Lost her last election, in 2008, with 29% of the vote.
Canada Co-Operatives Act October 22nd, 1997
Mr. Speaker, Department of Finance officials have been consulted on Bill C-5. They have indicated that there are no foreseeable tax implications for co-operatives under the bill.
I am not sure why the hon. member would go off on another issue, but there are no tax implications in the bill.
Canada Co-Operatives Act October 22nd, 1997
Mr. Speaker, I thank the hon. member for his question.
Co-operatives are associations of individuals who work together, volunteer and pool their resources. There are many differences among the different types of co-ops. As I said earlier co-ops are found in fishing, agriculture, housing and community development initiatives. They all have slight differences.
I believe the hon. member is aware there are differences for co-ops because they serve different purposes.
Canada Co-Operatives Act October 22nd, 1997
Mr. Speaker, I am very proud to rise today to speak on a bill that is so important for the health and prosperity of the Canadian economy, especially as far as rural and remote communities are concerned.
I want to talk about co-operatives in sectors like agriculture, fisheries and forestry, co-operatives providing energy to remote communities and serving aboriginal communities.
As of 1995 there were over 617,000 members of agricultural co-operatives in Canada. These co-ops were responsible for almost $16.3 billion in sales. Types of co-ops in the agricultural sector include marketing co-ops which account for 34% of the membership and realize 73% of the revenue. They are responsible for marketing some 57% of the market share in dairy products, 59% in the grains and oilseed sector and 47% in the poultry and egg sector.
Take for example the Agropur co-operative in Granby, Quebec. It is currently the largest producer and distributor of fancy cheese and whey in Canada. It is represented in the yogurt and fresh deserts sector by Ultima Foods Inc., a company co-owned by Agropur and Agrifoods International Co-operative Limited, of British Columbia. In 1995, Agropur's sales figure exceeded $1 billion. It has 4,500 members and 2,200 employees.
Agricultural co-ops also include those involved in production and services. One of the most successful producer co-ops is the Saskatchewan Wheat Pool, the largest co-op in Canada. It was formed by farmers in 1924 to handle their wheat harvest. It has come a long way.
In 1995 it had annual sales of almost $3 billion and handled 60% of the total grain movement in the province. In recent years it has successfully diversified into valued added processing, bakery supply and manufacturing, fertilizer manufacturing, an ethanol plant, biotechnology development and a host of other areas.
We can see the impact of co-operatives in the energy sector in Alberta. At one time the rural electrification program carried out by co-operatives in Alberta accounted for almost 90% of the electricity supplied to the province's farmers.
Those co-ops are fewer in number today. Many of them have sold their assets and responsibilities to power companies, but even while the number of co-ops in Alberta's electricity grid is decreasing the importance of natural gas co-ops to supply Alberta farms is increasing. In 1995 these co-operatives accounted for over 54% of the total sales of energy co-operatives in Canada.
Consumer co-operatives are also having an influence on the rural economy. Federated Co-operatives Limited, a federally regulated co-operative, is the second largest Canadian co-operative in terms of revenue.
In 1995 it earned $2.1 billion in sales. It is a supply, production and services co-operative that provides retail co-ops with food, petroleum, seed, hardware and building products, crop supplies, livestock feed and family fashions. It also provides a number of support services such as training, as well as computer, audit, advertising, legal and communication services. It owns the Consumers Co-operative Refineries Limited of Regina, seven feed plants, a plywood plant, a sawmill and the Grocery People Limited retail chain.
In the fishery sector co-operatives have managed through the tough times since the 1992 cod moratorium. Their strength lies in their people. During tough times these people stand together behind their co-op. We have a situation, for example, where despite the moratorium there are still over 9,000 members of fishing co-operatives. We can find a number of success stories in the fishing sector.
In Prince Edward Island the Tignish Fisheries Co-operative Limited has be canning lobster since 1925. It has 250 employees and in 1995 had $14 million in sales. As production moves from canning to specialty packaging the co-op expects that it will need to hire more people and keep them working longer.
Forestry co-operatives are enjoying phenomenal success. Their membership has increased by more than 63% between 1985 and 1995, and their revenue has gone up 247%.
They are doing particularly well in Quebec. In the Saguenay—Lac-St-Jean region, for instance, the Co-opérative forestière Laterrière-Saint-Honoré has a payroll of some $5.4 million and sales of $30 million. It is involved in forest management, logging, and production of seedlings, as well as sawmill and planing operations.
I would also like to mention the important place that co-operatives have in the economy of aboriginal communities. By 1995 there were 76 aboriginal co-operatives in Canada. They are especially strong in the Northwest Territories and northern Quebec. In fact these co-operatives have more than 20,000 members.
Co-operatives are big business for the rural economy and in communities far from urban centres without losing sight of the community values that led to their creation in the first place. They are big businesses that pursue the interest of their members as a whole. They are big businesses that have shown Canadians another way to operate in a market economy.
The future of co-operatives in Canada is integral to the future of the economy in rural and remote areas. The bill before us gives these organizations the tools they need to keep on contributing to the economic growth of Canada.
The co-operative movement has a long and distinguished history of helping people in smaller communities. It goes back 150 years to when the first modern co-op was formed by the weavers of the village of Rochdale in Britain. By the turn of the century there were thousands of co-operatives throughout Europe and a growing co-op movement in Canada. The movement gained momentum with the birth of the prairie wheat pools at the beginning of this century.
But the economy is evolving, and the tools available to co-operatives must evolve in turn. The Canadian Co-operative Association and the Conseil canadien de la co-opération submitted the model legislation, which includes the amendments they would like to see incorporated in the draft bill. The Minister of Industry and the Minister of Agriculture and Agri-Food have examined it carefully and have circulated a working document containing their analysis.
In the best tradition of the co-operative movement this bill comes from the people. It is not a top down statute designed by government departments to remedy perceived problems. It is a bill created by the very people who know best what they need to maintain a healthy and vibrant co-op movement for the future.
I emphasize that the bill is entirely in keeping with the government's own stated aims and objectives. I see the bill as a key element in the government's commitment to strengthen the rural economy. It is a commitment we made in the Speech from the Throne when the government made the economic renewal of rural Canada a priority for this session of Parliament.
The government said it would address the problems facing rural Canadians in a way that is tailored to their needs.
The bill gives them these tools. I urge the House to pass it.
Small Business Week October 21st, 1997
Mr. Speaker, yesterday a colleague from the other side used his time to lament the situation of small and medium size businesses in Canada, but in fact Canadian businesses are working in an excellent climate and are prospering.
As my colleagues know a recent report by a management consulting group extolled the virtues of Canada as a place to do business. It said that on the basis of cost Canada is the number one location for manufacturing. As well, it noted that Canadians cities are shown to be more cost competitive than their U.S. and European counterparts.
The theme of this year's Small Business Week organized by the Business Development Bank is “Powering Growth, Building Success”.
This week, October 19 to October 25, gives an opportunity to celebrate small businesses in Canada and to acknowledge that Canada is not only the best place in the world to live. It is also one of the best places to do business.
Income Tax Conventions Implementation Act, 1997 October 20th, 1997
Mr. Speaker, first and foremost I have never said that all people receiving U.S. social security will pay less tax. I have acknowledged from the very beginning that low income Canadians receiving U.S. social security will be better off under this change. I have acknowledged since the very beginning that those in the upper end who are including 85% of their income will probably pay, or some will pay, more tax. However they will still pay less tax than their Canadian neighbour with the same income level.
I have also been working very closely with the finance department to ensure that this process will happen quickly once this is passed in our House and in the United States to ensure that those people who need to get refunds and who are entitled to refunds will get them in a very timely fashion. It is my understanding that the process is in place the moment the legislation is passed in both houses.
Income Tax Conventions Implementation Act, 1997 October 20th, 1997
Mr. Speaker, I would like the hon. member for Calgary Southeast to know that I do represent my constituents. I represent the majority of my constituents. And the majority of my constituents who are low income earners have told me that they accept this change. They want this change and they want it now.
If the Reform Party wants to be led by the special interest groups and the high income seniors, go right ahead. I will go to sleep at night knowing that I represent the majority of my constituents. I represent all of my constituents, not just those receiving U.S. social security. All of my constituents want to pay equal taxes. Not just those receiving U.S. social security should get a break.
The hon. member should know that when the deputy prime minister made that statement he asked a very specific question. The question to the finance department was based on those who were paying income tax. However, there was a group of numbers that was missing. We have recognized that error. There was no misleading in any election campaign. The statement was made after the campaign. The member should know that as soon as we recognized that error, and we have recognized it, we began negotiations with the United States to make that change. That is why we are here today. It is to make that change.
