It is common sense, and there is a clause in the regulations that states it has to invest in the domestic economy within the Province of Quebec. That seems to us a sine qua non, something that we need to do in our provinces and country.
It is ironic that in the House of Commons we discuss the Kyoto protocol and talk about cleaning up the environment and reducing gases yet the pension moneys we talk about that could be invested in doing some of that good work are perhaps being invested in more high risk operations that are completely outside our economy and our country. They are being invested internationally.
On that point, in Moose Jaw, Saskatchewan last summer we had the finale of a Canada-Saskatchewan infrastructure program to reduce pollution and retrofit older buildings. This is something my colleague from Winnipeg knows about very well and has talked about it often in the House. It was a fairly modest program of $600,000.
A half a dozen buildings were retrofitted in Moose Jaw. We were told in the aftermath of the program by the contractors who did the work that the estimated savings in terms of heating and cooling the six buildings would amount to more than $200,000 per year. This means that in three years, as the member from Winnipeg has said in the House many times, the entire bill of $600,000 would be paid off.
The retrofit done on the six buildings probably has a shelf life of at least half a century. There will be very good returns over a long period of time. It is a job creator.
It seems to me that it is nothing but good news, those sorts of stories. For the life of me I cannot imagine why we are not taking more of those initiatives with our pension plan to make sure there is a good return, that we are cleaning up the environment and leaving a smaller imprint for our future generations.
Instead of following the model that appears to have worked so well in Quebec, the people who do not like what has happened or who are concerned or have persuaded others that the Canada pension plan is just not viable, just not sustainable over the long term, will have us perhaps invest the money who knows where because there is no public accounting of it. It could be invested in all kinds of pitfalls like Bre-X, Talisman, WorldCom and Enron.
There is no reason they would not invest in tobacco companies if it looked like they would have a good return, or invest in the third world and to heck with environmental concerns or whether or not the workers there are paid a reasonable wage. Let us not have an ethical stream; for heaven's sake, we would not want to do anything like that.
I listened to the member from Edmonton who represented the Alliance position on this issue. He was concerned about the RRSPs. He said that one of the ways we could pay less attention to public pension plans would be to elevate the amount of money that could be contributed into an RRSP. The amount now is capped at $13,500. There are persistent rumours it is going to be recommended that it go up to $19,000 per year and it could come in as soon as the budget next month.
We have a lot of difficulty with raising the RRSP limits because of the fact that the vast majority of Canadians do not even come close to making their $13,500 limit now. It is just not fair in any sense of the word. Raising the limit to $19,000 from $13,500 was one of a lot of recommendations. It is not fair. It is not right.
We have just come through a $100 billion tax cut in the past five years. The vast majority of that money has gone to the people who are in the top 1% of our tax brackets. Certainly it will exacerbate that. It does nothing more than provide a tax break for the thin upper crust of this country as it is measured by income and has absolutely nothing to do with building a stash of money to fund a life of ease when a person's working days are through.
The current RRSP contribution limit is 18% of earned income to a maximum of $13,500 minus any pension adjustment that an individual has. The limit is already scheduled to rise to $14,500 next year; it is indexed to go up, but there are those who want to up it another $5,000 above that. We cannot speak strongly enough in opposition to this. It is not fair to the people at the lower end. It is not fair to our tax system, which is increasingly disparate in terms of the growing gap between the rich and the poor. We would turn thumbs down on any notion of increasing the RRSP limits.
We need to talk about the business of why public pension plans seem to be under such vigorous attack and it is not just in Canada. Certainly worldwide there have been fights and battles about the way we consider funding our pension plans.
Critics warn, and we have heard it today, about the demographic time bomb waiting to explode and an age war over pension plans and pensions as the baby boom generation begins to retire over the next several years. Because the population is aging, we are told there will be fewer people of working age to support those who have retired and become dependent and that younger people will resent paying the cost of supporting the growing numbers of the older generation. At least that is the argument from the right wing. The answer according to some people is to eliminate the public pension programs like the CPP and force people to contribute to their own personal savings plans instead.
The fact is that public spending on income security for seniors in Canada is modest by any international standard and is expected to peak at levels well below those anticipated by other western countries in this century. Public pensions have reduced poverty and inequality among seniors in Canada. That is a truism and is very important to restate.
While the percentage of older people in the population is indeed increasing, the percentage of young people has been dropping. However by 2031, when the so-called demographic time bomb is supposed to explode, the total dependency ratio in Canada, the ratio of the young and the old, will still be lower than it was in 1951. In addition to that, as seniors form an increasing percentage of the population, they will account for an increasing percentage of all taxpayers.
The boomers, who have been described as the trillion dollar generation, will be much better off in retirement than today's generation of seniors. They will also pay an increasing share of the amounts collected by various levels of government in different kinds of taxes and user fees that will help pay for services to the elderly, such as pensions, health care and long term care. In other words, higher total amounts paid in taxes by seniors themselves will finance a significant part of the cost of the programs that older generations require.
Recent Canadian studies have also demonstrated that with relatively modest economic growth over the next few decades, Canada will be well able to afford its aging population, even taking into account increased public spending on health care and pensions as our population ages. The OECD says that if public spending on the old in Canada is to maintain its share of gross domestic product as our population ages, the average annual growth required between 1980 and 2040 is only 1.05%, just over 1%.
