FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 5, 1997

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[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): I'd like to call this meeting to order.

The order of reference for the finance committee this evening is the study of Bill C-2, an act to establish the Canada Pension Plan Investment Board, to amend the Canada Pension Plan Act and the Old Age Security Act, and to make consequential amendments to other acts.

We have the pleasure this evening of hearing from four groups: the Fraser Institute, the National Federation of Nurses Unions, the Council of Canadians with Disabilities, and the Canadian Youth Foundation.

The first presentation will be made by Mr. Michael Walker, executive director of the Fraser Institute. Mr. Walker, welcome.

Mr. Michael Walker (Executive Director, Fraser Institute): Thank you very much, Mr. Chairman. Thank you for the opportunity to appear before the committee as you consider the proposed changes to the Canada Pension Plan.

Having published many contributions to the debate about the necessity for change, the Fraser Institute is pleased to see the legislative proposals. As you would expect, I will have several suggestions for modification.

First I would like to draw your attention to the chart in the handout. On the turnover, the second page of your actual handout, you see a chart that shows the comparison of the CPP lifetime contribution-to-benefit ratios for different generations. This chart arises from the inter-generational accounts for Canada, which were pioneered by the Fraser Institute. However, to avoid the dangers of being self-referential, I have used here the calculations of the Institute for Research on Public Policy, which has subsequently come to the same conclusions as the Fraser Institute.

The chart shows the lifetime contribution-to-benefit ratio for participants in the CPP under two scenarios that closely resemble but are not identical to the current and proposed CPP arrangements.

It shows, for example, if I can ask you to look at the chart, that somebody born in 1910—and you can't actually see this on the chart, but you see it approximately—pays 17¢ for every $1 they receive from the plan. In other words, they will receive 5.8 times the amount they have paid into the plan, even adjusting for the impact of interest. Somebody born in 1995 would pay 2.6 times the amount they'd receive under the current arrangements and 2.1 times the amount they are going to receive under the proposed changes.

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If I could draw your attention to the chart, the starred line on the chart shows the lifetime contribution-to-benefit ratio of people born in various years from 1910 up to 1995. It represents the current arrangements, that is to say, the arrangements before the changes that are being proposed in the current legislation.

The other line, the one with the boxes on it, shows what would be the effect of the proposed changes. If you look at the last part of the chart, the result for 1995, you see that the blocked part of the chart, which is the proposed changes, would actually involve less of a contribution-to-benefit ratio for those born in 1995 than would be involved under the current, or status quo, which is the starred line. So that's where we get the difference between the 2.1 and the 2.6.

The proposed changes, as you can see from the chart, will cap the lifetime contribution of all those born after 1980 at 2.1 times the benefit they can expect to receive by increasing the contributions of those born after 1935. In other words, the essential changes that have been made in the legislation involve that flattening of the lifetime contribution-to-benefit ratio from those born in 1980 on, and that's been financed by the gap you see in the chart between the starred line and the line with the boxes on it.

The proposed changes do nothing to change the basic fact that the CPP is a scheme for redistributing large amounts of money from those members of the plan born after 1947 to those born before 1947. You can tell that from the chart, because the dotted line across the chart at one is the point at which the lifetime contribution and benefits are the same—that is to say, the amount a person gets out of it equals the amount they pay into it, and therefore the contribution-to-benefit ratio is 1:1. As you can see, that line under the old plan was around 1950; in the actual calculations it's 1947.

Those born in 1947 break even. All those born after 1947 lose, and the amount of the loss increases steadily for all born up to 1980, at which point the loss stabilizes. The proposed changes would cause those born between 1940 and 1947 to gain less of a benefit and those born between 1947 and 1980 to bear a somewhat greater cost in order to achieve the stabilization of the loss rate at 2.1:1 for those born after 1980.

I refer here to the contribution-to-benefits ratio as a loss rate, because for all of those people, it in fact means a loss. Anybody who was born after 1947 is a loser under the current regime.

This is a move in the right direction. That is to say, the change you're proposing is a move in the right direction. I therefore support the idea of the inter-generational redress that lies at the base of this policy, and in the interest of solidifying the small gains that are made, would support going ahead with the changes.

However, several areas of the policy require changes, some immediate and some in due course. The ultimate objective of these changes must be to rescue the retirement provisions of Canadians from the greatest risk they face, namely the political risk that changes to the programs will in the future fundamentally alter the conditions of eligibility in the way of the recent changes to the OAS, the old age security.

The only way to achieve that security is to ultimately fully fund and personalize all benefits and place them outside the reach of the public sector's ability to engage in inter- or intra-generational transfers. These transfers are not the appropriate focus of the retirement system and should be undertaken through the general tax system if they are to occur at all.

