Mr. Speaker, I believe I have 40 minutes for my speech and I will not be splitting my time with anyone, so you will have the pleasure of listening to me for up to 40 minutes.
Later I will address some of the comments made by the parliamentary secretary, but first I want to detail what Bill C-3 is supposed to do. I want to talk about some of the history of the Canada pension plan just to give members some background and then I want to propose alternatives or state where the Canadian Alliance stands on the bill.
Bill C-3 is an act to amend the Canada Pension Plan and the Canada Pension Plan Investment Board Act. It will transfer the management of the cash operating balance and the bond portfolio, which is about $40 billion, to the CPP investment board. Specifically this will permit all amounts held to the credit of the Canada pension plan account to be transferred to the Canada Pension Plan Investment Board by repealing the requirement to maintain in the account a three month operating balance.
Second, it will establish a means by which the investment board may be required to transfer funds to the government to the credit of the Canada pension plan account so that the immediate obligations of the account can be met.
Third, it will transfer to the investment board over a three year period, 1/36 per month, the right, title or interest in each security held by the Minister of Finance and establish the conditions on which the securities may be redeemed or replaced.
Fourth, it will provide a 30% foreign property limit. The Income Tax Act applies to the investment board and its subsidiaries on a consolidated basis, to provide that the investment board will be considered to hold the property of its subsidiaries for the purpose of applying the foreign property limit. Of course at second reading our party proposed an amendment to expand this to allow at least a small way for Canadians to access capital markets to further increase their retirement savings. They themselves then would be more independent at a stage in life when they want to enjoy the full benefits of life rather than being dependent on government assistance.
Fifth, the bill will make housekeeping amendments to the investment board's reporting requirements.
I have some observations and a little history. The CPP investment board was incorporated by an act of Parliament in 1997. It was set up as an arm's length crown corporation and was charged with ensuring the soundness and sustainability of the nation's pension plan.
The assets were planned to be transferred over this three year period to ensure a smooth transition for capital markets, provincial borrowing programs and the CPP investment board itself.
By investing CPP cash not needed to pay current pensions, the board's aim is to enable higher returns in the stock and bond markets over the long term. The CPP investment board currently manages about $14 billion, mostly in equities, for the pension plan. The assets to be transferred include the CPP bond portfolio, made up mostly of provincial government bonds, and a three month cash operating balance. The Department of Finance is currently managing this money.
The CPP investment board made $360 million in fiscal year 2001-02 but lost $845 million in the previous year. About two-thirds of the board's money is invested in indexed stocks tied to the S&P/TSX composite while some is allocated to U.S. and international stock indexes. Including returns from the CPP bond portion, the entire pension plan made $2.3 billion in fiscal year 2001-02.
The federal government's chief actuary estimated that the proposed changes would increase returns on CPP assets by about $75 billion over 50 years. Of course in that estimate we have to take into account the serious decline in the stock market over the last three years, which certainly affects the specific prediction that the chief actuary made.
At this point I want to basically give an overview of Bill C-3 and also speak about the Canadian Alliance position and what we in the official opposition would do if we were in government.
The main thrust of the bill is to transfer all the amounts held in the Department of Finance within the Canada pension plan account, including the bond portfolio which is worth about $40 billion to the CPP Investment Board over a three year period. It would establish a means for the transfer of assets between the Department of Finance and the CPP Investment Board so that immediate payout obligations of the plan could be met. The legislation also spells out how the provincial securities currently held on the account may be redeemed or replaced.
As I mentioned earlier, it applies the 30% foreign property limit. We were quite disappointed that the government did not consider increasing that limit so that it would allow Canadians to access more foreign content within the CPP investment as it should within RRSP accounts as well.
To give a brief history of the Canada pension plan, the government is representing this as a housekeeping bill, but it deals with one of the main pension programs which Canadians receive and it is incumbent upon us to give a history before we vote on this at third reading.
The Canada pension plan was devised over 36 years ago as a mandatory plan on a “pay-as-you-go” basis and would be transferred from generation to generation. There is no account in my name or someone else's name and it is not tied to a social insurance number that would then be invested as a nest egg for retirement. The people who are currently working are paying for those who have retired. When this was started, people who were retired at the time started receiving the benefits but they had not gone through the system in that way. That was one problem.
