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Ontario displeased by Flaherty’s lack of support for pension-plan reform

Jim Flaherty arrives to have dinner with his provincial and territorial counterparts in Ottawa, Sunday.


Jim Flaherty predicts there will be no national consensus – and therefore no deal – to expand the Canada Pension Plan, a position that clearly irritated his Ontario counterpart as federal, provincial and territorial finance ministers gathered for a Sunday night dinner in Ottawa.

Mr. Flaherty confirmed last week that he plans to remain Finance Minister until Ottawa's deficit is erased in 2015, underlining to the other provinces that his focus on deficit-fighting will not waver over the next few years. He said on Sunday that the provinces need to work on erasing deficits as well.

Provincial finance ministers stopped to speak with reporters on the way in to dinner. The ministers will take part in a day of meetings Monday at Meech Lake. The economy, a national securities regulator and transfer payments are all on the agenda, but it's clear ministers have strong and divergent views on another key agenda item: pension reform.

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"I think what will happen at our meeting is we'll have a discussion on the CPP issue and it will not be resolved because there's not a consensus," Mr. Flaherty said. "Having said that, I think that there's room, when we have significant economic growth, to perhaps increase the CPP contributions, but not now."

Minutes later, Ontario Finance Minister Dwight Duncan said Ottawa's insistence on unanimity to reform the CPP goes against the minimum threshold for change, which requires the support of two-thirds of the provinces representing two thirds of the population.

"You simply can't make unanimity a rule unilaterally. Whether or not there's consensus or not, I don't know. But that's not the rule," he said. "Fundamentally, what's important to the economy and a growing economy is to recognize the demographic ticking time bomb that we have all addressed in the past. ... We need leadership. We need to see the kind of strong decisions that have been taken by past federal governments to ensure that our post-retirement system can handle the bulge that is already starting to work its way through the system."

Ontario insists CPP reform won't cost jobs and is the right move for the economy over the long term. Mr. Flaherty says his concern is higher CPP premiums will hurt a fragile economy, which would also imperil his mission to balance the budget.

"I have decided that I will finish my job here as finance minister which is to get us back to a balanced budget in 2015," Mr. Flaherty said on Friday. "I'm looking forward to accomplishing that."

Internal numbers prepared by Finance Canada, Mr. Flaherty's department, for Monday's meeting show modest CPP enhancements would have a "small" impact on jobs and the economy.

The federal minister's concerns reflect the warnings he's received from groups like the Canadian Federation of Independent Business, who claim a CPP increase amounts to a "job-killing" payroll tax.

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On the other side of the debate, Canadian Federation of Labour President Ken Georgetti disputes the report's claims that there will be any job losses.

"I don't buy it," he said, noting that more aggressive CPP increases in the 1990s did not create job losses.

The Globe obtained a copy of a 30-page annex report – which makes reference to a main CPP Expansion Report to Ministers. The annex report provides assessments of three potential options for a modest enhancement to CPP, but notes there are several other possible variations on the proposals.

Policy work was conducted by federal, provincial and territorial public servants, but the report's job numbers are attributed to Finance Canada.

The annex report lists three options: raising the current income replacement rate of the yearly maximum pensionable earnings (currently $50,100) from 25 per cent to 35 per cent; increasing the maximum pensionable earnings to $75,150 or doing both options.

The report assumes the changes would begin on Jan. 1, 2017 and costs out options for a two-year phase-in and a five-year phase-in, but says different options for a phase-in and implementation date could be considered.

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Under the first option, the report says there would be "a small negative impact on real GDP and employment in the short run," reducing employment by approximately 0.1 to 0.3 per cent, which translates to about 17,000 to 50,000 jobs.

Under the second option, the impact would be smaller, at up to 34,000 jobs in the first few years.

The third option would reduce employment by 0.2 per cent to 0.5 per cent, or between 34,000 and 85,000 jobs.

"Overall, for all three CPP expansion examples, there would be a short-term negative impact on the economy and employment that would gradually disappear over time," the report states. "In the long term, an increase in CPP benefits would bring economic benefits by increasing retirement income and consumption possibilities for seniors."

The report says higher CPP premiums would mean less federal tax revenue, but Ottawa would save money elsewhere because fewer seniors would qualify for the Guaranteed Income Supplement for low-income seniors.

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About the Author
Parliamentary reporter

A member of the Parliamentary Press Gallery since 1999, Bill Curry worked for The Hill Times and the National Post prior to joining The Globe in Feb. 2005. Originally from North Bay, Ont., Bill reports on a wide range of topics on Parliament Hill, with a focus on finance. More


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