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Expanding the Canada Pension Plan could reduce federal tax revenue by about $1-billion a year, according to some estimates, prompting calls for an update on the health of Ottawa's long-term finances.

Finance Minister Bill Morneau's deal this week to expand the CPP comes on the heels of his earlier decision not to raise the age of eligibility for the Old Age Security Pension from 65 to 67. The Parliamentary Budget Officer reported in April that the decision not to follow through with the OAS change will ultimately cost the federal government an additional $11.2-billion a year by 2029. The Liberal government has also adopted a deliberate plan to run budget deficits with no firm date for returning to balance.

In addition to those changes, Ottawa is negotiating behind the scenes with the provinces on the future of federal transfers to the provinces, which are currently worth $36-billion a year.

Under pressure from the PBO and the Auditor-General, the previous Conservative government began in 2012 to publish annual fiscal forecasts that span four decades in an effort to demonstrate whether federal finances are prepared for the large demographic changes that will result as the baby-boomer generation retires. Follow-up reports were published in 2013 and '14, but no further update has been released since.

Sean Speer, a former senior economic adviser to Conservative prime minister Stephen Harper who is now a senior fellow with the Macdonald-Laurier Institute, said federal officials provided cost estimates of a similar CPP expansion when he was in government.

"The immediate fiscal impact was substantial," Mr. Speer said, recalling that officials put the price tag at about $1-billion a year. He said officials also indicated that these initial costs would ultimately be offset by federal savings as benefits to the OAS and the Guaranteed Income Supplement are clawed back because retirees would have higher income from CPP.

Under the current system, employers and employees receive a tax credit based on the amount contributed each year in CPP premiums. The agreement signed Monday by Mr. Morneau and eight of 10 provinces would increase premiums to pay for more generous CPP benefits in retirement. A portion of those new premiums would be eligible for a tax deduction, which leads to a larger tax cut than a tax credit.

Finance Canada has not provided details on the fiscal impact of Monday's announcement. It did say that one aspect of the deal – enriching the Working Income Tax Benefit – would reduce federal revenue by $250-million a year.

Figures released earlier this year by Finance Canada outline the fiscal cost of the existing tax credit for CPP contributions. It has grown from $7.5-billion in 2010 to an estimated $10.3-billion in 2017.

University of Calgary economist and tax expert Jack Mintz said Mr. Speer's estimate that the CPP change would reduce federal revenue by $1-billion sounded reasonable, but added that the limited information currently available makes it hard to analyze the deal. Economist Don Drummond also agreed with the $1-billion estimate. Mr. Drummond, a former senior Finance Canada official, said the future sustainability of federal finances will depend on what happens with health transfers.

Kevin Page, the former parliamentary budget officer who now teaches at the University of Ottawa, said he was "really impressed" that Mr. Morneau was able to reach a deal but said Ottawa needs to update its long-term projections.

"There's a lot of balls in the air, so we need that analysis," he said.

During a news conference on Thursday morning in Toronto, Mr. Morneau dismissed suggestions the federal and provincial governments are moving too quickly on this week's agreement in principle to expand the CPP. There is a July 15 deadline to secure approval of the agreement by the federal and provincial cabinets.

Mr. Morneau pointed out that the changes to CPP wouldn't go into effect until 2019, providing "significant time to consider the administrative issues."

"I can't say I understand at all the point of view that we are moving too quickly. In fact, we are moving in a very gradual fashion," he said.

With a report from David Parkinson in Toronto

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