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One required change is to recognize that those who are already retired and those who will retire before 2012 are getting a subsidy. This subsidy is today financed only by CPP contributions. We should gradually move the burden of this subsidy from the Canada Pension Plan to the general tax base and correspondingly reduce the required increase in the CPP contribution rate. A good time to make this shift would be during the next several years, as the fiscal dividend begins to emerge and the required flexibility will be available. The main reason for doing this is to avoid, to the extent possible, the negative effect that payroll taxes such as the CPP have been shown, by the Bank of Canada and others, to have on employment.

This change would make it possible to gradually personalize the CPP, as each Canadian would pay only for their own retirement. An added benefit of this transition is that since there would no longer be a transfer cost built into the now lower CPP rate, Canadians would appropriately regard it less as a tax and more as an RRSP contribution. The privatization of the CPP structure and the isolation of political risk could be easily accomplished at that point.

A second change—and this should be immediate—is to create 10 provincial CPP funds rather than the single national institution that is currently proposed. CPP members would have the right to select the fund of their choice, and the periodic comparison between the funds would ensure something like a competitive outcome in the asset selection process followed by the funds. More important, this approach would make the eventual privatization of the CPP more tractable.

Thank you for the opportunity to provide these summary comments to the committee. I'd welcome any questions you might have. I realize this is pretty dreary stuff, going through all these numbers, but I do believe that if we are to have a sensible discussion about the program, we have to have these numerical issues clearly in hand.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Walker. We do find numbers interesting in this committee.

We'll move right to the question-and-answer session. Ms. Ablonczy.

Mrs. Diane Ablonczy (Calgary—Nose Hill, Ref.): Thank you, Mr. Walker. It's a pleasure to have you here. We've had some good testimony on the CPP changes so far.

The main concern I have with this plan is the inter-generational unfairness. If you have studied the government's changes, you know our children will be paying into this plan and receiving less than the value of their contribution. In fact their real rate of return will be 1.8%.

I see you are also one who mentions the privatization of CPP, as many other countries have done and as you know our party has talked about. I wonder if you could comment on how moving to privatization, in your view, might or might not address this major concern of inter-generational unfairness.

Mr. Michael Walker: The burden of the comments that I have just been trying to make—and obviously not too successfully, because it's a very complicated point to make.... Well, let me answer your question first.

The answer is that privatization requires first of all that we get rid of the subsidy that is built into the CPP. The CPP at the moment is performing two functions. It is providing a compulsory retirement tax on Canadians that will provide those individual Canadians with a retirement benefit. Second, it is performing the effect of providing a subsidy to all those who were born prior to 1947 and who will retire therefore before 2012. All of those people, from the beginning of the plan up to 2012, are going to get more out of the plan than including all of the interest they have put into the plan. That means a direct subsidy is being paid by all the members of the plan who were born subsequent to 1947.

So if you're going to privatize the plan, you have to first of all deal with the issue of this subsidy. You have to separate the subsidy from the retirement benefit feature of the CPP.

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What I proposed in my opening comments was that we should take the opportunity of the fiscal dividend that is approaching to recognize this subsidy, on the one hand, and to say this is not a subsidy that should only be borne by workers through their retirement pension contributions. This is a subsidy that should be financed by the whole tax system, and we should take it out of the CPP and levy it as a general tax.

As I point out, the additional reason for doing that, apart from the fact that it would make privatization feasible, is that it would reduce the job-killing effect that has been noted by almost everybody who talks about payroll taxes. This is because you would be able to reduce the CPP contribution rate down to the level that is only required to provide the retirement pension portion, and not the amount that's required to provide that subsidy to those who were born before 1947 and will retire before 2012.

Mrs. Diane Ablonczy: Do you have any calculations as to what that split might be, between the subsidy portion versus the value-for-money portion?

Mr. Michael Walker: You can work out roughly what I mean. The honest answer is no, we haven't done a specific calculation. It's a complicated calculation to make.

You can get a sense of how big the effect would be from the fact that people who are retiring.... If you look at the chart that you have there, if you look under the new proposals, for those born from 1980 to 1995—this is the line with the little boxes on it—that implies a lifetime contribution-to-benefit ratio of about 2.1. This means that people are paying in 2.1 times the amount they're going to get out.

If you think about pushing that down to 1.0, in other words 1 to 1, so that you get out what you put in, including accumulated interest, that would suggest that the rate is probably half the current rate. The tax rate that would be implied would be around about 5%, rather than the 9.9% that is implied under the current legislation.

Mrs. Diane Ablonczy: If you were to suggest, as I guess you are, that the unfunded liability is really the responsibility of the entire tax-paying population rather than just of workers born after 1947, how would you apportion that liability? Would you do it by raising everybody's premiums to cover that? I'm not quite sure what you mean.

