Flaherty nixes Sheridan’s plan to save pensions

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Rare consensus of provinces, territories fails to sway decision of federal minister

Jim Flaherty and Wes Sheridan

A national campaign by P.E.I. Finance Minister Wes Sheridan to boost the Canada Pension Plan by raising premiums has apparently ended in defeat. It was a surprising outcome since Mr. Sheridan had somehow managed to get a consensus among the provinces and territories, a difficult task at the best of times. It was even more surprising that federal Finance Minister Jim Flaherty said Ottawa was not interested in any plan to enhance the CPP if it involved raising premiums for Canadians.

It wasn’t just that Mr. Flaherty nixed a plan to raise contributions; he was even cool to the suggestion to explore the idea. The rebuke came Monday following a meeting with federal and provincial finance ministers at Meech Lake. Mr. Sheridan said the premiers proposed that an independent third party continue to look at CPP and get a full understanding of what the impact would be on families, business and all Canadians. It seems like a sensible idea but Ottawa said it doesn’t agree with a CPP enhancement and it doesn’t have any intention of ever doing it, explained a disappointed Mr. Sheridan.  

It’s obvious that Ottawa sees a CPP hike for employers and employees as a tax increase and the federal Conservatives have made it their mantra they cut taxes, they don’t raise taxes. A CPP increase would send the wrong message to the all-powerful Conservative base.

Mr. Sheridan says provincial finance ministers are now taking a timeout to determine how best to respond. Without Ottawa on board, it is very difficult for the provinces to act alone, especially smaller provinces like P.E.I. even though Ontario says it is now prepared to go solo with pension improvements.

The provinces’ proposal would boost CPP contributions for both workers and employers, requiring a 3.1 per cent increase in contributions. Increasing the amount of premiums paid into the plan will contribute to an eventual payout and provide Canadians with additional and more secure retirement income.

Provinces agree there is urgency involved but they were willing to push back a phase-in period for two years to co-ordinate with a request from Quebec, just to save their CPP plan. Ottawa had actually indicated several years ago it would support a plan to boost CPP premiums, but that was before the 2008 recession struck. Now, Mr. Flaherty argues the economy is still too fragile to tinker with pensions. He doesn’t want anything to upset his plans to balance the budget in time for the October 2015 federal election. And he especially wants to follow orders from headquarters that no taxes be raised.

The federal government opted to follow a course of action, supported by the Canadian Federation of Independent Business, which warned of job losses, plant closures and higher unemployment if CPP hikes went through. On the other hand was a solid alliance of premiers and territorial leaders. It would seem that Ottawa should pay at least equal attention to elected leaders trying to protect citizens over a business lobby group. But the CFIB is seen as closely allied with the Conservative base. Once again, Ottawa is paying slavish loyalty to this base at all costs.

The federal government had best be careful that the provinces are perceived as more concerned with pensions and protecting ordinary Canadians than the federal government. Ottawa just might get itself boxed into a difficult electoral corner from which it would be hard to escape if a rival provincial plan takes off. It would seem like a very hollow victory if Ottawa can claim it never raised taxes yet throws into jeopardy the retirement income of the average Canadian.

Organizations: Conservatives, Canadian Federation of Independent Business

Geographic location: Ottawa, Meech Lake, P.E.I. Ontario Quebec

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Recent comments

  • John Peterson
    December 18, 2013 - 14:24

    Dear nitpicker, it's clear your understanding of economics is limited. I have no political allegiances and I'm not here to insult Mr. Sheridan. My beef is with the plan itself. This plan makes little sense. Canadians already pay too much in payroll taxes. Flaherty is correct to politely decline Mr. Sheridan's offer. An increase in payroll taxes or any taxes for that matter are detrimental to the economy. Almost any economist will tell you that. As to the plan having credence because The Globe & Mail covered it, well that's a joke. The writers at the Globe & Mail would fail an Econ 1000 course. These people are inept to put it mildly. I have yet to see any mainstream economists come forward with support for this plan. Sheridan has a political agenda to put forward, this isn't about good public policy, it's about politics friend.