Income Tax Conventions Implementation Act, 1997 October 20th, 1997
Mr. Speaker, I listened to the comments of the member opposite and I wondered when he said that it is not an issue of the rich and the low income earners. It is not an issue of the rich and the low income earners. I said very clearly throughout my statement that it is an issue of treating all Canadians equally, Canadians from coast to coast.
We have a tax system in Canada. Our income is placed in the tax system to determine the level of tax that is payable.
The numbers are out there, if the hon. member cares to know. Someone with a $14,000 income or lower will pay no tax. Does he care about those people? I am starting to wonder.
They talk of $30,000 as some magic cut-off. We know what happened in Ontario with the magic tax relief its government gave to people. It took with one hand and it took back with the other. Low income Ontarians are now realizing that the tax relief they thought they were getting is not there. There is no such thing. The moment the teachers go out on strike, the low income people will have to pay for child care. Why will those teachers go out on strike? Because the province of Ontario did not listen to them. Tax relief is not necessarily what it implies.
We are talking about fairness, fairness and equality for all Canadians from coast to coast.
Income Tax Conventions Implementation Act, 1997 October 20th, 1997
Mr. Speaker, I am pleased to participate today in the debate on Bill C-10 that among other things amends the Canada-U.S. tax convention. In particular the bill deals with the manner in which residents of Canada receive U.S. social security and residents of the United States receive Canada pension plan payments and OAS.
This amendment is to change a flaw in the U.S.-Canada tax treaty which was negotiated by the previous government but implemented by our government. It is a flaw that we did not catch at the time and that due to the hard work of many members on this side of the House was brought to the attention of the finance minister who undertook to renegotiate the bill with the U.S. government. And renegotiation takes time. I will explain how that came about, what the flaw was and what we have done to deal with it.
The Canada-U.S. tax treaty sets rates at which Canada or the United States can tax pension benefits, U.S. social security being received in Canada and CPP and OAS being received in the United States.
Before 1996 the country that paid the benefit to a resident of the other country could not tax that benefit at all. The country where the recipient lived would include 50% of that benefit in their taxable income. The other half of the benefit was tax free. Thus people residing in Canada receiving U.S. social security benefits would claim half of that amount on their Canadian tax return as income and other half would be tax free.
In 1996 the tax treaty was changed. Under the new rules the country that pays the benefit, the country that issues the cheque, can tax all of it. The country where the recipient of the cheque lives cannot tax any of it. Therefore Canada would tax CPP payments going to people who live in the United States and the United States would tax U.S. social security benefits going to people who lived in Canada.
Canada ordinarily taxes Canada pension plan and old age security benefits going to non-residents at a rate of 25%. Canada also applies the OAS recovery tax, the clawback on high income earners to non-residents as well. However, to ensure fairness in our tax system, any non-resident can choose to file a Canadian tax return and pay tax at the ordinary Canadian rate rather than at the flat 25%. The result is many low income U.S. recipients pay little or no Canadian tax on their Canadian CPP or OAS. The United States also taxes outbound social security benefits at a rate of 25.5%.
Here is the flaw that escaped us as legislators. The United States tax system does not allow any non-residents to file tax returns unless they are U.S. citizens or resident aliens. There are some of those living in Canada. Therefore the 25% tax is fixed and final to Canadians. There is no recourse for non-American non-residents to file a U.S. return and to be able to pay U.S. tax at a lower rate.
It was at this point in December 1995 that I first realized there was a problem when the United States began withholding 25.5%. At that point myself and the other Windsor MPs contacted the office of the Minister of Finance to explain the problem and to ask that it be addressed. I attended meetings with CASSE, Canadians Asking for Social Security Equality in Windsor, the local Windsor group organized to deal with the problem.
The minister realized the problem. He actually travelled to Windsor in September 1996 to meet with members of the local CASSE committee established to lobby the government to renegotiate this change with the United States government. The Minister of Finance then met with his counterpart in Washington, Mr. Robert Rubin, to negotiate with the United States to reopen the Canada-U.S. tax convention to address this problem.
The proposed new rule included in the latest protocol to the tax treaty will give the country of residence the exclusive right to tax social security benefits. This means only Canada will be able to tax U.S. benefits paid to residents of Canada and vice versa.