What is the panic? Why the panic? The answer is that there were a number of economists who received such prominence and notoriety in the United States and worldwide in the 1980s, the so-called Chicago boys, who pushed people into this notion that if it was public, it must be bad and let us privatize everything.
One of the good examples of what transpired was in Chile in South America when the Chilean economy was pushed down this free enterprise road under Pinochet with deregulation and privatization of public institutions and pro-market policies. Virtually overnight and with no fanfare, no public announcement, Chile replaced its public pension plan with a forced savings scheme that was the darling of the right wing economists and right wing governments and think-tanks around the world. It was held up by the World Bank as a model for other governments to follow.
Here the Reform Party advocated the abolition of the Canada pension plan and its replacement with a mandatory savings scheme of super RRSPs based largely on the Chilean model. Chile's system of mandatory private savings accounts can hardly be called a pension scheme since there is no risk pooling whatsoever, which is a fundamental characteristic of a true pension plan.
The entire risk of providing for retirement in Chile is borne by individuals. Workers must contribute 10% of their monthly earnings into an account with a private investment fund to cover old age pensions and an additional 3% of earnings to cover disability and survivor pension benefits. There is also a mandatory health insurance premium, which is 7% of earnings. In other words, total mandatory contributions to the private funds in Chile, most of which are run by foreign financial institutions I might add, amount to some 20% of earnings and there are no, I repeat no, matching employer contributions.
Experts who have looked at Chile's mandatory private savings scheme have raised serious concerns, including the high cost, the low coverage, the large number of vulnerable workers who are excluded, the inadequate benefits provided by the scheme and the systemic bias against women. Low income workers cannot afford the high contributions and many are in default.
It has been estimated that for the average worker, the fees, commissions and other charges consume well over one-third of contributions. By way of comparison, the cost of running the CPP, at least the cost before the recent reforms, is 1.8% of the contribution revenue. It is clearly a very manageable number.
People who are advocating this privatization have used tactics that are strikingly similar to the kinds of strategies being used by privatization advocates both in the United States and in countries like Chile. The key to having radical changes adopted, of course, is to create a crisis mentality. If people can be convinced that our public pension program is in crisis, they will be much more amenable to making major changes.
Corporate funded think-tanks and right wing commentators have put forward a number of different schemes to privatize the CPP by converting it to a system of mandatory individual savings accounts or by allowing people to opt out of the plan and have their mandatory contributions directed to their individual savings accounts. While initially most proposals seem to favour the Chilean model, in recent years we have seen other countries such as Britain opting out.
The Reform Party, in a 1998 booklet on pension reform, asserted that privatization based on individual accounts was working successfully in other countries, Chile and Australia. A closer look at these countries revealed that is not the case at all.
The Alberta government, under a treasurer who is now a member of this House, threatened to take Alberta out of CPP a few years ago unless federal and provincial finance ministers agreed to adopt several Alberta proposals, one of which was to allow individuals to opt out of the CPP plan and have some part of their contributions directed to their individual accounts. Opting out raises the same kinds of concerns as complete abolition of the Canada pension plan.
First, there would be a huge transition cost because some way would need to be found to pay for the accumulated benefits of people who have chosen to opt out of the plan.
Second, vulnerable workers would be pressured to opt out even though it may not be in their best interests to do that.
Third, the high cost of individual accounts would reduce the proportion of contributions available to generate a pension probably leaving that individual without adequate pension at retirement and therefore increasing the number of people who would have to rely on a minimum government guarantee through old age security or the guaranteed income supplement.
Opting out could seriously undermine the viability of the public plan itself. It is not much different than a publicly funded health care plan and when the private aspect of it is introduced, we risk ruining the entire system. It is no different with pensions as it is with health care. Based on other experiences, those most likely to opt out would be, surprise, higher income workers with secure jobs. If contributions from these workers were diverted to their private accounts, taken out of the public accounts, then there is less revenue to pay the people at the bottom of the system and there will be less money available for their retirement years. That is what we are getting at when we talk about intergenerational transfer and helping those who need some assistance.
Privatization through individual accounts or opting out would introduce inequalities. The Alberta proposal to withdraw surplus funds from the plan and allow individuals to invest in it privately for their own benefit would also contravene the principle of pooling risks through social insurance. It would weaken public policy levers that could be used to redistribute income and reduce inequalities.
Recent Canadian studies indicate the important contribution made by the public pension program, particularly the Canada pension, to reduce poverty and inequality among seniors. Reducing the role of government to one of simply providing social assistance for those most in need while encouraging marketplace solutions for income security and maintenance, will lead to an increase in rates of poverty and inequality among future generations of Canadian seniors.
Those are a few of the concerns that we have about pension plans and the CPP Investment Board. We are not at all persuaded that what has happened here in recent years is working to the benefit of our seniors or those who will be seniors in the next relatively short number of years.
We are very much opposed to the proposals to extend the grasp of the CPP Investment Board. We are opposed to it for entirely different reasons than our friends in the Canadian Alliance. The NDP believes in public pensions and we think a model based on what has transpired in Quebec over the last 36 or 37 years would work extremely well in the rest of Canada.
