Corporate Canada was awfully quick to cry foul over Ottawa's new deal with the provinces on Canada Pension Plan expansion. It's an onerous payroll tax increase on a struggling business community that can ill afford it, they said. It will stifle job creation and investment, they warned.
Their points aren't entirely groundless, although almost certainly overstated.
Yet they were less quick to talk about some other cogent details – like, for example, how the corporate sector's years of growing abdication of its pension responsibility sent this ball into the government-policy court in the first place.
Statistics Canada data show that in 2000, about 30 per cent of private sector employees were covered by some sort of registered pension plan at work, including 23 per cent who had a defined-benefit plan – the most secure and valued type of retirement funds, in that they provide a guaranteed regular payout for as long as you live. (The CPP is, essentially, a defined-benefit plan.) By 2014, only 26 per cent of private sector employees had a workplace plan – and, even more significantly, the proportion with a DB plan had shrunk to just 12 per cent.
The figures for 2015 haven't yet been published by Statscan, but given that the number of employees with defined-benefit coverage has shrunk every year since 2005, it's likely that this percentage is even smaller today. We live in a country where barely one in 10 private sector employees has the security of a retirement plan from their employers that assures they won't outlive their benefits. Barely one in four has any kind of employer plan at all. If you spend a decade moving further and further away from your role in providing for your employees in their retirement, you can hardly be surprised that the government would eventually intervene to deal with the elephant you placed in the room.
And while the business community was keen to point out that increased CPP benefits will mean higher CPP payments by employers (as well as employees) – by one percentage point, phased in over several years starting in 2019 – it kind of skipped over the part about the substantial tax reductions businesses have enjoyed from Ottawa over the past several years. Under the Harper government, the federal general corporate tax rate was cut by six percentage points – to 15 per cent from 21 per cent – since 2007.
What's more, Ottawa was already planning a cut in payroll taxes next year, in the form of a reduction in employment insurance premiums that would reduce employer contributions to 2.25 per cent from 2.63 per cent. That would certainly cushion the blow of a CPP contribution increase – which wouldn't start coming in until 2019 anyway, and would initially be only a fraction of the one-percentage-point rise in the plan. Far from imposing a payroll tax increase on businesses during the current trying economic conditions, the corporate sector is actually going to be enjoying the benefits of reductions long before the CPP phase-in begins.
As for the claims that a CPP contribution increase will kill job creation, let's take a little look at history. In the mid-1990s, when the government faced up to the reality that the Canada Pension Plan wasn't anywhere near adequately funded to keep up with future payouts for the country's aging population, premiums for both employees and their employers were jacked up nearly two percentage points – from 3 per cent in 1997 to 4.95 per cent by 2003, where they remain today. Over the five years that followed, private sector employment rose by nearly 700,000 jobs – or about the same amount it grew in the five years before the CPP increases began. And during the six-year phase-in of the higher premiums? Private sector employment rose by 1.6 million. If the rising payments were an impediment to job creation, businesses clearly found other more compelling factors to overrule it.
Business owners will argue that globalization has forced their hand on pensions, that the costs of generous and secure DB pensions are no longer realistic if they are to compete against much lower labour costs in so many foreign markets. And certainly there are corporations that have continued to provide DB plans to protect their employees' retirement futures even as many of their competitors have abandoned them. Perhaps Ottawa should consider offering a carrot to go with this new pension stick – to deliver new tax breaks to employers who provide adequate pension security to their employees, to offset the CPP increases and recognize that they are doing their part.
But to suggest that a CPP increase that's years away is some sort of disaster for Canadian business, given the fragile state of the current economy, seems disingenuous. Indeed, bigger increases proved manageable in the past, and at a time when the private sector was shouldering a much bigger portion of the pension load.
This isn't just a problem much of the private sector has been ignoring, but one that too many businesses have been aggressively washing their hands of. It's time to stop feeding the problem and accept your part in the solution.