Mr. Michael Walker: The current premiums are in effect doing that. That's why the current premiums are going to be up at 9.9%—to cover the retirement portion and the subsidy portion.

What I would propose is that Canada should do what has been done in Chile and other countries, and that is, issue recognition bonds or set up a fund using recognition bonds that would cover off the subsidy, and take it completely out of the retirement system. Why should we be trying to use our retirement income system to engage in subsidization?

If we want to engage in redistribution and subsidization, we should do that as we do in all of the other areas—finance it through the general tax system. That's what we do in the old age security system. We finance it through the general tax system, and we put it out to people who need it. Increasingly, that is becoming only a lower income support payment, as you know. If we're going to engage in subsidization, we should do it distinctly and discretely, apart from the retirement system, in my opinion.

It would require acknowledging the subsidy, quantifying it, moving it into a separate fund, and either issuing recognition bonds or financing it through the fiscal dividend as it unfolds.

Mrs. Diane Ablonczy: You mentioned that was done in Chile. What was the overall impact of that move? If we were to do the same sort of thing here—that is, separate the subsidy portion from the pension portion—would there be the same results as there were in Chile, whatever they were? I need to know those first, I guess.

Mr. Michael Walker: I don't think you would have the same result as in Chile. Chile has a very different demographic structure, a very different sort of problem from the one Canada faces. The rates of return in Chile have been very different because it is a developing country with a lot of opportunities, frankly, for income development and so on.

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So I don't think it would be the same, but one can clearly say that this is not about whether we should do this or not—we are doing it now. The question is, what is the way to do it that will have the least damaging effect on the economy?

The way to have the least damaging effect on the economy would be to take that subsidy portion out of the CPP, set it aside and finance it from a broadly based tax levy, rather than from a narrow levy that is focused on the workforce, focused on the young people we're so concerned about today, who already have a variety of albatrosses around their necks, and to that we're going to add a much higher CPP contribution rate. It just seems to me that is not an intelligent way to solve that problem.

Mrs. Diane Ablonczy: I have one last question. You mentioned the idea of moving towards a privately managed pension account. Part of the concern I've heard about doing that is about whether or not you would get the same rate of return. Wouldn't it be more risky to manage your pension funds that way, as opposed to having them managed in the government plan? I'd be interested in your comments on that.

Mr. Michael Walker: I frankly think that the biggest risk that retirees face, particularly as we go forward 25 and 30 years into the dim mists of the future, is the political risk that the structure we're talking about today will be once again revised in order to in some way adapt to the fact that we're going to have to spend so much more money on health care because we're going to have so many more problems related to aging than we have at this moment in any way anticipated, so that when the government comes under duress it will do as it has done with the old age security.

We must never forget that the old age security was set up as a contribution plan. It was set up as a contributory plan whereby workers paid 3% of their income to support a retirement scheme. When it became of interest to the government to change that, they eliminated the old age security as a contributory plan, absorbed it into the general revenues of the government, and are now proceeding to take away from people their entitlement under that program.

Now as much as I have supported doing that for other reasons, the point is that it illustrates that there is huge political risk for retirees to have their money in the ambit of the possibility for changes in the public sector mood.

So the biggest advantage of taking the money out of the public sector, out of that ambit of public sector deliberations, is that you avoid that political risk. And that, I think, is larger than any financial risk sensibly managed money would encounter over the same period.

What I propose to you this evening and what we had proposed to the federal-provincial task force on the CPP was that instead of setting up one fund—we agree with the transition of setting up this fund, and I think we have to do these things gradually—they should set up ten provincial funds.

The economies of scale of operating management investment funds these days are very significant or at least are reached at a very low level of funds under management, so there's no reason why we couldn't have ten provincial funds. Apart from anything else, it would put some financial institutions into some of the smaller provinces that at the moment don't have them, and it would also provide some competition.

These would be government funds operated under the same basic umbrella, but there would be different kinds of judgments being exercised on the eventual choice of assets. That would provide a check on the so-called herd mentality that sometimes can pervade these kinds of institutions.

The Chairman: Thank you, Mr. Walker.

Mr. Nystrom.

Mr. Lorne Nystrom (Qu'Appelle, NDP): Thank you very much, Mr. Chair.

Welcome to the committee, Mr. Walker. I'd like to ask you a few questions. You were talking about the pension plan in Chile. I want to ask you a bit more about that. You seem to be recommending that as a model, albeit there are demographic differences, as you've already said, between Canada and Chile. They have a younger population; we have an older one. It's a different country, and it's hard to compare apples and oranges.