Under this change, all low income Canadians that the Reform MPs have been talking about today will pay no tax. This change will retroactively ensure that these low income Canadians will pay less tax than the 25% withheld by the United States.
Once this protocol is ratified, several thousand low income Canadians will no longer pay any income tax. Thousands more will pay less tax than they currently do.
The Reform Party member for Calgary Southeast who spoke this morning raised the issue of fairness by comparing the U.S. rate of taxation on U.S. social security in this proposal. The purpose of Canadian law is not to reflect U.S. tax laws. The purpose of Canadian tax law is to ensure that people living in Canada are all treated equally. The purpose of our tax code is to treat neighbours coast to coast equally, not to treat people who live in Canada and work in the United States the same as they would be treated if they lived in the United States.
There are many non-tax differences between Canada and the United States. For example, a person living in Canada has access to the Canadian universal health care system. If that person lived in the United States he or she would have to pay for health care in many cases. That may not be a tax but it definitely does affect income.
I can speak to that personally because I have an aunt who lives in the United States. I know for a fact that while she was receiving U.S. social security benefits before she was of senior's age she was paying over $350 U.S. a month to a private health care system to ensure that she had health care. When she became ill that very health care system, that wonderful system which the Reform Party thinks is great, cut her off. It was one thing after another, from long term care, to medication, to a co-pay of 30% to 70% every time she had any type of test. The sicker she got the more she had to pay. That is how the system works in the United States with a private benefit system where one pays and continues to pay into it while receiving the benefits.
We should be aware that when seniors living in Canada receiving social security go to the hospital that distinction is not made. They are not asked where their incomes come from or where their taxes are paid. We have always treated all Canadians and those who live in Canada equally.
I believe that the changes will ensure that neighbours are treated equally and fairly, which is why Canada will require the U.S. social security recipients to include 85% of U.S. social security as income when they file their income taxes.
As I stated before, thousands of low income seniors, disabled Canadians and spouses and children of those who work in the United States will pay no tax at all due to this change and thousands more will pay less.
There seems to be some allegation that this change is only about seniors. It is not just about seniors. I want to make that clear to the members of the Reform Party. There are thousands of those who work in the United States. There are children of those who work in the United States and there are disabled Canadians receiving U.S. social security benefits. I can speak to this from my own personal experience.
I have an aunt whose husband worked in the United States and is receiving U.S. social security. They have a disabled child who receives U.S. social security. The benefits from U.S. social security are higher than those she would receive in Canada. This change will directly affect her because she will pay no tax as a disabled Canadian receiving U.S. social security.
However, my aunt, who receives U.S. social security, will pay some tax. She has told me that she believes she should pay her fair share in Canada. She is not one of those high income seniors the Reform Party is speaking on behalf of today. When this proposal was first made in Windsor, people should be aware, the first people I have talked to on CASSE thought it was a good change and a good benefit because low income seniors, disabled persons, children and spouses would get their tax dollars back. When they realized they were in the upper income and they would be paying their fair share in Canada while they lived in Canada, that is when they became opposed to this proposal.
This proposal was negotiated with CASSE. It was put forward before CASSE. When its members first heard the proposal they were in agreement with it until they found out how some of their individual cases or situations would be affected and that they would still pay less tax than their Canadian neighbour. That is what seems to escape the Reform Party in this whole debate today.
Somebody in a high income bracket living in house A receiving U.S. social security and somebody in a high income bracket living in house B receiving the same income but from Canadian sources will pay more tax than the person in house A. If they live in Canada and they all get the same Canadian benefits, they all should pay for the same Canadian benefits. We are still giving that person in house A, the person receiving U.S. social security, a break, a 15% inclusion in their income. We are recognizing that they did pay tax on their U.S. social security benefit.
For the Reform Party to stand up and say that the amount of taxes that one will pay on their U.S. social security benefit equals the amount of benefits they are receiving today is ludicrous. It is very similar to our Canada pension plan system where people receiving pensions today did not pay into the system what they are getting out. The tax they pay in the United States does not equal anything near the amounts they are getting out. The reason they have that exemption in the United States of $27,000 U.S. is because they do not have a universal health care system and because they do not have the same benefits as we have in Canada for many other things.
I agree with the member for Qu'Appelle when he said that the Reform Party speaks for the high income seniors. Those are the people who are complaining about this change. Those are the people who have problems with this change because they may actually come close to paying what their neighbours in the same income bracket will pay. They are still going to get a break. I am not sure that their neighbours in house B would agree that house A should still get that break because we all have to pay for our Canadian system. We all have to pay for our health care system.
