Manda­tory CPP tax boost no so­lu­tion for Cana­di­ans


For the third time in re­cent months, the ques­tion of whether Cana­di­ans are pre­pared for re­tire­ment will be on the ta­ble at a meet­ing of pro­vin­cial lead­ers when fi­nance min­is­ters from across the coun­try meet in mid- De­cem­ber.

The dis­cus­sions so far have been plagued by three com­mon pol­icy dys­func­tions. Tun­nel vi­sion Af­ter the eco­nomic melt­down in 2008, con­cerns about re­tire­ment were top of mind for many Cana­di­ans, par­tic­u­larly baby boomers. Gov­ern­ments took no­tice and many unions started push­ing the idea of a manda­tory in­crease in Canada Pen­sion Plan taxes (which would lead to an even­tual in­crease in ben­e­fits). Ef­fec­tive prob­lem solv­ing re­quires se­ri­ous anal­y­sis of al­ter­na­tive op­tions.

But tun­nel vi­sion has set in around the idea of a manda­tory CPP in­crease, an op­tion which, in­ter­est­ingly, would have zero ben­e­fit for the baby boomers. There has been no se­ri­ous dis­cus­sion of al­ter­na­tives. So­lu­tion in search of a prob­lem The idea that Cana­di­ans are not pre­pared for their own re­tire­ments taps into ner­vous­ness that most of us have about how we will ad­just to re­tire­ment - a ma­jor life shift.

But ev­i­dence does not sup­port that Canada has a re­tire­ment sav­ings cri­sis. Sev­eral well- re­spected econ­o­mists have ar­gued this point and said the prob­lem, to the ex­tent that we might have one, is lim­ited to a nar­row group of mid­dle-in­come earn­ers. They agree that more anal­y­sis is needed to un­der­stand this is­sue be­cause this group may be count­ing on sav­ings in their homes, busi­nesses or other sources not typ­i­cally in­cluded when mea­sur­ing re­tire­ment sav­ings. If we don’t have a wide­spread re­tire­ment sav­ings prob­lem, why are we talk­ing about a manda­tory CPP tax in­crease? Cure is worse than the disease This is a com­mon pol­icy dys­func­tion. The de­sire to do some­thing in the face of a per­ceived or real prob­lem is strong.

It’s a nat­u­ral hu­man in­stinct that leads to some bad pol­icy mak­ing. Much of the dis­cus­sion around a manda­tory CPP in­crease ig­nores its neg­a­tive im­pacts.

Forc­ing peo­ple to save more through CPP would re­duce sav­ings in other ar­eas, in­clud­ing vol­un­tary re­tire­ment sav­ings plans. The im­pact on the econ­omy over­all would not be pretty ei­ther, caus­ing no­table drops in em­ploy­ment and wages. A bet­ter way Fi­nance min­is­ters who don’t want to fall vic­tim to th­ese pol­icy dys­func­tions can make a stand at their mid-De­cem­ber meet­ing.

They can ad­vo­cate for more con­sul­ta­tion and more re­search on the im­por­tant ques­tion of how the gov­ern­ment can best help Cana­di­ans save for re­tire­ment, with­out pre­judg­ing that the only an­swer is a manda­tory in­crease in CPP.

The ques­tion of a manda­tory CPP in­crease needs to be a ques­tion of if, not when.

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