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BILL C-26 CPP, CPP INVESTMENT BOARD, INCOME TAX ACT (SECOND READING)

Honourable senators, I rise today to speak at second 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.

As you can see by the title of this legislation, it is very broad and impacts the government's retirement plan for Canada as well as Canada's general financial status through its changes to the Income Tax Act.

Bill C-26 proposes amendments to the Canada Pension Plan, CPP, which would provide for a gradual increase in premiums by both employers and employees, starting in 2019.

To justify this, it promises a matching increase in the Canada Pension Plan payouts, which will not take effect for at least 40 years.

There are other amendments in the bill which provide for changes to additional benefits like disability payouts or funds for those whose spouses have died, and also amendments which raise questions as to how the government will deal internally with the money they collect through CPP deductions.

Finally, Bill C-26 amends the Income Tax Act to increase the working income tax benefit, and this is a measure the government introduced in 2008, to ease the tax load on the working poor.

These amendments would, among other things, raise the maximum amount of the working income tax benefit to $1,192 for single individuals and $2,165 for families. This is an increase from the currently posted $1,015 for single people and $1,844 for families.

The government's intention behind this part of the legislation is to offset the increase in CPP deductions that people will be burdened with when Bill C-26 comes into effect.

According to Finance Canada, the increased working income tax benefit will lead to $250 million in extra spending. This represents yet another increase in our budget deficit.

The direct cost to individual Canadians will be an extra payroll deduction of up to $1,100 for some and a matching expense for businesses of all sizes.

The financial implications of this bill will impact everyone. It is a general hit to Canada's balance sheet, and a personal blow to the paycheques of every single Canadian worker in the businesses which employ them.

At a certain point, these numbers become an abstraction for some, and it is easy for them to forget that we are talking about real Canadians and real businesses.

To make it clearer, let me give you an example of how this will impact us. No adult who is alive today will likely see the full Canada Pension Plan payout that this bill proposes.

Those who would be the first to benefit are now 16 years old. They will start paying in as of 2019, and will need to pay for 40 years before they see a cent of this.

But all Canadians will be paying after Bill C-26 passes, starting in 2019, including the working poor and those in the middle of their careers now. Almost none of the seniors who currently live in poverty and who seem to be the inspiration for the government to make these changes will be alive to see the increased payout.

As of September, the average wage for a Canadian worker was just under $50,000 per year. With Bill C-26 in effect, a business of 40 to 50 employees will lose this amount each year, $50,000 coming off your small businesses.

Senators, when you look at it this way, it is not just a number anymore. It is a person's job. You know what will happen in a bad year. The businesses may have to do layoffs or terminations of good, middle class jobs that will simply disappear.

It is important to keep in mind the government's self-declared emphasis on growing and strengthening our middle class. When it comes down to it, workers and business owners are worried about this bill and this does nothing to calm their fears.

Hendrik Brakel, senior director for the Economic, Financial & Tax Policy at the Canadian Chamber of Commerce said in May:

. . . we're worried a big tax increase is headed for the middle class like an elbow to the chest.

He continued:

. . . this comes at the worst possible time — an economy reeling from weak commodity prices and slower consumer spending will be lucky to eke out the growth of 1.5% next year. It's difficult to stimulate the economy while pulling money out of the pockets of Canadians.

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This bill will take the money from the pockets of all working Canadians and they will have no choice about this, so that talk of "contributions" and "forced savings" is really just talk about a tax.

In a survey conducted by the Canadian Federation of Independent Business, it was found that less than 20 per cent of Canadians would opt to put more of their savings into the Canada Pension Plan. In another Canadian Federation of Independent Business survey, over one third of employed Canadians say that the proposed increases are unaffordable.

Only 11.4 per cent will ever draw the maximum from the Canada Pension Plan. As of July, the average payout was $550 a month, but few seniors today need the maximum from the Canada Pension Plan when they retire, which means this tax is disproportionately levied on the middle class for benefits they will never receive.

It is also worth noting that you cannot tax your way to prosperity. In this case, you cannot positively impact the lives of Canadians by taxing them for a benefit they will never collect.

For those who will receive the payouts tied to this tax hike, they will have to wait for the far-off-distant future. And these changes, should they still be there at that point, will do nothing to help today's seniors or our workers who are soon to retire.

