Tuesday, December 22, 2015

No Enhanced CPP For Christmas?

Leah Schnurr and Randall Palmer of Reuters report, Ministers eye no action on Canada Pension Plan premium:
Canada's federal and provincial financial ministers are considering not raising premiums for the Canada Pension Plan (CPP), federal Liberal Finance Minister Bill Morneau said on Monday, despite a Liberal campaign promise to enhance the plan.

The ministers will be considering a range of options over the coming year "from doing nothing because of the economy to more significant changes," Morneau told reporters after meeting with his provincial counterparts.

The Liberals, elected in October, campaigned on expanding the CPP, but the Canadian Federation of Independent Business warned that a premium increase would boost unemployment, because it does not take profit into account.

The CPP is comparable to the U.S. Social Security program.

The minister said the province of Ontario, which has talked about starting an Ontario pension plan because people are not saving enough, would continue with its process. But he said the Canadian government's clear hope is that there can be something done nationally.

The seniors' lobby group CARP Canada criticized the ministers for failing to act on CPP.

CARP members ... have given a clear political mandate in two major elections on what they want - specifically a CPP increase. What part of that declaration was unclear to the finance ministers?" asked CARP Executive Vice President Susan Eng in a release.

Bank of Canada Governor Stephen Poloz also briefed the ministers and presented a view of cautious optimism about the country's economic road ahead, Morneau said.
Andy Blatchford of the Canadian Press also reports, Canada's finance ministers agree to revisit pension reform talks in the new year:
A federal-provincial gathering of finance ministers reached rare consensus Monday on the polarizing subject of Canada Pension Plan reform — they agreed to keep debating it.

Federal Finance Minister Bill Morneau emerged from two days of discussions with his provincial and territorial counterparts to explain that the group will reconvene midway through 2016 to continue their talks about CPP enhancement.

“Our goal is that in a year from now, we’ll have more to talk to Canadians about, but we did not get to conclusion to what exactly we would be proposing,” Morneau told a news conference in Ottawa.

“We did not commit to any end game, nor in fact was that our objective today. Our objective today was to begin a process to review the potential to move forward.”

Morneau aims to eventually get some consensus on enhancing the Canada Pension Plan, a goal outlined in the new Liberal government’s election platform. The party has not released specifics on what changes could be made to the plan.

Changing the CPP would require support from seven of the 10 provinces representing two-thirds of the country’s population as well as a green light from Ottawa.

But it’s unclear how much support the Liberals will attract when it comes to CPP enhancement, even though the provinces agreed Monday to continue discussing the subject in the new year.

Ontario supports CPP expansion, while other big provinces like Quebec and British Columbia remain unconvinced. Quebec already has a public pension plan and B.C. has concerns about the fragile economy.

Saskatchewan, meanwhile, opposes beefing up the CPP.

“We’re happy with respect to the fact there’s no immediate changes to CPP — we’ve been advocating that,” Saskatchewan Finance Minister Kevin Doherty said Monday after the meetings.

Doherty has voiced his concerns about the negative impacts from the plunge in oil prices on his province’s bottom line.

The economic realities of the country in 12 months will dictate how the provinces proceed with the CPP, he added.

“We’ve agreed on a path forward with respect to coming back a year from now to talk about potential options — including not doing anything,” said Doherty, who noted fellow oil producers in Alberta and Newfoundland and Labrador are also facing intense fiscal pressure.

Quebec Finance Minister Carlos Leitao said, at the other end of the spectrum, the group will also look at the possibility of doubling the size public pensions — like Ontario plans to do. Leitao said he’s wary of going that far, especially since Quebec recently increased its payroll premiums just to maintain the current benefits.

“Whatever happens we have to be very mindful of a potential fiscal shock,” he said. “We want to avoid that.”

Ontario Finance Minister Charles Sousa said he was encouraged the provinces are willing to discuss enhancing the CPP, particularly since he felt some had been “reluctant” and were “pushing back” on the issue.

