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Proposed changes to the Canada Pension Plan put small businesses in danger of "being shoe-horned into a one-size-fits-all scheme" with serious effects on growth and performance, according to a report released Thursday by the Canadian Federation of Independent Business (CFIB).
Leading up to a meeting of provincial and national finance ministers this weekend in PEI, trade unions have proposed a doubling of CPP premiums and benefits. The CFIB said more than 70 per cent of small-business owners oppose these changes. The CFIB has written to all ministers involved suggesting that they consider easing the burden of pension payment on behalf of entrepreneurs.
There is a "huge amount of cost up front" for any business setting up a pension plan. One of the major challenges for small businesses has become whether employers and employees have the income to dedicate to these tools, said Dan Kelly, senior vice-president of legislative affairs for CFIB in Ottawa.
Nearly half of small-business owners surveyed said they are already unable to afford to provide retirement savings benefits to employees, and "an increase in CPP premiums could hamstring Canada's economic recovery just as it begins to gain momentum," CFIB president Catherine Swift said.
The CFIB has also urged finance ministers to consider the "abundant" gap between pensions in the public and private sectors, citing Statistics Canada data showing that civil servants earn more than employees in equivalent private-sector positions, and receive better retirement benefits. Public sector employees need to contribute to the CPP on an equal basis, Mr. Kelly argued. He warns that the country is on the verge of "creating two worlds" between public sector workers with comfortable retirements and the rest of Canadians who don't have the ability to save on their own due to the high taxes that fund the public sector pensions.
There will be "big societal implications if we allow these two worlds to separate any further," he asserted. "We really hope [the ministers]start to face reality on the public sector pension gap."
A further point of contention for the CFIB is whether payments are mandatory or voluntary. "The word mandatory is where it breaks down for us," Mr. Kelly said. As it stands, mandatory payroll taxes "are the worst form of taxation for small businesses." If ministers were to enact the proposed hikes, the decision would be a "major job killer."
The current pension structure presents an unfair situation whereby the prospect of getting into a pension plan if you are self-employed or a small-business employee is "a real stretch," according to Mr. Kelly. This weekend, governments need to "roll up their sleeves and put forward creative proposals to expand coverage in small businesses, where the coverage gap is most significant."
A separate release by the BMO Retirement Institute, also issued Thursday, echoed the concerns of the CFIB, calling for finance ministers to either raise or eliminate the age-limit on RRSPs to 75 from 71. As the population experiences longer life expectancy, raising the age-limit makes sense, said Tina Di Vito, head of the institute. While there may be short-term costs to boosting the RRSP age limit, these changes could end up being revenue-neutral in the long run, said Douglas Porter, deputy chief economist of BMO Capital Markets. Given that many Canadians now have a "weakened backdrop" for their savings, increasing the age limit "makes sense."
Ms. Di Vito insists that "Canadians do not have enough flexibility to take control of their retirement savings," and BMO has issued a separate report that calls for finance ministers to allow the tax-free transfer of funds from RRSPs or RRIFs into a Registered Education Savings Plan or a proposed Registered Medical Savings Plan. Over the past five years, health care prices have increased 2.1 per cent annually, outpacing overall consumer price increases, and Canadians have doubled their spending on health expenses since the mid-1970s. "Raising incentives for individuals to dedicate savings to these areas is worth considering."
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