    • Sentance
      December 18, 2013 - 21:12

      I don't know of any economists who have specifically endorsed Sheridan's plan, but to imply that no mainstream economists support a reform and expansion of the CPP is a gross mischaracterization. My reading of this is that there is a fair bit of support for several of the main elements of Sheridan's plan - in particular the need to address the probable shortfall of middle income earners' retirement savings and the inefficiency of forcing lower income earners to save more. There are concerns that have been raised about the speed at which it will be phased in (some would like to see it delivering benefits much earlier than seems planned) and some would like to see the age of normal retirement addressed at the same time. And of course there are those that would prefer to see people direct their own savings - although as this would appear to be a failing strategy I'm not sure how useful that is. There is a good consensus that some kind of pension reform directed at the middle class is necessary (even Jack Mintz sees some concerns there), and that in general the future is looking dimmer for retirement savings. There also doesn't seem to be a lot of support for the notion that higher premiums of the modest type suggested phased in over an appropriate length of time (several years) would be any kind of significant shock to the economy. Whether they end up endorsing Sheridan's plan or something like it, the Premiers I think were on the right track to suggest farming it out for analysis, and I hope they agree to do that despite the lack of support from Flaherty.

    • nitpicker
      December 18, 2013 - 21:42

      Though I suggested that the support of other provincial finance ministers (not a Globe and Mail story) would indicate that the plan "at least" has "some" merit, I offered no personal opinion on its quality. Rather, my point was the foolishness of judging an idea solely on the political stripe of the politician who presented it. You don't seem to be doing that. But since you brought it up, I wouldn't give credence to something simply because the Globe covered it. That would depend on the author's credentials and/or those whom he quotes. (I would be curious as to how you would substantiate your Globe comment, but I digress). You may be interested in knowing that the Globe stories I reference do quote support from both politicians and academics.

  • Liberal dong
    December 18, 2013 - 12:37

    Good old Jim Flaherty shows he will not be walked over by Sheridan,I wish Flaherty was provincial treasurer this island probably would not be running this big deficit this gov has endured we need more people like Good old Flaherty running our island gov.

  • Lloyd Kerry
    December 18, 2013 - 10:04

    If Wes Sheridan indeed wanted to help Canadians, he could start with PEI Canadians. We have the highest personal income tax rates in the country, yet he steadfastly refuses to raise the basic exemption, nor tie it to inflation. H says there are better ways to help low-income people, but has yet to suggest any. An overpaid windbag in my opinion. His government collects a million dollars a year from Islanders making $12,000 or less. Ridiculous. They should all be fired.

  • Squirrel
    December 18, 2013 - 09:52

    A start to fixing " OUR " pension plan is to stop paying Sole survivor & Long-tern disability out of the plan Feds find another fund to pay this out off. I love politicians any problem just increase the tax. CPP premiums have gone from $ 600. to $ 2,300 in a short time. Wes stop trying to play hero... Everybody knew this was coming for 60 yrs. now.

  • nitpicker
    December 18, 2013 - 09:21

    Those who can only speak in terms of partisan bias lack credibility. Is there nothing more to an issue than the political stripe involved? You don't have to like Sheridan nor the Liberals to acknowledge that he was proactive enough to come up with a plan to address a pressing issue. He got consensus among premiers (that suggests the plan must have had a least some merit), was covered by papers like the Globe and Mail wherein analysts were quoted as saying the plan was sound (and there were those who found flaws). So, yeah, a few people were indeed listening. To me this is what politicians should be doing; coming up with ideas and bringing them to the table. Yes, Flaherty nixed it, as is the federal government's right. But the alternative is to do what? Propose no ideas at all? Retirement funding is becoming a massive issue.

  • Maybe Sheridan Plan Just Plain Stinks
    December 18, 2013 - 08:34

    PEI and Ghiz and Sheridan are only included in these meetings as a polite gesture, largely just ceremony. Sheridan has the worst financial record in Canada, do you think anyone is listening. Sheridan has taken transfer payments and invested them in gambling operations............Maybe PEI and Wes and the Guardian should wake up and smell the coffee?

  • Garth Staples
    December 18, 2013 - 08:18

    A lot of ink to say what? Sheridan fails on the national scene. Sheridan apparently doesn't understand what an economy can and cannot do in one fell swoop. Am I reminded what he has done to the PEI economy in the Liberal Govt's failed attempt to create jobs?