive in the system that has a tendency to penalize those Canadians who have been responsible and put away money for their retirement.

We have other issues under the private pension schemes and RRSPs, that is, that there are limits in terms of the deductibility of contributions to pension plans for companies. For example, an auto worker with Ford, GM or Chrysler, the amount of contribution that the employee can make and that the company can make to a company pension plan is limited by our tax rules. It is something that our government should look at over time. Likewise there has been much discussion regarding RRSP contribution limits. The government has increased them quite substantially and consistently over time. However if we look at the three pillars of our retirement system, we need to ensure that all the pillars are acting in a uniform, consistent way so that if the government was to do anything with the RRSP contribution limits it seems to me that it would also need to look at the CPP contribution limits for private or corporate plans.

The bill before us is fairly straightforward. I cannot imagine that the members opposite would not want the contributors and the beneficiaries of the Canada pension plan not to have an actuarially sound plan, not to provide the opportunities for the managers of that portfolio to achieve the maximum benefits within a sound and a risk managed environment so that the returns could be increased and the contributors would receive the maximum benefits that they could. I cannot imagine that the members opposite would vote against that.

To conclude, I would say that this CPP reform is really another segment of the government's approach to fiscal management. The member opposite talked about tax cuts and paying down the debt. I guess he has not been listening or has not been around, but in the year 2000 our federal government introduced the largest tax cut in Canadian history. In fact, this year those tax cuts are saving Canadians $20 billion a year.

With respect to the debt, the government has now paid some $45 billion or $46 billion against the federal debt. Is it still too high? Of course it is, but without the actions of the government in eliminating a $42 billion deficit in only five years we would not have been able to even attack the debt. We have started that process. By paying down in excess of $45 billion, the federal treasury is saving $3 billion a year annually. That is an annual saving. Those funds can be redeployed to more tax cuts or to strategic investments in social programs or other economic programs or to pay down the debt.

CPP reform is another step or another cog in the wheel that is improving the lives of Canadians from coast to coast to coast. For members opposite, once they have had their comments in the House for the benefit of I am not sure who, perhaps their investment adviser friends on Bay Street, given their fundraising constraints and I am not sure who they are trying to reach with this private pension scheme, we do know that it will not work. In Canada we have a culture of doing things together, of acting as a community of people sharing risks among ourselves. We do not just throw everyone to the hounds. We have that culture in Canada. The CPP is something that everybody in Canada appreciates and benefits from.

The members opposite often talk about the CPP as a tax. When we talked about the increase in CPP premiums, I remember that the members opposite on many occasions said in the House that it was an increase in tax. Of course it was not. The CPP is not a tax. It is a contribution based plan that takes contributions and premiums from employers and employees and puts them into a fund that will help Canadians plan and execute their retirement in a sound and reasonable way.

Again, I think the members opposite really do not have it right. They should be thinking more clearly about these measures that our government has implemented and continues to implement. I know that we all look forward to the next budget. In fact next week the Minister of Finance will be giving an economic and fiscal update. I am sure he will comment on the Canada pension plan and its soundness.

I am very glad the government has taken these steps. I look forward to my own retirement one day when this plan will have optimized my contributions and the contributions of other Canadians to the benefit of all.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, we note that Bill C-3, the amendments to the Canada pension plan and the Canada Pension Plan Investment Board, contemplate changing the rules regarding foreign investment, so that now under Bill C-3 the board would be allowed to invest offshore in foreign investments up to 30% of the amount that it is investing. It is certainly our view that if we are to invest taxpayer money on the private market it should be invested locally to get the maximum return for local businesses, for Canadian enterprises, and that any benefit from this investment, whether it is venture capital or an equity investment in a company, should be geared to yield the maximum returns. I would ask the hon. member to comment on why the bill contemplates foreign investment of up to 30%.

I will add one more detail to that. The experience to date has been that the board's Canadian investments have yielded a 13% return and all its offshore investments combined have yielded a negative, a minus 3% loss. For all the reasons I have stated and the obvious reason that these foreign investments are not yielding a higher rate of return than local investments, would he not agree that we should not have this 30% ceiling for foreign investment?

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, I thank my colleague for his two-part question. I will attempt first to deal with the first part.

What is being done here is to bring the foreign property rule into line with other pension plans. It is a question of consistency. It would not make much sense at all for the CPP to have a different set of rules than other plans. Canadians are not even close to taking up the full 30% of the foreign property rule. Some Canadians say that we should relax that completely and eliminate the 30% rule, but I am not so convinced. First of all, I think there is a lot of room right now to take it to 30%. The counter-argument of course is that Canadians should have the ability to decide where their investments are made, in Canada or offshore. I have a certain sympathy with that argument, but if it is going to be subsidized or supported by the Canadian taxpayer we would like to encourage that kind of investment in Canada.