The real tragedy of this is that the public's perception of the government's action does not match the reality of the legislation. A recent Ipsos poll found that over 25 per cent of those who are currently retired think they will see bigger Canada Pension Plan cheques, and 70 per cent of those asked did not realize that current seniors will not see a single dime from this effort.

Senators, Canadians are simply unaware of the implications of this bill. An Angus Reid poll found only 9 per cent were following the CPP changes closely, which is disturbing since this legislation ultimately affects everyone. If we cannot really say how this bill affects average Canadians in the long term, what can we say about it in the near term?

Simon Gaudreault, the Chief Economist at the Canadian Federation of Independent Business, stated that this:

. . . will have serious negative impacts on workers and the Canadian economy. The announced changes, including increased contributions, may put Canadian wages, hours and jobs in jeopardy.

In 2015, the Canadian Federation of Independent Business looked at a similar scenario for changing the Canada Pension Plan and found it would result in the loss of 110,000 jobs and a 1 per cent permanent pay cut for everyone.

The Fraser Institute, in a separate study, found that a 1 per cent increase in Canada Pension Plan premiums causes a 0.9 per cent cut in the personal savings rate.

This legislation is paternalistic. It assumes that Canadians are not taking advantage of private savings vehicles, like the Registered Retirement Savings Plan or the Tax-Free Savings Account.

It's worth considering whether this government had this legislation in mind when they reduced the maximum contribution levels for the Tax-Free Savings Account. I wonder.

In his speech, Senator Dean said that Canadians sleep well knowing someone is looking after them, and he characterized Bill C-26 as an example of federalism working at its best. The government knows best, senators, and this is the attitude that Bill C-26 envisions. The facts, of course, do not match the perception at all.

According to C.D. Howe, Canada's rate of individual savings has climbed from 7.7 per cent in 1990 to 14.1 per cent today. Canadians are saving more than ever, and we should trust them to make the right decisions with their own money. If this bill passes, Canadians will take less money home with every paycheque. Senators, every penny the government takes is a penny people cannot save.

When the Canada Pension Plan was originally conceived, it was never intended to be a complete income replacement scheme. The government of the day intended for the Canada Pension Plan to be an aid for poor seniors, not the primary vehicle for a secure retirement.

Judy LaMarsh, who was then Lester Pearson's Minister of National Health and Welfare, crafted the Canada Pension Plan and what was to become Canada's medicare system. When asked about the Canada Pension Plan, she said:

. . . it is not intended to provide all the retirement income which many Canadians wish to have. This is a matter of individual choice and in the Government's view, should properly be left to personal savings and private pension plans.

Individual choice is the main driver of our economic system. That's why we enjoy great wealth in Canada, and the lack of it is why some countries have great poverty.

The government claims that the increase in benefits will result in a boost to the economy because of seniors having more money to spend, but their own numbers, when compared to long-term projections, show that the GDP will be reduced by 0.3 per cent to 0.5 per cent as a result of this tax.

Finance Canada's analysis shows that the higher pension plan premiums will do real damage to our economy. They will reduce employment by 0.04 to 0.07 per cent, which in real terms means 1,050 fewer jobs per year for 10 years. You don't have to be an economist to figure out that fewer jobs and less growth mean more poverty for working Canadians.

As it stands, our retirement system is internationally recognized as one of the best. Poverty among seniors has been falling. Figures from Statistics Canada show that the share of Canadian seniors today living in poverty has dropped from 29 per cent in 1970 to just 3.7 per cent today.

Let me be clear, senators. No senior should live in poverty. It is a duty of our government to help those in need live with dignity.

It is true that it has been a long time since the Canada Pension Plan was last altered. All parties in Canada have at one time or another advocated for some kind of change in the system since the last set of amendments passed in 1997.

At the time, these amendments changed the plan from a pay-as- you-go kind of system to a fully funded benefit. The change was made to protect the viability of the plan, and this difference meant you can be guaranteed under the current Canada Pension Plan that you get what you have actually paid for.

The most recent report of the Chief Actuary of Canada suggests that the Canada Pension Plan fund is very healthy and will be solvent for the next 75 years. Officials who briefed me on the legislation assured me that the Canada Pension Plan is not just performing well, it is actually performing above their expectations.

With this healthy balance sheet in the Canada Pension Plan fund and the increase in personal savings rates we have seen, I do not see the rationale for this vast imposition on all working Canadians and all businesses.