The actuary at the time advised the Liberal government that this would be problematic, particularly as a demographic shift would occur in which the population growth would not be as much as it was in the post-war period. The government was advised that it would encounter some real financial crunches. Unfortunately, the government at the time disregarded that advice. It shadowed the future in which later on the finance minister completely disregarded the advice of the chief actuary in the mid-1990s and fired the actuary when the person gave advice contrary to what the government wanted.
In 1966 Canadians were told that their payroll deductions required to fund the Canada pension plan would never go above 5.5%. This is important to note because the present government is guaranteeing it will not go above the 10% level. Obviously the 1966 guarantee was untrue. The actuary at the time warned that percentage would not be sustainable over the long term, particularly with the fact that the population was not growing at its previous level.
The government of the day has told Canadians that it will not increase it past a certain percentage, but how can Canadians be expected to believe the government will hold it at a certain percentage when it clearly has not done so in the past?
When it was designed by the government at the time, it was assumed that there would be six tax paying workers for every dependant retiree. That was true when it was set up, although even at the time the actuary pointed out that with the demographic shift this would not happen in perpetuity. The government unfortunately did not set up a system whereby it was invested in people's names in an account and set aside over a 20 or 30 year period so it would be there as a nest egg when they retired. Unfortunately it was a situation where the government counted on this in perpetuity growth in the population that would fund the Canada pension plan. This was unrealistic at the time and the government should have realized that.
By 1993 contributions and interest could not produce the revenue required to cover the benefits paid out. The crunch started by the early 1990s. In 1996 the Canada pension plan was in a great deal of trouble. Over 10 million Canadians were paying $11 billion into the plan but three million people were being paid about $17 billion in benefits. Even though we had a ratio where 10 million Canadians were working and paying into the plan and only 3 million were receiving benefits, we still had a fiscal situation where the amount being paid out in benefits was above the amount being paid in. As we go into the future imagine the stress and the pressures that will be put on the Canada pension plan when the population does not grow at the expected level and when more people retire, particularly the baby boomers.
At that time, the $6 billion difference had to be made up out of general tax revenue so clearly it was not sustainable. The Canada pension plan's chief actuary warned that without changes the plan would be in very deep trouble, particularly when the baby boomer generation began to reach the age of 65, about the year 2012 which is not that far off.
By 1977 the Canada pension plan's assets had fallen to $35.5 billion. During the fall of that year, the Liberal government introduced Bill C-2, which was designed to save the Canada pension plan by the only way it knew how. It increased the cost to taxpayers and took more money from Canadian taxpayers rather than introduce some real fundamental reform to change the system.
Starting in 1998, Canadians saw their take home pay shrink as contribution rates for both employees and employers were jacked up in a series of increases to Canada pension plan premiums. CPP premiums went from 5.6% of the average industrial wage to 9.9% in five years. This is a staggering 73% increase and the biggest tax grab in Canadian history.
The government and the Minister of Finance love standing and saying that they have introduced a $100 billion tax cut, which is completely untrue because they neglect to mention the Canada pension plan tax increase. They also neglect to mention the EI surplus which they have been hiding and using for general revenues. The fact that they stand and talk about this $100 billion tax decrease is just simply untrue.
In 1995 the chief actuary of Canada noted that contribution rates would have to nearly triple, from 5.6% to 14.2%, over the next 30 years simply to ensure benefits could be paid for the indefinite future.
This is an important point because the contribution rate is now up around 10%. The government says, as it said before with the 5.6% level, that it will never go above that. This is not what the chief actuary said in 1995. This person stated that it would need to go to 14.2% over the next 30 years to deal with the retirement of the baby boom generation. The result is that employers and the self-employed are feeling the brunt of this Liberal tax cut.
The Canadian Federation of Independent Business has been conducting letter writing campaigns, both on this and on the employment insurance account. What it is notes is that while employers have received a 7¢ reduction in their employment insurance premiums, the Canada pension plan premiums have gone up by 40¢, and they are said to increase another 25¢ in 2003.