The member is quite right when he says that markets in Canada have performed very well. I think that if we have a sound investment board it will take those factors into consideration. It is not really for us to try to second guess what the board will do. If the domestic market is outperforming foreign markets, then presumably the board would make those decisions in the best interests of all.

[Scott Reid, Canadian Alliance, Lanark—Carleton, ON]

Mr. Speaker, my question relates to the one that the hon. member from the New Democratic Party raised, but I must say that I take somewhat the opposite approach to the question of foreign content.

It seems to me that on principle we actually could defend zero per cent foreign content if we believed in autarky and no trade and so on and so forth. We can and I think we should defend a complete openness so that as much as possible can be invested wherever the best investments are, without regard to any consideration other than producing the best rate of return for Canadian pensioners. Thirty per cent or any other arbitrary percentage is of course indefensible. It is merely an arbitrary decision based upon political considerations.

I have to talk about what this means for Canadians and for the rate of return on our investments. Keith Ambachtsheer, one of the leading actuaries in Canada, has said that in order to achieve the same rate of return on a purely domestic portfolio one must absorb substantial extra downside risk. That is the danger of trying to achieve a certain rate of return while excluding the 98% of the world economy that is not in Canada. If we do not accept that extra risk, we can expect to achieve substantially lower rates of return over a period of time.

In addition, and this is critical, when a large fund of over $100 billion is invested in a small economy such as our own, the result is that every time we try to buy equities we raise the price, thereby essentially finding ourselves guaranteeing a lower rate of return. Every time we try to sell the same thing happens in reverse. That is the critical argument for looking at the world economy. This is so important that I think we should look at broader diversification.

A final note is with regard to the question of displacement of assets. Just because this pension fund puts more than 30% into the world equities market does not mean Canadian companies will be deprived of that money. What it means is that this money will be moved where the investors think it will do best. Opportunities will be opened up as a result for well informed Canadian investors, and perhaps foreign investors as well, to invest in Canadian companies. We will see investment going to individual companies where it is best suited to produce the best rate of return. That is what we should support.

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, there is a lot of confusion about the foreign property rule. Some people say that Canadians should be permitted to invest their retirement funds in any portfolio they wish. Of course Canadians can do that. No one is preventing them from doing that, but when it comes to getting a subsidy through the tax system, I think it makes for good domestic policy to set certain limits. The government has acted on this. It was 10% some years ago. It was increased to 20%, then 25% and is now 30%. In fact, the domestic returns have in many cases exceeded the returns in the offshore markets. A sound and prudent portfolio manager would take that into account and would decide where to invest the funds.

I do not really agree that it should be totally wide open. As to whether the government would want to increase it beyond 30%, I would support that, but I do not think opening it up completely would have the support of most Canadians.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, moving on to another issue, I note that under Bill C-3 the Canada Pension Plan Investment Board, even though it invests on behalf of 16 million Canadians, would only be required to hold public meetings once every two years. Even though this is a fairly new venture and we are breaking new ground by rolling the dice with pension dollars on the open market, only once every two years would the board have to come back to the shareholders, the actual people who would be affected by the investments. Even the shareholders' meeting, or the pensioners' meetings or the public meetings, would not really be democratic in any kind of way because unlike a shareholders' meeting those pensioners would not be able to move amendments or give direction to the board.

When the buzzwords these days are transparency and accountability, how does the government defend the idea that the board would only have to answer once every two years to the very pensioners for whom they are investing?

[Roy Cullen, Liberal, Etobicoke North, ON]

Mr. Speaker, when we look at transparency and accountability we need to look at the full sweep of measures.

The member raises the point about public hearings every two years. This would be an opportunity for citizens to come out and express their views if they felt that the portfolio was under performing or they felt that the benefits should be expanded.

However, in addition to the public meetings every two years, the investment policies of the board are open and transparent. There are quarterly reports on the performance and the operations of the pension board. An annual report is presented to Parliament and that could trigger a debate in the House. There is a website.

I think Canadians will have full and ample opportunity to judge the performance of the board and to raise their concerns.

I think the turnout at public meetings more than every two years would be less than optimal. Canadians want to be consulted but they would like to be left alone from time to time as well. I think with this full set of accountability measures the government has responded very adequately.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I will use this opportunity to speak briefly to Bill C-3 and some of the areas of concern to the NDP. We did not have an opportunity to raise many of them during the debate.

