A fact check on the blowback to Paul Martin's new gig

What the former Liberal PM really said about payroll taxes

(Photo by Cole Garside)

There’s been quite an uproar about Ontario Premier Kathleen Wynne’s recruitment of Paul Martin, the former federal finance minister, who was also, though you might not remember this part so well, prime minister for a spell.

The reaction follows from the task Wynne has assigned to the Liberal icon of budget-balancing sound fiscal management—figuring out a way to improve the public pension system in Ontario, since the federal government isn’t interested in expanding the Canada Pension Plan. Two parts of the response seem to me worth putting in context.

First there’s Kevin Sorenson, the junior federal finance minister, slamming Wynne’s latest move toward providing more pension benefits, which would, of course, require premiums to be deducted from paycheques, as a threat of “higher payroll taxes, killing jobs and deterring investment.”

What’s interesting about Sorenson reverting to this line of attack, which he’s used before, is that it is decidedly not the criticism of bigger public pensions that Prime Minister Stephen Harper emphasized when he was asked about this issue in a year-end interview. As I’ve noted before, Harper didn’t lay on the approved job-killing-payroll-tax line, instead framing this as an issue of personal responsibility.

The Prime Minister said most Canadians put aside enough for retirement and those who don’t are “a group of people who have reasonably affluent lifestyles but just don’t save.” He continued: “They have the opportunity to do so, so I don’t think the challenge is to raise CPP taxes on everybody. It’s to try and figure out how to get the people who actually need to save to do the saving they need to do.”

Harper’s response strikes me as more plausible than claiming a modest pension contribution increase phased in over several years would really cost many jobs, and more interesting as a candid expression of the philosophical reservations conservatives might well have about expanding a government pension system.

The second aspect of the blowback about Martin’s new gig that seems to me worth noting is the gotcha reaction of those who claim he has forgotten his own view of payroll taxes, back when he was finance minister, as “a cancer on job creation.” But here’s the full quote from his March 1, 1994 speech to the Empire Club of Canada about that spring’s federal budget:

“One of the major initiatives of this budget was to lower payroll taxes for business—rolling them back now, with the prospect of even further reductions in the future. Payroll taxes are a cancer on job creation. Our reduction in unemployment insurance rates this year will result in business saving over $300 million per year, money we would expect businesses to re-invest in job creation.”

He didn’t mention CPP, just unemployment insurance, in that memorable “cancer on job creation” passage. And, later in the same speech, Martin in fact highlighted the need to review the “sustainability of the pension system,” the weakness of which he called “the sword of Damocles hanging over the heads of everybody in this room under the age of 45.” The CPP reform he later ushered in, which entailed a gradual increase of CPP premiums between 1997 and 2003, was one of his signature policy successes.

Much more than CPP deductions, employment insurance (as we now call it) premiums feel like a true payroll tax. Most of us don’t foresee deriving any direct benefit from paying for EI, since we don’t plan on claiming benefits, and the federal government has, in fact, put many billions in surplus EI revenues into its general coffers, which sure has made them seem like just another tax.

On the other hand, CPP benefits in retirement are a reliable prospect for many millions of working Canadians, and one they appreciate. It’s hard to think of CPP deductions as a typical tax when we fully expect to be personally deriving a reasonable return on every dollar we contribute. Even business owners, at least the best kind, can’t entirely begrudge paying a bit for their employees’ future security.