BUSINESS GROUPS DECRY COST
Business organizations reacted quickly and harshly Tuesday to freshly announced enhancements to the Canada Pension Plan that will increase contributions employers must make.
The Canadian Federation of Independent Business said the plan, which was endorsed by eight of 10 provincial finance ministers late Monday, is “a devastating move for Canadian workers” and for the economy.
The phase-in of the improvements to the national pension scheme over a seven-year period starting in 2019 did little to assuage predictions of wage freezes and stalled investments.
“It is tremendously disappointing to see that finance ministers are putting Canadian wages, hours and jobs in jeopardy and willfully moving to make an already shaky economy even worse,” said Dan Kelly, president of the CFIB, which represents small and medium-sized businesses.
“It appears that jobs and the economy are not particularly high priorities for the governments that have signed off on this deal,” he said.
The agreement- in- principle, will raise contributions to boost the percentage of income covered by CPP benefits to 33 per cent from 25 per cent. The cap on income covered is also to be boosted to $82,700 from $54,900.
Perrin Beatty, chief executive of the Canadian Chamber of Commerce, warned of “a big bill coming” to cover the costs of these enhancements, though the govern- ment has not yet specified how much the i mprovements will cost employers and employees, who split the cost of current contributions to CPP.
“When a government promises big increases in benefits without telling us how much it will cost or who will pay for it, we know there’s a big bill coming,” Beatty said in a statement, adding employers may halt job creation or delay investments to help pay for additional CPP costs. “Although there’s never a right time for a payroll tax, the fragile state of our economy makes this a particularly bad time.”
A report from TD Economics on Tuesday suggested both employers and employees will be subject to a percentage point increase in the 4.95 per cent contributions they make to CPP now.
Economist Brian DePratto calculates that a worker making $ 90,000 this year would see a 47 per cent increase in the percentage of gross earnings paid into CPP by the final year of the implementation in 2025.
He said the worker would be paying roughly 4.2 per cent of gross earnings into CPP by the seventh year of the phase- in, compared to 2.8 per cent in 2016. The annual salary is likely to have increased to $ 113,000 by then.
Jeff Kissack, a consulting actuary at Willis Towers Watson, said he expects em- ployers that provide workers with private pension plans to take a hard look at the benefits they offer, with an eye to possibly reducing them to account for the universal enhancements to CPP.
“Some employers might cut back on the existing pension plan,” he said, adding that there is likely to be some interesting bargaining in the days ahead at companies where private pension plan terms are negotiated through collective agreements. “This will make negotiations interesting and somewhat challenging, I think,” he said.
Surveys conducted by the CFIB in the lead- up to the CPP overhaul suggested more than 70 per cent of s mall business owners across Canada were opposed to a mandatory CPP premium hike, while 67 per cent said it would increase pressure to freeze or cut salaries.
More than a third of businesses surveyed by the industry group say increased CPP premiums would force them to lay off employees.
Other critics of the CPP expansion plan i nclude t he Montreal Economic Institute, which said the improvements would come at a cost: disposable income for workers.
This is expected to lead to less voluntary savings, according to Youri Chassin at the MEI, an independent research organization.
“Those who have difficulty saving, or who barely manage to make ends meet, will find themselves in an even more precarious situation,” he said.