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Honourable senators, I rise today at third reading of Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act.

The legislation before us which passed committee on division, but unamended, proposes to increase benefits available through the Canada Pension Plan beginning in the 2050s and 2060s. In today's dollars, this expansion would amount to an increase in the Canada Pension Plan from the current maximum payout of $13,000 to just under $20,000.

To pay for this, premiums will increase for Canadian workers and businesses beginning in 2019. At the maximum contribution levels, this will eventually mean an extra $1,100 per year for Canadian workers and a matching $1,100 for Canadian employers.

These increases will have a negative effect on Canadian workers and their employers, and as with any financial hit, it will hurt the poorest workers and the smallest businesses the most.

The money taken from these increased payroll deductions will be held in a newly created separate account called the "Additional Canada Pension Plan Account," informally known as CPP2. It is expected that this account will transfer money to the Canada Pension Plan Investment Board to invest, and we hope it will get a good return for Canadian taxpayers.

At second reading, I focused on the increase in premiums and the damage this will do to jobs and economic growth as well as the doubtful effect this will have on helping our poorest seniors and low-income workers.

During our committee hearings, the Minister of Finance confirmed that we have generally been successful at decreasing the number of seniors in poverty, and the Fraser Institute confirms this, stating that the percentage of low-income seniors has decreased by 87.2 per cent since 1976 due in large part to a stable and well-run economy.

The minister also noted that this legislation was not planned with the generation sitting at the negotiating table in mind. There is nothing in Bill C-26 for today's seniors, some of whom, tragically, live in poverty.

Seniors are more vulnerable to poverty than others. The Fraser Institute notes that seniors are:

. . . less able to take steps that will get them out of [poverty] . . .for instance they are more likely to have health issues that prevent them from working and they may find it harder [generally] to secure employment.

I'm personally disappointed that the government, while planning so far into the future, is doing so little to help those in need now.

I oppose this bill, but do not mistake this as an opposition to the Canada Pension Plan.

Senators, I believe that all Canadians have the right to retire in dignity with enough income that they are not worrying about keeping the lights on or where their next meal will come from. The Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement, along with private savings, are important tools in ensuring this.

As I outlined at second reading, when the Canada Pension Plan was conceived, it was never intended to be the sole guarantor of a secure retirement. Private savings were always meant to be the primary vehicle for securing the retirement of Canadians.

The Pearson government understood when they created the Canada Pension Plan that for some people their savings would not be enough. Our economy was booming at the time, unemployment was at a historic low, but nonetheless, more than a third of seniors were living in poverty.

Senators, this was the reason behind the introduction of the Guaranteed Income Supplement, which was directly targeted at providing immediate and permanent relief to seniors who are in the most need.

I am reminded of this situation when I approach the legislation before us. One of the government's stated intentions behind many of the measures in this bill is to assist Canadians who are struggling to save for retirement. One-third of Canadian families, they say, are not saving enough, and I think there is much that the government can do to help them, but I don't think this legislation is that help. A benefit that pays out in the 2050s does nothing for this generation of families.

When this bill was before the House of Commons Finance Committee, the Quebec Employers Council noted:

. . . it is important to encourage people to save for retirement, a universal solution does not meet the needs, and on the contrary could have a negative impact on economic activity, employment and salaries.

Canadians need more money in their pockets and better or increased savings vehicles. The government can assist them by reducing taxes with an emphasis on low-income workers and expanding, not decreasing, contribution limits on Tax-Free Savings Accounts.

The government could also look into creating more savings vehicles to help encourage Canadians to put more money away for retirement.

As we saw with Bill C-2, the government took the opposite approach by cutting contribution space in half for Tax-Free Savings Accounts and adjusting tax rates without any provision for Canadians who earn less than $45,000 per year.

Before the summer adjournment, in Bill C-15 the government went further and eliminated a number of tax credits targeted at students, Canadian workers and their families.

I worry for low-income Canadians who will be affected by the damage this increase in Canada Pension Plan premiums will do to our economy. As I noted at second reading, Finance Canada's projections show that higher CPP premiums will hurt the economy. Employment will fall by 0.04 to 0.07 per cent. The GDP will shrink by 0.03 to 0.05 per cent and private savings will be reduced by 7 per cent over the long run. Finance Canada has admitted internally that the economic drag caused by the increase in premiums will last until 2034.

These numbers are an abstraction for some, but for me, they are real Canadians, their jobs, and their savings and their hopes for a brighter future.

The government responded to these doubts by pointing out that this legislation has a two-year notification period before increased premiums kick in, after which workers and businesses will have five years of gradually increasing payroll deductions.