In the meantime, Sousa will proceed with his province’s own program, the Ontario Retirement Pension Plan, which essentially mirrors the CPP for anyone who doesn’t already have a workplace pension. He said it’s necessary for retirement security.

“We’re going down both tracks because the timing is essential,” said Sousa, who added the province has “off ramps” if changes are made to the CPP.
And lastly, Thomas Walkom of the Toronto Star wrote a stinging comment, Trudeau government wimps out on Canada Pension Plan reform:
Since coming to power, Prime Minister Justin Trudeau’s new Liberal government has taken strikingly bold positions.

It has promised a radically different relationship with Canada’s first nations. It has thumbed its nose at balanced-budget orthodoxy.

It has vowed to fight climate change without nettling the provinces and pledged to fight the Islamic State without engaging in combat.

It has defied both the polls and its critics to welcome thousands of Syrian refugees.

But when it comes to their campaign promise to beef up the Canada Pension Plan, the Trudeau Liberals have wimped out.

They are not doing anything. They are not even bothering to make empty promises about doing anything.

After hosting a federal-provincial meeting this week that dealt with the CPP, all Finance Minister Bill Morneau could provide was a promise to study the issue further and meet again.

It was hardly an example of the federal leadership that Trudeau had promised during the election campaign.

Introduced in 1965, the Canada Pension Plan is a forced savings scheme that serves as the backbone of the country’s retirement system.

Technically, employers and employees split the costs of the CPP. But in the long run, workers bear most of the burden — in the form of wages that are lower than they otherwise would have been.

What these workers get in return is a guaranteed annual retirement pension tied to the rate of inflation.

It’s not a big pension. In 2015, the maximum annual payout was only $12,780. But the idea behind the CPP was that this — combined with workplace pensions and private savings — would provide for a comfortable retirement.

Since then, workplace pension plans have become a rarity as employers strive to cut costs. Moreover, individuals aren’t saving enough on their own.

All of this has put more pressure on Canada’s federal and provincial governments to boost the CPP.

At any given time, most governments think the CPP should be enriched. Even Stephen Harper’s Conservatives were, at one point, committed to increasing CPP premiums and benefits.

Governments reckon, correctly, that if people aren’t required to save enough during their working years, they are more likely to become a burden on public finances when retired.

But small-business employers hate having to pay any kind of payroll tax. Back in 2010, that was enough to turn the Conservative federal government away from reform.

As well, provincial governments get nervous about raising payroll taxes — particularly during the run-up to elections.

At one point, both Quebec and Alberta were opposed to CPP reform — which was enough to kill the idea (amendments require the agreement of Ottawa and seven provinces representing two-thirds of Canada’s population).

By 2013, enough provinces were on side to get something done. But the Harper Conservatives remained opposed.

That’s when Ontario Premier Kathleen Wynne announced plans to set up a supplementary provincial pension scheme in her province. She said she’d scrap those plans if a new government in Ottawa could be convinced to expand the CPP proper.

Her federal Liberal cousins promised to be such a government.

Last June, they issued a statement under the name of then seniors critic John McCallum arguing that the CPP “simply isn’t enough,” and that the Liberals would increase benefits gradually to improve it.

“Clearly, the time is right,” said McCallum, now immigration minister. “All that is missing is federal leadership.”

Alas, that federal leadership is still missing.

Currently, only Saskatchewan and British Columbia seem adamantly opposed to boosting CPP premiums and benefits. If Ottawa wanted to do something, enough other provinces are on side to satisfy the requirements of law.

As well, Morneau could easily mollify those worried about increasing payroll taxes during hard times.

As it is, the law requires a minimum three-year waiting period before implementing any legislated reforms to the CPP. This waiting period could be longer.

In a book called The Real Retirement that Morneau co-authored in 2013, the millionaire finance minister writes that there is no retirement crisis in Canada, that the elderly may work past 65 if their pensions are skimpy and that most seniors can live perfectly well on 50 per cent of their pre-retirement income.