One of the issues I would like to raise in this short period of time is that there is nothing in Bill C-3 or the guidelines for investment that give direction to the Canada Pension Plan Investment Board to deal with ethical investments. In other words, even though this is a popular trend and a popular theme in many other pension plans, the pension board has very few guidelines because it is not mandated to invest locally to advance domestic businesses and it does not have to follow any ethical guidelines.

Theoretically, my pension plan dollars could be used to invest offshore in some sweatshop operation that I do not approve of, or in some tobacco industry investment that I do not approve of. We have very little or no say. There should have been a process whereby ethical screening would take place for any of these investments. Certainly one of the shortfalls of Bill C-3 is it fails to give direction to the board that Canadians by and large want ethical investments.

We argue that we do not have to accept a lower rate of return to invest ethically. In fact many of the green funds and the ethical investment funds on the market currently, some of the financial instruments, are outperforming general funds. We do not believe that is necessarily any kind of a compromise.

Speaking of the composition of the board, the documents circulated by the government which talk about Bill C-3 say that the board is made up of experts in the field, if I could put it that way, from the financial community, people who have a history and a background of dealing with large scale investments of this nature. Keep in mind that we are dealing with $120 billion to $130 billion within five years. That just has not been true.

At least one of the eleven people appointed is the former member of Parliament who represented my riding before I beat him in 1997. He is a university professor in political science with no experience or history in financial investments of this nature. Therefore, at least one is clearly a political patronage appointment, a reward or fallback position, so to speak. The composition of the board is still one of the real shortfalls of this whole idea.

Now $120 billion to $130 billion is being invested on the open market by a group of 12 people. It is being invested badly because in every quarterly report that has come out so far another $1 billion has been lost. Frankly we would have been better off if we had remained with the status quo and had not been seduced into the open market by the high rates of return during the high earning years when the IT sector was showing rates of return of 20%, et cetera. We were seduced into that market.

There is a rule in that sort of investment arena. One does not gamble with scared money. One does not go in there unless one is prepared and knowledgeable. Tourists are not brought to the table. Amateurs should not be part of the board.

Even when we lost $1 billion per quarter, the CEO's salary was doubled. In the first quarter that the board reported, $1.2 billion was lost. The CEO's salary was doubled, as a reward I suppose for that great track record, and his performance bonus was doubled.

This smacks of the worst kind of corporate governance that no one has any tolerance for any more after watching the corporate fraud fiascos in the United States as well as across the border in this country with Livent as of today. We seem to be replicating the very worst aspects of corporate governance rather than setting some new higher standard with a well structured board that meets, that has to report back more than every two years and that is composed not by Liberal patronage appointments but actually by qualified people.

First of all, I do not believe we should be rolling the dice with Canadian pension investments. We should be following the model of the Quebec pension plan, which mandates that a maximum rate of return is one objective, but secondary objectives are to promote business within the province of Quebec. That way we kill two birds with one stone and maximize the benefit of those hundreds of billions of dollars that will be invested.

[The Acting Speaker (Mr. Bélair)]

The hon. member for Winnipeg Centre has 15 minutes remaining if he wants to use it tomorrow.

A motion to adjourn the House under Standing Order 38 deemed to have been moved.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am glad to have an opportunity once again to ask this question of the government. I rose twice before in the House of Commons and asked the federal government how it justified that aboriginal and Métis people who volunteered to join the army, went overseas, fought in the second world war and the Korean conflict, then arrived back in this country after serving the country in the wars, were not given the same financial benefit and settlement services that other non-aboriginal veterans were given. They were denied the same settlement services, educational opportunities, housing opportunities and cash for financial settlement services to help them readjust to Canada after serving this country overseas.

I asked the Minister of Veterans Affairs and the Minister of Indian Affairs and Northern Development a year or two ago when they would finally settle these longstanding claims. These aboriginal veterans are getting older. Many of them are in their eighties. Many have passed away already. In fact, there are only about 1,800 left who are eligible for benefits.

After pressure from the aboriginal community and the Assembly of First Nations, the Minister of Indian Affairs and Northern Development ultimately made them an offer of settlement. A national round table on the issue met for two years and came out with a recommendation of $120,000 per person as compensation that would be comparable to what non-aboriginal veterans received. Some figures were as high as $430,000 per aboriginal veteran so it was anywhere in that range.

The offer made by the Minister of Veterans Affairs to the aboriginal veterans was $20,000. Less than one-fifth of the most conservative estimate of what was owed to them was offered in a very cynical move. These elderly people are starting to think that they cannot fight the fight much longer and that they will have to accept the lousy one-fifth of the most conservative figure or get nothing at all, and that at least their children would be able to enjoy that amount of money.