The Canadian Federation of Independent Business fears that rather than mitigating the negative effects of the increase, this notice period will end up freezing hiring and investments as small business people prepare their balance sheets for the burden of this new tax.

In plain language, senators, this means that we will see two years of nervous business owners holding back rather than expanding.

This concerns me, especially given the great need our economy has for any form of growth right now. We are effectively hitting ourselves while we are down and claiming that we will be better off.

People used to believe that the best cure for a dog bite was placing the hair of the dog that bit you into the wound. I know this sounds ridiculous, but is it really any less ridiculous that we try to cure a problem caused by deficit spending and tax increases by throwing more taxes and more deficit spending into the wound?

The analogy goes further when we consider the many questions raised by the creation of the proposed Additional Canada Pension Plan Account and its ties to the Canada Pension Plan Investment Board.

The government has not really explained why it is better that the government invest your savings rather than you having a plan of your own that you can manage and direct toward your own priorities.

The general argument for using the Canada Pension Plan is that when you deal with individuals, there is a level of risk that the investments they make will not be enough, that they will run out of money. When these individuals are grouped together, this risk is shared with everyone and thus lowered for individuals.

Honourable senators, the Canada Pension Plan can cover the individual risks for workers, but the fund itself has systemic risks based on the investments it makes. More than 40 per cent of the Canada Pension Plan fund right now is invested in private equity, meaning unlisted companies or roads and other infrastructure projects, which can be difficult to evaluate because they are not traded on public markets.

The nature of these investments make for high returns in good times, but if something goes wrong, there is a significant level of loss for the investors.

The C.D. Howe Institute noted at committee:

Looking at historical returns as a guide, the chief actuary's assumed portfolio does yield average returns over the long run superior to the required threshold. But one must not lose sight of the fact that this result requires an asset mix embodying a fair amount of investment risks and uncertainty. And with risk and uncertainty comes a likelihood of lower returns or higher returns.

Senators, we must ask ourselves what happens if the returns are lower. Who bears the risk? The answer is not provided in Bill C-26, but we all know the people who will take on the burden of this are the Canadian workers and Canadian taxpayers.

The investors in the Canada Pension Plan Investment Board are not rich bankers or international financiers. They are average working Canadians who are forced to contribute to these investments without any say.

In a way, this is doubly concerning, because in a normal investment plan, risky products are priced appropriately. If you take more risk, you pay a bit less or a bit more depending on the circumstances. Since Canadians are forced to pay and their contributions are fixed by law, it is difficult to say if the investment fund is receiving the right signals to adjust its investments or not.

Some say that it is even unclear if the Canada Pension Plan fund is healthy, as the investment board reports. In the past 10 years, the CPP Investment Board has beaten the market benchmark it measures itself against in six years, but it has underperformed in four.

The CPP Investment Board has acknowledged that, in the past, the benchmark they use is a bit misleading since it is less risky than the fund's actual portfolio. In other words, if you adjust for the risk, maybe the fund is a bit less solid than we are led to believe.

The government's backgrounder on this legislation suggests that the new CPP 2 benefits will be fully funded. To most people, as the C.D. Howe Institute suggested at committee, this "implies an ability to pay obligations with assets on hand."

Bill C-26, however, does not use this term. It does, as the C.D. Howe Institute noted, require that ". . . projected contributions and investment income are sufficient to fully pay the projected expenditures. . ."

I am deeply concerned about the risk because it suggests to me there is a chance that Canadians may not get the benefits they have been promised. No one can say with certainty what the markets or state of the government's finances will look like in the 2050s.

It has been suggested by some that the CPP 2 fund will be used as an investment vehicle for the government's proposed infrastructure bank.

Mark Machin, Chief Executive Officer of the CPP Investment Board, suggested, when asked by the National Post last month, that the CPP Investment Board is hopeful they will find suitable infrastructure investments in Canada now that the federal government is moving forward on rolling out the infrastructure bank.

I fear that the CPP Investment Board will become just another bloated Crown agency used to fund the government's commitments in a kind of shell game that is being kept from the Canadian taxpayers.

Senators, we simply do not know what is going to happen. The legislation has not passed yet, the regulations have not been drafted, and we are 50 years away from seeing the first benefits being paid out.

We are past the point of changing this bill. But, in closing, I urge the government to follow New Brunswick's approach to its public pension plan regime.

As we learned at committee, before making investments, New Brunswick runs thousands of simulations with the portfolio, rejecting the ones which do not come out with a base benefit that is protected 97.5 per cent of the time.

While 97.5 per cent is not 100 per cent, it does reassure New Brunswickers who pay in that they will get what they have paid for.

The government has promised Canadians a secure benefit, and it is incumbent on them to deliver and to do so in a clear and transparent way that makes all the risks clear.