This may explain his laissez faire approach to the CPP. But it isn’t exactly what his party and leader campaigned on.
So here we are, another Christmas goes by and our finance ministers are dithering, "debating" and worse, backtracking on enhancing the CPP (it was three years ago when we debated going slow on enhancing CPP!).

Let me enlighten our Canadian politicians. Canada is screwed, period. I've been warning of Canada's perfect storm since January 2013 and have been short Canada for a long time. Things aren't going to get better, they're going to get a whole lot worse. There is no end to the deflation supercycle and I foresee negative interest rates and other unconventional measures in the not too distant future.

But the country's dire economic situation shouldn't be a factor against enhancing the CPP now. In fact, quite the opposite, I believe the coming economic crisis is one more reason to start the process and get on with it because as I keep harping in this blog, enhancing the CPP is smart economic policy over the very long run.

I just finished blasting the Trudeau Liberals for the biggest pension gaffe of 2015. Their asinine policy of rolling back the TFSA limit is a dumb populist move to make them look as if they're going after the rich and helping the poor (in reality, this policy does the opposite).

I want you to all to once again read what a friend of mine sent me over the weekend on negative rates coming to Canada after he read the unintended consequences of negative interest rates in Switzerland:
"I found this article fascinating. Central banks around the world have been experimenting with the economies of the G20 countries since the crisis. They are doing shit that they have never done before and it is clear that the world has become their Petri dish.

All of this comes from one fundamental issue - a demographic bubble of baby boomers going through the system. The world (including Canada) is completely unprepared for this new economic reality.

When push comes to shove, it is this demographic bubble that will drive the Canadian economy over the next 40 years and, unfortunately, I do not see Canadian policy preparing for this at all.
For example, the country should have increased immigration in 1990s but it did not because the unions stopped it. Instead, they invited high net worth individual to move to Canada (i.e. we want your money without you stealing our jobs). The unintended consequence of this policy was that these "high net worth individuals" came in droves, most of them Chinese and Middle Eastern, and pushed real estate prices skyward in two of our major cities to the point where no one in their 20s can buy a home.

So expect more of the same, Justin is not a visionary. He is simply a populist Prime Minister (no different than Greek PM Tsipras). He got voted in because everybody hated the other guy. He is now implementing tax policy that completely ignores reality but will secure his populist promises (tax the rich - give to the poor). When the next election comes, he will be faced with an opponent who will try to one-up him and the race to bottom will continue.

My reaction to Justin's tax policy. At a 53% marginal rate, I have a whole bunch of tax advisors looking at what to do to minimize it. I am sure that they will find a loophole than hasn't been plugged yet. If they don't, I will just adapt and perhaps leave Canada when I retire with my future tax dollars in hand."
On bolstering the CPP, my friend sent me this:
"It's not about left wing or right wing politics. Enhancing the CPP is just a smart move. You're right, companies are unloading retirement risk on to the state and unless something is done, this demographic nightmare I'm talking about will explode in Canada and we'll see a huge rise in social welfare costs."
I suggest our politicians read all about the benefits of defined-benefit plans (they should know all about retiring in EU style) and think long and hard about my friend's comments on Canada's demographic time bomb and how we're ill-prepared for it.

Then I suggest our politicians get to work and introduce real change to Canada's pension plan. Don't wait till the economy gets better, if you do you'll never enhance the CPP. Start thinking long-term and start making decisions which will benefit the country over the very long run. If you do, I promise you Canada will be on much more solid footing the next time we get hit by a global economic and financial crisis.

On that note, I'm taking the rest of the week off and will be back next week to go over end of year items. I wish you all a Merry Christmas and Happy Holidays and want to particularly thank those of you who take the time to subscribe or donate to this blog. Thank you, I truly appreciate your ongoing support and hope others will join you and recognize the hard work that goes into this blog.

Below, BNN reports on the meeting of Canada's provincial finance ministers with the federal Finance Minister Bill Morneau in Ottawa where the economy and CPP were topics of discussion.

I'm glad there's a "new spirit of collaboration" but I hope this translates into concrete actions and enhancing the CPP once and for all. I don't want to see this debate going on till next Christmas and beyond.

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