The most recent question for the Minister of Veterans Affairs was would the government revisit the negotiations, sit down at the table again and reconsider the settlement agreement for the 1,800 outstanding aboriginal and Métis veterans who were denied settlement benefits when they returned from the second world war and the Korean conflict.

[John Finlay, Liberal, Parliamentary Secretary to the Minister of Indian Affairs and Northern Development]

Mr. Speaker, I am pleased to elaborate on the Government of Canada's offer to first nations veterans.

In February 2000 the federal government agreed to establish a national round table on first nations veterans issues, as my friend has said. This process saw the cooperation of several government departments along with various representatives from first nations groups who were committed to addressing these concerns.

In response to the grievances of first nations veterans and the national round table report, the Minister of Veterans Affairs announced on June 21, 2002 that the Government of Canada was offering up to $20,000 to each eligible first nations veteran or surviving spouse as an offer of goodwill. Members of all political parties were supportive when the minister made this announcement in the House.

In fact, this amount is consistent with the benefits offered to other veterans groups by the Government of Canada, such as the merchant navy veterans and the Hong Kong prisoners of war, two other groups who were not compensated adequately following the hostilities. I should also say that the amount to be received by each veteran under our current approach to veterans benefits is tax free. I wish to reiterate that this offer is one of goodwill and is not an ascertainment of liability or its absence.

I am also pleased to learn that eligible veterans' surviving spouses or estates have since accepted the offer.

Indeed, there is acknowledgment that the government continues to be prudent and focus spending on the highest priorities of Canadians.

In the recent Speech from the Throne the government pledged to close the gap between non-aboriginal and aboriginal Canadians. It also pledged to support children and families in poverty, to make more competitive cities and healthy communities, to build on investment and skills, learning and research and to meet the challenge of climate change in the environment.

There are always competing priorities for taxpayers' dollars. The revenues of the government are revenues of the citizens of this country and are to be used for all programs.

It is also my expectation that the applications will all soon be processed so that the cheques may be delivered very soon. The deadline for receiving those applications is February 15, 2003. A 1-800 number is already in place to receive inquiries from first nations members and to register them for an application. These veterans, along with all of those who served our country, have our admiration and respect.

As you know, Mr. Speaker, the Government of Canada is grateful to first nations veterans and all veterans for their wartime sacrifice and is committed to fairness and equity in providing for all Canadians who served their country.

I thank the minister and the Department of Veterans Affairs for advancing this particular file to a fair and just resolution. As the House knows, the Minister of Veterans Affairs first and foremost is an advocate for our veterans. He is honoured to be serving the needs of those who so valiantly served our country in times of war.

[Pat Martin, NDP, Winnipeg Centre, MB]

Mr. Speaker, I am not satisfied with the minister's message read by the parliamentary secretary.

We believe that when the national round table studied the issue and recommended at least $120,000 per veteran, that should have been binding. The offer made to the veterans, many of whom are in a desperate situation and either their health is failing or they are getting older, was less than one-fifth of the most conservative estimate of what the value of those benefits should have been.

Again, I say the high end was $430,000 each. The low end was $120,000 each. The offer made was up to $20,000 and they had to sign a release saying that they would not go after any further funds.

I believe it was a cynical move. The government should be ashamed of itself for not dealing with these people honourably and giving them the compensation that all Canadians deserve after serving in the conflicts overseas.

[John Finlay, Liberal, Oxford, ON]

Mr. Speaker, I can understand the concern of the member opposite, however, I must reiterate that when the Minister of Veterans Affairs announced in the House on June 21 that the Government of Canada would be offering up to $20,000 to each eligible first nations veteran as a gesture of goodwill, members of all political parties were supportive. I presume they were supportive because they knew that was just about the amount that was given to the merchant seamen and to the Hong Kong prisoners.

The offer to first nations veterans was in response to the national round table report and to the grievances of first nations veterans. It was an offer of goodwill and was not an ascertainment of liability or its absence, which I suggest the other figures suggested by my hon. colleague would be.

Eligible veterans' surviving spouses or estates have the option of accepting this package or not. The offer is consistent with similar offers made to other groups, as I have said.

Let me reiterate that the federal government's offer to first nations veterans is a fair offer and one that I hope first nations veterans will accept.

[The Acting Speaker (Mr. Bélair)]

The motion to adjourn the House is now deemed to have been adopted. Accordingly, the House stands adjourned until tomorrow at 2 p.m. pursuant to Standing Order 24(1).

(The House adjourned at 6.54 p.m.)