That may not sound like a lot but for small businesses with very small margins, increases like this for each worker are very substantial and certainly cause a lot of businesses to really look for ways to cuts costs. The most obvious way they can cut costs, unfortunately, is through labour. If the costs of labour for small businesses, a coffee shop or whatever, increases, the only way they can really deal with that in the immediate term is to cut labour, which means laying people off. The CPP premium increase is not only a tax grab, it is a job killer as well. Everything the employers have gained back in their small employment increases has been eaten up and more by the Canada pension plan increases.
The worst injustice of the Canada pension plan in general, is the intergenerational unfairness. This is a point I want to return to a number of times in my speech.
Every Canadian worker born after 1980 will see their Canada pension plan investment offer them a 2% return on investment for their retirement. This is unbelievable and unacceptable. However for those who retired in 1995, a different generation, they will receive a 9% return on their investment which is a greater return. However, if one looks at the long term investments over a 20 or 30 year period, this is obviously unacceptable as well.
Economist David Foot has suggested that the federal government should raise the retirement age by two or three years so that boomers can contribute to the CPP longer, thereby creating a bigger pool to invest and from which to draw. It would not have to raise premiums or cut benefits. It is something the government obviously has considered but not acted upon.
Another consideration is that the government could bring in more flexible workplace policies to address some of the problems which I talked about earlier, where employers faced with increased CPP premiums unfortunately have to lay off workers.
A lot of Canadians who are approaching retirement or who have retired have said that if we bring in more flexible workplace policies, older workers nearing retirement could work part time and still make full pension contributions to maintain revenues in the pension fund while creating employment for younger workers. This would also mean that they would still contribute and would draw upon that for a longer period because it would be more sustainable.
Economist David Foot, in describing the 1997 reforms, said, “They do not recognize the profound demographic changes that have taken place since the program was launched”. That is indisputable. The fact is the government has not recognized this pay as we go plan setup where we had a huge population explosion after the second world war with a relative decline after that. It has not recognize that a demographic shift would cause some serious constraints on the Canada pension plan.
The Canada pension plan will take just under 10% of income to receive 25% after age 65. The average annual payout is $5,500 a year. That figure is something we should all consider, because the government loves to say that it is providing for Canadians in their retirement. The average annual payout is $5,500 a year. Obviously a Canadian cannot live on that so for the government to say that it is providing for Canadians in their retirement through this plan is simply farcical.
Another figure we should keep in mind is the number of seniors in Canada will double to 22% of the population by the year 2031. This will place a heavy burden on workers who have to support these pension and health programs. It is important to note that the demographic shift causes a lot of other pressures as well, particularly in health care. As we age we require more and more of the health care. That is just simply logical. Canadians are rightly concerned about where the tax revenues will come from to pay for our social services. Instead of dealing with these problems, unfortunately the government has pushed these off by introducing marginal changes, as it has done with this bill.
Members of the Canadian Alliance do not believe that our future security lies in the wages of a shrinking workforce. It lies in the vast productivity and production capacity of a full economy. We value retirement security as a vital element of independence. The government's goal should be to ensure that as many Canadians as possible are independent in their retirement years, that they can afford to have a good standard of living, that they can afford to take a relative amount of trips when they need to and that they have the quality of life they deserve.
Our policy platform states that we will honour obligations to retired Canadians and those close to retirement under the current state run programs. We will also maintain support for low income seniors.
We believe that future retirees deserve a greater choice. People in my generation who are extremely frustrated with the Canada pension plan deserve a greater choice and a greater opportunity to increase their retirement savings. We should have a choice between a government managed pension plan and a mandatory personal plan. Giving Canadians greater control of their own affairs and retirement plans would eliminate the foreign investment restriction for retirement investments, thereby allowing access to greater capital and investment opportunities. We would devise options allowing individuals greater opportunities to save for themselves as the current system failed its original objective from 1966.
