The proposed booster shot to the Canada Pension Plan will squeeze the balance sheets of small- and medium-sized businesses already struggling to control costs, while weakening the ability of workers to pay off record levels of household debt, according to the Canadian Chamber of Commerce.
鈥淎ny time you add to the burden that (businesses) have to pay, what you are doing is making an attack directly on their ability to create jobs and raise pay for their existing workers,鈥� said president and chief executive Perrin Beatty in an interview with the Business News Network.
Eight provincial finance ministers reached an agreement with their federal counterpart late Monday to hike the amount that workers and their employers will pay in CPP contributions.
Under the current plan, employers and workers each contribute 4.95 per cent of income between $3,500 and $54,900. The new changes would see those contributions gradually increase by 1 per cent. The new deal also raises the upper earnings limit from $54,900 to $82,700 by 2025.
鈥淔or businesses that find themselves squeezed today, adding that much to the cost structure is a real problem,鈥� said Beatty.
Investments by Canadian businesses fell 9.7 per cent in the first quarter of 2016, according to Statistics Canada. That measure of spending has dropped more than 17 per cent from its peak in 2014.
鈥淚f the government is talking about the need to stimulate the economy and get economic growth, the very worst way to do it is to pull money out of the economy through more payroll taxes,鈥� said Beatty.
鈥淭hat was the same argument that was used when CPP was introduced in the 1960s. Many said that it would be the end of the economy. Now they cannot imagine not having CPP,鈥� said Ontario Finance Minister Charles Sousa on BNN.
The move underscores concern in Ottawa that too many Canadians are living beyond their means. The average Canadian held more than $1.65 in debt for every dollar of annual disposable income at the end of 2015.
Meanwhile, fewer employers are offering pension plans. Half of Canadians aged 55 to 64 who don't have an employer pension have less than $3,000 saved up for retirement, according to a recent report from the Broadbent Institute.
Beatty says the number of seniors unprepared for retirement is in fact 鈥渞elatively small,鈥� citing a report from consultancy McKinsey which found as many as 83 per cent of Canadians are well on track for a comfortable retirement. He says efforts to bolster retirement savings should be targeted at at-risk groups like widows.
鈥淲hat we were looking for is a program that is aimed at where there is actually a problem. What they鈥檝e come up with is a solution for which there isn鈥檛 a problem,鈥� said Beatty.
Beatty and Sousa agree that it鈥檚 not the baby boomers, but their millennial children who will see the greatest impact from Monday鈥檚 announcement.
鈥淲hat we are seeing now is that younger Canadians in the work force are going to be told that instead of paying down their student loans, instead of paying off the expensive loan that they have for their car, instead of paying down their mortgage, they are going to be forced into this government program,鈥� said Beatty.
Sousa says the enhancement to CPP is a necessary step to safeguard the financial future of young Canadians, since they are least likely to revive a pension, or make use of government savings tools like Registered Retirement Savings Plans and Tax Free Savings Accounts.
鈥淭his is all about young Canadians. The seniors that are retiring now or have retired, they鈥檙e not going to benefit from the enhancement to CPP as it鈥檚 been put forward,鈥� he said. 鈥淭wo thirds of Ontarians don鈥檛 have a work place pension; 75 per cent of our young people are not saving. This will help them.鈥�
