Flaherty: No consensus yet, but 'modest' CPP expansion possible if economy grows

MEECH LAKE, Que. – The drive to enrich Canada’s main public pension plan took a major step forward Monday with an agreement by federal and provincial ministers to look to ways of enriching the plan once the economy improves.

In a surprise announcement, Finance Minister Jim Flaherty said he and his provincial colleagues had decided to ask officials to report back in June with options for reforming the Canada Pension Plan.

“There’s no consensus on CPP expansion at this time,” Flaherty said.

“The ministers did agree that we would task our officials with working on definitions of ‘modest increase’ and ‘economic triggers’ that we would then discuss at our next meeting in June.”

He said the triggers refer to levels of economic growth and unemployment.

“We’ll need to have some kind of measure of real GDP (gross domestic product) growth and unemployment rate, or both, so the ministers can be confident that the economy can take the extra burden that would be put on employers and employees.

“The No. 1 concern of all the ministers is to not do any harm,” he said.

With the economy barely growing at two per cent and the global recovery still fragile, Flaherty, with the backing of some of the provinces, believes any changes in the public pension program should wait for more reliable and stronger growth.

Still, Quebec Minister Nicolas Marceau said he believed “there is political appetite, … there is support from the finance ministers who were here today” to make agreement on some plan for enhancement possible by the end of next year.

That’s an ambitious target, and Marceau, who represents a new more left-leaning government in Quebec, is a key reason for the movement on the issue. Two years ago, Quebec and Alberta both rejected reform, denying the project the dual two-thirds majorities — of the provinces and population — needed to change the CPP.

Instead, the federal government introduced the so-called registered pooled pension plan concept, a voluntary system that allows workers to contribute but does not require employers to chip in. Some provinces have said they will go ahead with implementing legislation.

In another change of temperature on the issue — which appeared all but dead Sunday night — the federal minister said he no longer believes unanimity is essential.

That was good enough for Ontario Finance Minister Dwight Duncan, who has been the driving force behind the issue, although he believes the wheels are moving too slowly.

“It’s an important step forward. I didn’t think we’d come up with this today,” he said.

“Mr. Flaherty is correct in saying there isn’t consensus for moving forward now, but there certainly is an overwhelming majority of provinces that do want to move forward. There’s a question around timing.”

Duncan continues to disagree with Flaherty and some ministers, particularly Alberta’s Doug Horner, that the economy would be damaged by a modest bump in premiums. He noted that Canada’s businesses have received massive tax cuts in the last few years.

On the other side of the issue, he said studies show about one-third to 40 per cent of middle-class Canadians are entering retirement with insufficient savings.

As well, Duncan noted Ottawa has already announced plans to increase the age of eligibility for Old Age Security and the Guaranteed Income Supplement to 67 from 65 in future years, which, he said, makes enriching CPP all the more pressing.

“It’s penny wise and pound foolish (not to proceed),” he said.

Duncan said the questions ministers will need to resolve is how much to enrich the program, what the changes will look like and over what period of time. He noted the last time increases were implemented in the 1990s, it was over several years.

New Democrats and the Canadian Labour Congress have proposed doubling what CPP would pay out over a seven-year period to an average $1,868 a month, arguing the enrichments can be covered through relatively modest premium hikes.

Other options include increasing pensionable earnings from the current $50,100 and the maximum benefit, now at 25 per cent of pensionable earnings.

Alberta’s Horner said he supports further study on the issue, particularly to determine what “modest” reforms would look like.

“Then we’ll have a wholesome discussion when the time is right,” he said.

The finance ministers meeting, the first in a year, began with a briefing from Bank of Canada governor Mark Carney on the prospects for growth and risks, particularly from a possible budget crisis in the United States that could send Canada back into recession.

Flaherty said he believes all the governments were aware of the challenges and reaffirmed their commitment to balancing budgets over the next few years. One way of protecting Canada from external head winds, he said, was to get their houses in order.

“We don’t want any weakness in the federation arising out of excessive deficits and excessive public debt,” he said.

Flaherty said he expects to balance the federal budget in 2015, but some provinces, particularly Ontario, will likely need several more years even under the most generous assumptions for economic growth