This is an important point because friends my age in their early thirties see the RRSP contribution limit each year. A lot of people in the 55 to 65 age group do not have a lot of money put away. Let me use for an example dentists who own their own dentistry business. They have taken quite a while to pay off debts they incurred when they started out after graduating from dental school. By the time they reach 55 they do not have a lot of money put away because they spent the first 15 or 20 years in their business paying off their debts. At the age where they are making profits or their earlier investments have paid off, they would like the opportunity to put some money into their RRSP. With the present contribution limit it is simply impossible for them to put enough away so that they are fiscally secure when they retire in 5, 10 or 15 years. I hope the Minister of Finance will look at raising the contribution limit for RRSPs in the next budget.
I was talking to a friend recently who said the forms the government sends out indicating the amount an individual can put into an RRSP is a joke. She indicated that the government takes so much from her in taxes that she does not have anything left at the end of the year to invest in an RRSP. The contribution limit is a slap in the face because the government takes so much in taxes. Canadians are taxed at the highest marginal rate of $60,000 per year, and that is an absolute joke.
Canadians who get out of university usually have a high debt load. If they are lucky they may get a job making $30,000 or $35,000 a year. They have to pay down their loans and pay taxes while trying to establish themselves at the same time. Paying high taxes simply creates a crunch on them that is unfair. The government should create opportunities so that these people can pay down their student loans and pay less tax so they can start establishing themselves. For those individuals who are far-sighted they could then start putting away even at that age for their retirement.
Bill C-3 is a step in the government's planned development of the public pension plan in this country. It is managed at arm's-length by a crown corporation. As the Canadian Alliance noted at second reading, the bill is more than a housekeeping bill. The government says it has only presented some minor changes, but we regard them as much more.
We are opposed to the solution proposed by the government. Canadian workers and employers would be bilked out of billions of dollars to pay for a plan that is unquestionably unfair to Canadians of all generations, but particularly to the younger generations in our society.
The Canada pension plan began floundering in the 1990s. In 1996, 30 years after its inception, the plan was going bust. It was fulfilling the prediction of the original actuary who said that this pay as we go plan was unsustainable in the long term. This created a situation where the benefits exceeded the amount going in by about $6 billion. This had to be made up out of general tax revenues.
The Liberal solution was to take more money from the Canadian public. It was similar to health care. Instead of addressing some overall issues and proposing fundamental reforms, it resorted to taking money from the Canadian taxpayer. This is something the government is doing now with the new elections bill. Instead of addressing genuine concerns about the ties between businesses, unions and government, what does the government do? It asks the taxpayer to pay for everything. It wants taxpayers to pay for everything in the elections bill, despite the fact that they may or may not support a particular party. Taxpayers now would have to support every political party that attained a certain number of seats in the last election.
I will go back to the CPP premiums. Beginning in 1998 the CPP premiums were jacked up from 5.6% of the average industrial wage to 9.9%. As I mentioned earlier, the government promised it would never go past this 5%. The government said this promise could be carved in stone. It is now up to 9.9%. The chief actuary at the time said it would have to go to 14.2% over the next 30 years.
Now the promise was that the premiums would never go above 10%, yet the chief actuary said they would go over 14%. Unfortunately we do not receive his advice any more because he was summarily dismissed once the finance minister realized that he did not like his advice. This is a tradition that we see all too often with this Parliament.
It is interesting that people such as the Auditor General who have independence and are able to observe the government and how Parliament operates, are the ones who are bringing to light, as is the case with the firearms registry, the actual substance the opposition has been stating for years. We need objective and independent analysts such as the chief actuary to help us.
When the finance minister fired this person simply for giving advice that the finance minister did not want I think that was a serious breach of independence that Parliament should have addressed. Unfortunately, the government simply let it happen and did nothing.
The worst injustice by the government and its Canada pension plan hike of 73% is the intergenerational unfairness. The government simply has not addressed this and it does not want to address this. In the last election campaign the Liberals simply engaged in scare tactics about this, rather than address the actual problems with the Canada pension plan.
What is meant by intergenerational unfairness? Every Canadian worker born after 1980 would see his or her Canada pension plan investment offer a 2% return on investment for the retirement years. That amount might as well be stuck in a mattress. It is pathetic that we would allow younger Canadians, such as the pages here before me, to receive 2%. Imagine that over a 30 year period there would be a 2% return on the investment. That is completely unfair and it should be changed.