CPP expansion will lead to slightly fewer jobs created, government says

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The proposed expansion of the Canada Pension Plan will have a minor impact on employment that will be largely offset over time, according to new federal projections.

Finance Minister Bill Morneau presented the figures on Monday to the House of Commons finance committee as MPs returned to Parliament Hill after the summer recess.

The federal government and nine of the 10 provinces have expressed support for the deal that was announced on June 20, three days after the House of Commons rose for the summer. Monday's hearing marked the first opportunity for opposition parties to ask Mr. Morneau about the deal.

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When Ottawa and the provinces first announced an outline of the plan, several key questions remained. One of those was answered on Monday, as Mr. Morneau provided Finance Canada's economic analysis of how increased CPP payroll premiums and benefits will affect the economy.

The department estimates that in the short term, as the plan is being phased in beginning in 2019, the economy will create about 1,050 fewer jobs per year over 10 years than would have been the case without the higher premiums. However, that impact is projected to be largely reversed during the 2029-2039 period as Canadians who paid the higher premiums will have more money to spend in retirement.

To put those figures into context, Statistics Canada reported in August that employment increased by 77,000 jobs compared with 12 months earlier.

"The real impact of a stronger CPP will be felt long-term," Mr. Morneau said. "That's because Canadian retirees will have more money to spend on their needs, like healthy food, transportation and housing costs, which will lead to greater confidence, more jobs, and create the conditions for overall economic growth in Canada."

The upbeat picture of the economic impact of the changes is in sharp contrast to warnings from the Canadian Federation of Independent Business, a small-business lobby group. Dan Kelly, president of the federation, has said that about a third of CFIB members said in a survey that they will be laying off staff in response to the CPP changes.

Conservative MPs challenged Mr. Morneau on his economic projections, pointing to the concerns of small business owners who will have to pay higher premiums.

Conservative interim leader Rona Ambrose said the higher premiums represent a tax on Canadians, even though Mr. Morneau argued the premiums are a form of savings, not a tax.

"When something comes off your paycheque and you no longer have it, it's a tax hike and that's exactly what this is," Ms. Ambrose told reporters following the committee meeting.

"The CPP tax hike, we know, will cost thousands of dollars to a working couple and to families and now we know it will also result in job losses and will cost billions of dollars to the economy. We all know that tax hikes do not create jobs. Tax hikes do not spur on the economy," she said.

Finance Canada provided reporters with a background briefing on the CPP changes on Monday ahead of Mr. Morneau's presentation. Some of the questions that remain unanswered in the information released to the media include whether British Columbia will give its official approval to the deal, how the billions in new premium revenue will be invested by the Canada Pension Plan Investment Board and how the changes will affect federal and provincial benefits aimed at low-income seniors.

The CPP is run jointly by the federal and provincial governments. Any changes to the program require the support of Ottawa and two-thirds of the provinces representing two-thirds of the population. In June, every province except Quebec agreed to the deal. However, the B.C. government later announced that it was launching consultations on the plan. The province has yet to announce the results of those consultations.

The plan agreed to in June would increase the maximum CPP retirement benefit from the current $13,110 to nearly $20,000, in 2016 dollars.

To pay for these new benefits, higher premiums will be phased in over a seven-year period beginning in 2019. For an individual earning $54,900, they will contribute an additional $6 per month in 2019 and an additional $43 per month once the change is fully phased in.

According to Finance Canada, families are at risk of under-saving for retirement if their projected after-tax income at retirement does not replace 60 per cent of their pre-retirement income. The department says 24 per cent of Canadian families currently fall into this category and that the changes will reduce this to 18 per cent.