Maybe the hon. member for Calgary Southeast should come and visit Windsor and he would understand what happens in the health care system in Windsor. He would recognize what his colleagues in the province of Ontario are doing to the city of Windsor. In fact, what has happened in Windsor had to do with the lowering of taxes by the province of Ontario. That caused the loss of $4.9 billion in revenues to the province with the first tax cut which was funnelled down to the health care system.
When they talk about lowering taxes and tax relief for all Canadians, I think hon. members on the other side should stop and think about the effects of tax relief and look at what has happened in border communities such as Windsor and Essex county, and try to understand the benefits of today's proposal and recognize that low income seniors, the disabled, children and spouses of those who worked in the United States, the majority of whom will be better off if they are in a low income bracket. Many will pay the same but some will pay more. Those are the ones the Reform Party members are speaking for today. Even those who pay more will pay less than their Canadian neighbours. That is something which should not be lost on the House and not lost to all Canadians.
When the Reform Party says there has been no debate, where has it been? I raised this with the Minister of Finance in December 1995 when the changes first took effect. Where were Reform members when the changes were announced on April 9, 1997? Where were they during the rallies in Windsor in 1996? I was there, but I did not see any Reform members. Where have they been throughout the discussion? When exactly did they decide to jump on to the band wagon and offer their own solutions? We have been talking about this and dealing with people in our communities who have been affected.
The members for Windsor and Essex county, the member for Windsor West and Windsor St. Clair and the members for Kent-Essex and Durham and I have worked on this together along with other members on this side of the House.
I have heard from people in my riding in Essex, which is a border community, from seniors with upper incomes and others. They want to pay their fair share. They want to ensure that the Canadian health care system and other social benefits continue for those who are less privileged. The seniors I talked to recognize and appreciate the benefits they have received throughout the years of working and living in Canada. In order to balance the books all Canadians have to participate.
We hear today that this is a hidden tax increase. That is ludicrous. It is not a hidden tax increase. We are talking about treating Canadians equally and fairly and about tax fairness for all Canadians. I believe it is urgent that we deal with this issue today.
I heard the member for Surrey say that we should not end the debate. I would like him to talk with the woman I spoke with on Saturday in my hometown of Amherstburg who has been waiting for this change. I told her that this would be coming before the House on Monday. I will be happy to go back and tell her that the Reform Party thinks we should debate it a little while longer. This lady is one of the low income seniors that they talk so much about, one of those who because of the provincial government has had her housing costs increase by 10%, while we are still trying to get back the 25%. She would like that money back as quickly as possible, not next year or two years from now. She would like it back as soon as this passes in the House and as soon as it is ratified in the U.S. However, if the Reform Party has its way we will be debating this for months to come. We do not have time.
Those low income seniors they speak so highly about do not have time to wait. They have issues facing them right now in their homes and apartments with regard to what they can and cannot afford. They want to know that the tax relief we have promised on April 9, 1997 is coming to them quickly. I want to be able to go back and tell them that this side of the House will ensure they get that money back into their pockets as quickly as possible. They also want to know that they will still have the benefits to which Canadians have become accustomed.
I know that hon. members across the way cannot disagree that low income seniors need that money. Why would they want to delay the debate and suggest that there has not been adequate debate.
I can send them newspaper articles. I can send them letters I have received. I can send them copies of my correspondence if they want to read about it.
They had members in this House in the last two years. They had the opportunity to raise this issue over and over and over again. They had the opportunity to have ample time for debate when they chose what they would talk about on their days of debate in this very House of Commons. Therefore for them to stand up today and say there has been no time for debate I think is a fallacy.
Canadians want to know that these people who are being affected, these 60,000 people who are receiving U.S. social security benefits are going to have the opportunity to get their money back as quickly as possible and that their tax fairness will be restored. Again, I think it should be known that all Canadians want to be treated equally and fairly and all Canadians want to have access to systems.
The people in my riding who are receiving U.S. social security benefits want this resolved as quickly as possible. They want the proposed new rules to come into effect. They understand that it may not be what they thought was the perfect solution. We are not going back to the old system. They knew that from the very first time I met with them. They were told up front that we cannot go back. This is negotiated between two countries. We went too far and now we are going to negotiate back to what is a level of fairness. We took back the taxation to our own country so that there can be that level of fairness in this country.
