Where’s the transparency? Plan to expand the CPP shrouded in uncertainty
The federal government has made a big deal about being committed to openness and transparency. In fact, it was in this spirit that the government actually devoted an entire chapter in its first budget to “open and transparent government” and, for the first time, released its ministerial mandate letters to the public.
On Monday, Canada’s finance ministers announced an “agreement in principle” to expand the Canada Pension Plan (CPP), which will force Canadians to contribute more to the program. But days have passed since the federal government announced these major changes and it has yet to widely publicize key details such as:
- The rate increase.
- Will there be multiple rates?
- How long will it take for contributors to be fully eligible for the new, higher benefit?
- Has the benefit calculation been adjusted at all?
- Has the exemption period been changed?
- Specific changes to the Working Income Tax Benefit (WITB) and the degree to which this makes the program redistributive.
Indeed, there remains a lot of uncertainty about how much more Canadians will have to contribute. This is not a small issue. The CPP is a $57 billion program with 19 million contributors and beneficiaries and it is widely considered to be one of the key pillars of Canada’s retirement income system.
You would expect that a government committed to openness and transparency would release details of major changes to such an important program in a timely manner. These details are critical for a meaningful public debate about the costs and benefits of such a reform. And yet, the government has been frustratingly unclear about how much more Canadians will be required to contribute to the CPP.
The lack of clarity is all the more troubling because of the short time table for discussion and debate. The federal and Ontario governments have jointly insisted that the agreement be ratified by July 15. That means the Canadian public has less than a month to evaluate the plan—a plan still shrouded in uncertainty.
Initial news stories following the announcement reported that Canadian workers earning about $55,000 will be required to contribute $7 a month starting in 2019 and $34 a month once the change was fully implemented in 2023. This is hardly enough information to judge the costs of the changes. It leaves many questions unanswered including what the costs will be for anyone not making $55,000. And it is unclear if these amounts include the employer contribution.
Critically, the uncertainty has been fuelled by the fact that the government has not explicitly stated in a publically available document what the new contribution rate (or rates) will be. The current total rate is 9.9 per cent (split notionally between employees and employers) for earning between $3,500 and $54,900.
Subsequent news reports suggest that the new total rate will be 11.9 per cent, but the lack of official documentation has led to much confusion and uncertainty. For example, some news outlets report that the 11.9 per cent rate only applies to earnings between $3,500 and $54,900 and the total contribution rate will be eight per cent for those earning between $54,900 and $82,700. But other news stories fail to mention that there will be multiple rates.
Even if we assume that these figures are correct, working Canadians still do not know the precise schedule for the rate increases. The agreement calls for the rates to be phased in over five years, but will the rate increase by the same amount each year or will some years see larger increases? Businesses would also find this information useful as they think through how they are going to handle the increased cost of a higher CPP rate.
A government that is committed to openness and transparency ought to release all the details of a major change in policy in a timely manner, especially for a program as important as the CPP.
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