The Canadian Federation of Independent Business (CFIB) has released a new study simulating the economic impact of recent calls to boost Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) benefits and premiums.
Using macro-econometric modeling to simulate proposals made by the Canadian Labour Congress (CLC) and others, CFIB finds that 1.2 million person years of employment will be lost in the short-run, and wages will be forced down roughly 2.5% in the longer term.
“While touting to save more people from the risk of pensionless retirement, proposals such as that of the CLC substantially underestimate the cost to the economy,” explained CFIB’s chief economist and vice-president, Ted Mallett. “The reality of putting more of today’s earnings aside for tomorrow is that more of today’s spending power will be put aside as well.”
According to the CFIB, the CLC is trivializing the cost of gradually doubling CPP/QPP benefits, which it says works out to an increase of a mere $3.57 per week in premiums for workers earning $47,200.
The CFIB points out that employers would have to match employee premiums, and that the increases would take place each year for seven years. The true cost of doubling CPP benefits would be closer to $2,600 per employee per year once the seven-year plan is fully phased in.
“The bulk of the negative economic impacts would be the result of increases to employer-paid premium costs,” continued Mallett. “Employees get their premiums back in the form of income after retirement. For employers, however, it is a tax on payrolls, which hinders job creation and wage growth.”
A recent CFIB survey found that 71% of small business owners are opposed to a mandatory increase in CPP premiums.
If the federal and provincial governments remain committed to increasing mandatory CPP premiums, CFIB recommends they increase the employee portion only. “As employers pay 60% of Employment Insurance premiums compared to 40 per cent for employees, perhaps employees should pick up more of the cost of CPP,” CFIB president, Catherine Swift concluded.