They knew from the first day that this problem was raised that we were not going back to the old system, that the old system was not fair to their Canadian neighbours receiving Canadian benefits. The old system was not fair to everyone in Canada as well as to those in the United States.
Finally, I want to emphasize one last time the fairness this change will effect. This change will be retroactive for people living in Canada. If they would not have paid any tax in Canada, they will get a full refund. If they would have paid less tax with the U.S. 25% flat rate, they will get a refund of the difference. If they would have paid more than the 25% flat rate that the U.S. withheld, the Canadian government in fairness will not pursue those taxes for those two years.
I want to conclude by saying that the change was a mistake. Once the mistake was recognized, Windsor and Essex county MPs, those from Windsor West, Windsor—St. Clair, Kent—Essex and myself, as well as many other members on this side of the House, particularly the member for Durham, worked very hard to ensure that the Canadian government renegotiated the Canada-U.S. tax treaty as fast as possible and that it would be retroactive to the day this is implemented. Those in need will get that money back. Those who have had to borrow from their friends and families will be able to pay those dollars back. Those living on a tight income will finally see some relief that they need.
Immigration October 10th, 1997
Mr. Speaker, over 15 million people cross the Windsor-Detroit border each year. Imagine the chaos if all those people were required to file a U.S. immigration form each time they crossed the border. That is what section 110 of the 1996 illegal immigration act would do if Canadians are not exempted.
Last month while at the annual Canada-U.S. Parliamentary Association meeting I raised this issue with U.S. representatives and senators and I was assured this law would be amended.
Yesterday the Canadian ambassador to the United States met with U.S. Senator Spencer Abraham, chair of the U.S. Senate immigration subcommittee, and agreed to form an alliance to defeat these proposed new border controls.
I commend both the Government of Canada and the senator for this important initiative. U.S. Senator Spencer Abraham is holding immigration committee hearings on the effects of the U.S. act. I encourage all affected Canadians to fax a written submission to the senator's office at (248) 350-0420 or deliver them to my office so I can submit them to the U.S. committee.
Canada Pension Plan Investment Board Act October 7th, 1997
Mr. Speaker, I am pleased to be able to participate in the debate today on such an important issue for Canadians.
In recent years, as hon. members may know, a number of social, economic and demographic trends have developed, such as declining birth rates, increased life expectancy and lower than anticipated growth in productivity and wages, which, if unaddressed, could challenge the sustainability of Canada's public pension system.
This is why we committed ourselves to strengthening Canada's public pension system. The legislation that we are debating, Bill C-2, will enact the joint federal-provincial agreement reached last February to change the Canada pension plan, or CPP as it is known. It is legislation that will place the Canada pension plan on a solid financial footing.
The first point that I would like to make is that whatever the circumstances, CPP will be there for Canadians when they need it. In fact the very reason we are making changes now is to ensure that it is there in the future.
In his February 1995 report, the chief actuary clearly showed that without modification to the Canada pension plan, the CPP fund would be exhausted by the year 2015 and that contribution rates would have had to soar to over 14% to cover the rapid growth in cost. That would be a 240% increase.
It is only through responsible action now that we can avoid bankruptcy and truly intolerable CPP rates later, an increase now with a number of generations sharing the burden or an increase later for our children's generation.
Before moving to make changes to CPP, we held extensive consultations with Canadians. During 33 sessions held in 18 cities throughout Canada, more than 270 formal presentations were made to allow the government to find out what Canadians thought should happen to their plan. Canadians had no reservations in their expectations. They wanted the plan preserved, its financing strengthened and its investment practices improved. We have done that.
I would like to take a moment to tell my constituents what remains the same under CPP legislation and how the plan is being preserved. Anyone currently receiving Canada pension plan benefits, be it retirement pensions, disability benefits or survivor benefits, can rest assured that they will not see these benefits affected in any way.
Anyone currently receiving Canada pension plan benefits will not see these benefits affected in any way. All benefits now and in the future will remain fully indexed to inflation. The ages of early retirement, normal retirement or late retirement all remain unchanged.
What has changed? Let me try to describe the changes today. Effective January 1, 1998 retirement pensions will be based on the average of the year's maximum pensionable earnings in the last five years prior to starting the pension. In the past they were based on a three year average. The amount of the pension will continue to be dependent on how much and for how long a person contributes to the plan.
The administration of disability benefits will be further improved. The appeal process will be streamlined and the legislation will be applied more consistently. To be eligible for disability benefits workers must have made Canada pension plan contributions in four of the last six years prior to becoming disabled. Presently a person needs to make Canada pension contributions in two of the three years previous or five of the last ten years in order to be eligible to apply and qualify for disability benefits.
The rules for combining the survivor and disability benefits and the survivor and retirement benefits will be largely the same as those in existence before 1987. However, changes will limit the extent to which these benefits can be added together.
The death benefit will continue to be equal to six months of retirement benefits but up to a maximum of $2,500 rather than the current $3,580. The option to eliminate the death benefit was rejected by the federal and provincial governments together.
Through enacting the legislation after careful consideration with Canadians the government will ensure that the Canada pension plan is there for future generations, that it is there at an affordable premium and that the benefits are guaranteed for those future generations. Due to our plan some 75% of the reduction has been made on the financing side and only 25% on the benefit side.
The CPP will continue to be affordable. Canada pension plan contribution rates will increase in steps to 9.9% by 2003 or 4.95% for each employer and employee and then remain unchanged instead of reaching the 14.2% projected by the chief actuary for the year 2030.
The Canada pension plan will move from pay as you go financing to fuller funding to build a much larger reserve fund. It will grow in value from two years of benefits currently to about four or five years of benefits. It should be noted that the yearly basic exemption, the first $3,500 of earnings on which no contributions are paid, will be maintained and frozen.
Without these changes future generations would have to pay 14.2% for the same benefits we are currently paying only 5.85% for.
Until now CPP contributions not needed to pay for benefits have been lent mainly to the provinces at the federal government's interest rate on long term bonds. Under this new legislation Canada pension plan funds will now be invested in a diversified portfolio of securities prudently and at arm's length from government.
This means that Canada pension plan funds will be invested in stocks, bonds including provincial bonds, and mortgages. Instead of being lent in their entirety to the provinces we are now in the position with the passing of the legislation to make the investment philosophy of the Canada pension plan more market oriented. This is consistent with investment policies in most public and private pension plans in Canada.
Based on prudent assumptions the Canada pension plan can secure an average long run return of almost 4% a year above the rate of inflation. That compares with only 2.5% assumed under the current policy of the chief actuary. As well, from now on whenever provincial governments borrow from the Canada pension plan they will pay the same rate of interest that they pay on their market borrowings. That is making smart use of public money.
During cross-Canada consultations Canadians told us they wanted the Canada pension plan to run like a private pension plan. In response we have provided that the fund will be managed independently from government by a 12 member investment board. The investment board is accountable to Canadians and their governments through regular reports.
The board will be subject to investment rules similar to other public and private funds in Canada. Therefore the transparency for Canada pension plans of the future is the same transparency in private plans throughout the rest of Canada.
It should be noted that Canadians will start to receive regular statements on the pensions they are earning. We intend to provide annual statements to all contributors as soon as it is feasible. Canadians will receive an annual statement which will show how the Canada pension plan is progressing. Canadians will have the opportunity to see year to year the retirement future their contributions are building.
Last February in the House of Commons the Minister of Finance tabled the first draft of Canada pension plan legislation, in case the member for Calgary West was unaware. In response to the comments received further refinements were made to the legislation and revised draft legislation was released in July for further comment.
The measures proposed in the bill today will become law once the legislation is passed by parliament and support orders in council are received from the provinces that are party to last February's agreement. This will permit the changes to take effect on January 1, 1998.
Finally I would like to take this opportunity to answer some of the critics of these changes. There are some who advocate scrapping CPP and moving to a privatized system with mandatory retirement savings plans. I believe they do not understand two things.
First and foremost, Canadians want the Canada pension plan to remain. Canadians want a public pension plan that is available to everyone.
Second, the Canada pension plan provides protection not available through private RRSPs such as disability benefits and survivor and death benefits.
The Canada pension plan is part of our public pension plan system along with old age security and guaranteed income supplement. Together these three pillars ensure that all our eggs are not in the same basket. The changes reflect the long held Liberal values of providing stability for and protecting those in need.
It was a Liberal government that introduced the Canada pension plan over 30 years ago in 1966, and now this Liberal government is making the necessary changes to ensure the future of the Canada pension plan for all Canadians. This allows all Canadians to prepare for their future together.