In June, Charles Lammam and Hugh MacIntyre from the Fraser Institute authored a piece in the Financial Post, stating:

Instead of expending political energy on debating CPP expansion in the misguided belief that many middle- and upper-income Canadians are not saving enough for retirement, the focus of public debate should be on how to best help financially vulnerable seniors.

I would expand on that to suggest we should be looking at how to really help the poor right now, not debating a middle class tax grab.

I support reasonable, evidence-based policies that help real people. The expansion of the Guaranteed Income Supplement was highly successful and it immediately helped those who are in the most need.

If families are at risk of not saving enough for retirement, then the natural solution would be for the government to make it easier for them to save through increased economic growth and policies like the tax-free savings accounts, which are widely used by the middle class.

If the decline of workplace pension plans is a problem, then how on earth does imposing a tax on all businesses help incentivize employers to expand them?

Less money for Canadians means less cash in hand for students paying off their loans, or a smaller savings account for the young couple trying to make a down payment on a new home. Less money for businesses means hiring freezes, layoffs and an added obstacle to new investments and innovation.

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The government, and Senator Dean in his speech, characterized the increase in Canada Pension Plan premiums as "modest"; but, when asked, the Canadian Federation of Independent Business noted that 70 per cent of small-business owners disagreed with the idea that this tax hike will have a "limited" impact on their businesses.

In March, Dan Kelly, President and Chief Executive Officer of the Canadian Federation of Independent Business said:

Two thirds of small firms say they will have to freeze or cut salaries and over a third say they will have to reduce hours or jobs in their business in response to a CPP/QPP hike.

If this is what things will look like for small businesses, what will things look like for the working poor and low-income Canadians? The actual benefit the poor will receive is questionable. Low-income seniors receive the Guaranteed Income Supplement in addition to their Old Age Security payments. The Guaranteed Income Supplement is means tested. If you earn a certain amount of money or have a high enough income, the government claws back the Guaranteed Income Supplement, dollar for dollar. If increased Canada Pension Plan benefits result in more income for a senior, then the GIS payment to that senior will, in turn, be reduced. Senators, if this is the case, then do seniors in poverty end up with more or remain in a status quo situation?

The C.D. Howe Institute addressed this question in a paper they released on the government's Canada Pension Plan strategy. They noted that low-income workers will see no benefit from this. They will be taxed now when the premiums go up, and they will see little increase later when the higher Canada Pension Plan payment they have been promised is offset by clawbacks to their Guaranteed Income Supplement.

Another issue we must consider is how the government can ensure that the proposed taxes in the Working Income Tax Benefit are coordinated with similar programs at the provincial level. Finance Canada's only word on this is a commitment that the government will consult with the provinces before the final changes are in effect.

Senators, we are essentially being asked to pass this legislation and then wait three years for them to figure it out and tell us.

As you can see, Bill C-26 leaves us with a number of unanswered questions. The bill before us also leaves women and the disabled behind. Bill C-26 makes no reference to the "child rearing dropout provision" or the similar plan that exists for those who have received disability payments in the past.

The dropout provision has always been important to the Canada Pension Plan. Pierre Trudeau's government introduced it in the 1970s as a means of protecting working women from being penalized.

Women already get less from the Canada Pension Plan than men because of the pay gap in the workforce. The lack of a dropout provision for women who take time off to have children will result in greater gender inequality in this country. It is passing strange that the government would neglect this, considering the heavy emphasis they have placed on women's issues in the past.

Speaking of the past, the debate on this bill from the government side in the House of Commons has harkened back to a period when workplace pensions were common and well- funded. The government seems to believe that the present decline in pensions we have seen since the Great Recession will continue forever into the future. The attitude behind this belief is a perception that Canada's best days are behind us and that Canadians need the government to step in and protect them from a dark future.

Senators, this suggests the government is betting against Canada — betting against the possibility that we can one day return to great economic growth and a work environment where Canadians have more money to spend and, more importantly, more money to save. This is a bad bet that promises to take money out of our economy and transfer it to government coffers with no hope of a return for more than 40 years. The government is betting taxpayers' money, gambling against our prosperity, in a way where few Canadians will ever see the return.

Senators, the problem with prophecies is that they tend to become self-fulfilling if we put too much behind them. This bill only increases the risk to Canadians in the workforce by cutting jobs, growth and personal savings rates and by giving businesses more incentive to get rid of workplace benefits.

I'm not as pessimistic as the government is about the days ahead. We are a young country with a bright future, and enacting a tax of this kind, whatever the government chooses to call it, will only hold us back.