National Newswatch

OTTAWA - Finance Minister Jim Flaherty appears to have poured cold water on proposals to hike Canadian Pension Plan benefits at next month's meeting with the provinces, saying the economy is still not strong enough to withstand the added payroll taxes required.

The minister told reporters on Thursday that he thinks enriching the CPP is a good idea for the future, but not now when the economy remains weak and global risks are high.

"We have to be careful," he said. "The CPP sounds like Valhalla, everybody gets free money. Well it's not free money, employees have to contribute to the plan every paycheque, employers have to contribute to the plan every paycheque. It's a tax, it's a payroll tax on employers and employees."

The Finance Department also announced Thursday that the minister will deliver the fall economic update on Tuesday in Edmonton. Flaherty said he remains on track to balance the budget in 2015.

Some provinces, particularly Ontario, have been pushing for action on the CPP for years, but have been held back by opposition from Quebec and Alberta, as well as the soft economic outlook.

In December 2010, Ottawa and the provinces agreed to a half-way measure by creating so-called voluntary pooled registered plans.

But this year Prince Edward Island forwarded its own plan for expanding the CPP starting in 2016, and Ontario Premier Kathleen Wynne has hinted she may be willing to go it alone if there is no united front.

Flaherty has never completely rejected the idea, although at times he has appeared less than enthusiastic.

He said Thursday that he has been in discussion with provincial finance ministers and expects to discuss the issue further at meetings in Meech Lake, Que., next month.

"I don't think the idea is a bad idea, I just think the economy has to be able to afford it at the appropriate time," he said.

Flaherty noted growth in Canada is currently at about 1.8 per cent, below potential, and that nominal growth, which is closely tied to government revenues, also remains weak.

One possible outcome is that governments will establish a set of minimum economic performance markers on growth and employment before any enrichment plan kicks in, similar to what the U.S. Federal Reserve has done on the question of when to start raising interest rates.

Seniors advocacy groups, the NDP and unions have been calling for changes, while business lobby groups have mostly been opposed, arguing the added cost will be prohibitive.

Dan Kelly, president of the Canadian Federation of Independent Business, says momentum is building toward expanding the CPP, but he says that would be a mistake, even in a strong economy.

Kelly calls the P.E.I. proposal the less damaging of the three major plans that have been floated so far, but calculates it would still kill about 500,000 person years in employment.

It calls for hiking the maximum CPP contributions to $4,681.20 a year from $2,356.20 over a three-year period starting in 2016, and boosting the maximum annual benefit to $23,400 from $12,150.

"(P.E.I) did take some care to recognize some of the concerns of small firms," Kelly said. "We still think it's far too much, too quickly, but ... (the province) did exempt lower-income Canadians from any increases."

He said Canadians should find other ways to plan for retirement, including the pooled pension plans and other forms of savings without increasing the cost to business and the resulting effect on hiring.

The Canadian Press
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