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Why CPP reform is the Liberals’ bold play for the middle

The Liberals’ CPP reform is just part of a larger—and risky—thrust to win over the middle class


 
Federal Finance Minister Bill Morneau, centre, is flanked by his provincial and territorial counterparts as he speaks during a news conference after reaching a deal to expand the Canada Pension Plan, in Vancouver, B.C., on Monday June 20, 2016. (Darryl Dyck/CP)

Federal Finance Minister Bill Morneau, centre, is flanked by his provincial and territorial counterparts as he speaks during a news conference after reaching a deal to expand the Canada Pension Plan, in Vancouver, B.C., on Monday June 20, 2016. (Darryl Dyck/CP)

For weeks at a time during the first eight months in the life of Prime Minister Justin Trudeau’s government, the words “middle class” barely registered. News from Ottawa was dominated by stories like the scramble to bring Syrian refugees to Canada, the debate over doctor-assisted suicide and bad blood on Parliament Hill over Trudeau’s plan to change the way Canadians elect their MPs. Rarely commanding anywhere near as much attention, though, were a cut to middle-income taxes, a new child benefit that adds up to real money for middle-class parents and finally, this week, a deal to reform the Canada Pension Plan that will matter most to solid middle-income earners.

MORE: How do child benefits affect you? Try our calculator

Top Liberal aides made no secret of their hope that these three thrusts will be seen as closely related—and as the fulfillment of the Liberals’ 2015 election platform, which the party called A New Plan for a Strong Middle Class. In fact, they form a policy package neatly touching on three stages of life—the new child benefit helping young families, the tax cut raising take-home pay during prime earning years and the CPP reform bolstering economic security in old age. “They are very much aiming to do stuff cradle-to-grave,” said Jennifer Robson, an assistant professor of public policy and political management at Carleton University in Ottawa, “but also to design policies that are actually going to connect with people.”

The CPP reform aims to change the way Canadians see their retirements. As it stands now, the CPP pays a maximum pension of a quarter of income up to $54,900, topping out at about $13,000 a year. Under the deal reached by Ottawa and most of the provinces this week, the maximum pensionable income will jump to about $82,700 by 2025, while the benefit level rises. That means, for instance, that someone who steadily earned about $50,000 a year will receive $16,000 in CPP, up from about $12,000 under the current plan. “It’s very dramatic,” said Jean-Philippe Provost, leader of the retirement practice at the pension consulting firm Mercer Canada. “For those earning $50,000 to $80,000, when we look at it a couple of decades down the line, these people will have access to a much more decent benefit from the CPP than they would have had otherwise.”

Of course, that pension boost won’t come for nothing. Between 2019 and 2025, both individuals and companies will see their mandatory deductions climb. On income from about $3,500 to $55,000, the current premium of 9.99 per cent, split equally between employees and employers, will gradually rise between 2019 and 2023 to 11.9 per cent. Then, on income from $54,900 to $82,700, a new combined premium of eight per cent will be in effect by 2025. Business groups protested. “Employers may have to halt job creation to pay this CPP increase, or delay important investments,” said Canadian Chamber of Commerce president Perrin Beatty.

Arguably more daunting than the payroll adjustment facing companies, however, is the strategic challenge confronting Trudeau’s political rivals. They have to hope the rise in CPP premiums turns out to be resented enough to outweigh the anticipation of bigger benefits. And they have to hope the Liberals don’t succeed in their quest to sell pension reform as part of an appealingly activist broader vision.

Federal Finance Minister Bill Morneau, centre, and Ontario Finance Minister Charles Sousa, left, attend a meeting of finance ministers in Vancouver, Monday, June 20, 2016. (Jonathan Hayward/CP)

Federal Finance Minister Bill Morneau, centre, and Ontario Finance Minister Charles Sousa, left, attend a meeting of finance ministers in Vancouver, Monday, June 20, 2016. (Jonathan Hayward/CP)

A key element in the bigger picture is the Canada Child Benefit (CCB), under which cheques are set to start flowing in July—paying nine out of 10 parents more than they got under the old federal programs it replaces. David Macdonald, senior economist at the left-leaning Canadian Centre for Policy Alternatives, says the streamlined CCB more than answers pleas from anti-poverty groups for help for struggling low-income parents.

But the biggest CCB bump will go just a little up the income scale, into the Liberals’ target middle-class group. For instance, parents in families earning about $39,000 to $70,000, according to Macdonald’s number crunching, will collect on average about $2,600 more a year. And that’s on top of the personal tax cut introduced quickly by the Liberals after they won power, on income between $45,282 and $90,563, which is worth $540 a year for an average couple.

To Ontario MP Lisa Raitt, the Conservative finance critic, it all smacks of a revival of big government. Even the tax cut, Raitt says, doesn’t look good to Tories, since the Liberals are running deficits to pay for it. But her fundamental gripe is with a governing philosophy that expands public programs to the point where middle-income Canadians might come to feel their economic well-being depends on federal largesse. “Our prosperity is reliant on productivity, which is not great in our country, and a great way to make people unproductive is by giving them cheques from the government,” Raitt said. “Or telling them the government will take care of you in retirement, so take it easy.”

Other files may have felt more pressing in the past few months. But Trudeau’s policies designed to touch the economic lives of middle-class Canadians, in a way they’re sure to feel, are shaping up as more definitive.


 

Why CPP reform is the Liberals’ bold play for the middle

  1. If you do not have a decent savings plan or DB or have salted enough money away to keep you comfortable in retirement I defy anyone to live on $17K a year. This is a Liberal TAX GRAP nothing more, nothing less.. The nitwits of this country who voted for these leftist clowns deserve what they get.

    • Are we commenting on the same article?
      1. How is this a liberal tax grab? Contributions from both employees and employers are held in a trust fund and not available for current political expenditures.
      2. Totally agree with your observation that unless you have a decent savings plan or DB or have salted enough money awat to keep you comfortable in retirement I defy anyone to live on $17k a year. That is the point! It is the raison d’etre of the expansion of the CPP.

  2. Three points to put out there.
    1. Media use catchy subtittles as click bait. Calling this plan risky. Just saying
    2. Whenever one throws numbers around, eyes glaze over.
    3. Out political playground requires the opposition to criticize and never allows for praise or agreement. Just saying.
    I was particularly drawn to this criticism just for criticism’s sake ““Our prosperity is reliant on productivity, which is not great in our country, and a great way to make people unproductive is by giving them cheques from the government,” Raitt said. “Or telling them the government will take care of you in retirement, so take it easy.”
    Oh well I can only dream of a time when political parties work together for the betterment of voters. Maybe this is the tipping point for me to finally support proportional representation where coalitions are needed. I had up until this point soundly rejected this as unproductive.

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