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But even in Chile, I understand from my reading on it, the administration costs of the fund are 15.4%. It's very expensive to administer compared to our Canada Pension Fund. I also understand that in Chile some 40% of the women are not covered by the fund because they are in low wage jobs. Therefore a lot of people are left out of it.

The army and the police in Chile decided not to privatize their pension fund but to maintain a public pension fund. Perhaps they knew better, and maybe they are getting better results than in the private fund.

In light of some of this information I've come across, I wonder if you can tell us why you're so enthusiastic about the Chile plan? It seems to discriminate against low income people; it seems to be very costly to administer; and in a country like Chile the army and police are a bit better off, yet they're not part of the fund. Why would you advocate such a scheme?

Mr. Michael Walker: First, in the particular context of this evening's discussion, all I was suggesting was that the way in which they have chosen in Chile to deal with the issue of the subsidy.... In other words, we wouldn't be charting new ground in deciding to separate the retirement funding portion of the plan from the subsidy component, and for that I think we can get a direct analogy in the Chilean situation.

With regard to the comments you've made, I guess we don't want to segue into a debate about whether Chile's economy is run properly or improperly, but in fact there is in Chile a system of minimum pensions. That's why the very lowest wage workers don't contribute: because they would fall, in effect, below a contribution threshold. They are covered by minimum pensions that are offered, just like the old age security is in Canada. You're right in saying that there is a different availability, but there is a non-contributory pension paid in Chile to those lower income workers. So, in some sense, they're better off not to have to contribute, because they get the pension without having to put the money in.

Secondly, the very important difference between the Chilean system and ours is choice. People do have an element of choice. As you pointed out, the military and the police in Chile have chosen to select the provision that was made under the original inception of the plan to give people the option to opt in or to opt out. As you know, some of that was done for people of different ages, as well, when the plan was originally set up.

I don't know what the details are of the performance of the military pension or the police pension plan. I can tell you that the privatized pension system in Chile is producing results, producing pensions for people that are two to three times greater than the pensions that were being provided by the public sector plan. Where we can't easily make the transition from Chile to Canada is that the rates of return in Chile have been very high, as is appropriate to an economy in which economic growth is very high.

We could have a discussion about whether there are some aspects of economic policy in Chile that we should also adopt to get our growth rates up, but that would be another debate.

We've brought the Chilean experts to Canada to provide information to Canadians about what they've done down there. We had the administrator of the plan in Toronto 18 months ago or so, and he was able to respond to all of these kinds of issues. I'm doing a much less good job than he would have done if he had been here. But I wouldn't suggest that we simply take their plan and bring it into Canada.

Mr. Lorne Nystrom: I didn't think you were suggesting a carbon copy of the plan, but there are some things I worry about in terms of the Chilean experience.

You mentioned that they have a choice in Chile. I come from a riding that is relatively poor in Regina, Qu'Appelle. The average family income is $35,000, compared to other Regina ridings with about $45,000 or more. Mrs. Ablonczy's riding is a lot wealthier than mine. There are a lot of people in my riding that do not make much money, and one thing that's very attractive about the Canada Pension Plan now, as it is, or even as amended, is that it's indexed, it's guaranteed, it's going to be there. There is something there in terms of low income people.

The CPP has done a wonderful job over the years in reducing poverty among seniors in our country. Look at all the statistics. The rate of poverty in the last 30 years has dropped among seniors because of the CPP.

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Again, in terms of choice, what choice would poor people have in terms of a privatized plan with super-RRSPs? They can't afford to put much money into them. It might be a very good plan for you or me, but what about the person who is making, in a family, $10,000, $12,000, $15,000, or $25,000 a year? Isn't that immensely unfair?

Mr. Michael Walker: No. At their base, the changes I have suggested here this evening would make no difference at all to the retirement income people would receive from the plan. If you went only as far as to say we should separate out the subsidy and finance it out of....

The incredible thing about it is that you should be really concerned about this. Those low-income people in your riding, depending on their ages, are putting in twice as much as they would have to put in to get a retirement pension if they were only paying for their own pensions.

The reality is that they're paying for a whole bunch of other peoples' pensions as well. They're paying the subsidy that is going to all those folks who are going to retire right up until 2012. Every one of those people is getting subsidized at the expense of your residents, your constituents, particularly the younger ones.

They would be all much better off if we could take that subsidy out of the Canada Pension Plan rates and get it over onto the general tax rate. Those lower-income people you're talking about wouldn't pay as much of the income tax burden as Ms. Ablonczy's residents would. They're going to bear a much more significant share of that burden, because of the progressivity of the personal income tax, than your constituents would.

I would think you would be enthusiastically in favour in taking the subsidy out of the CPP, putting it on the general tax base, and making the more affluent Canadians pay a bigger share of that burden, rather than putting it on your constituents.

Mr. Lorne Nystrom: But the tax system is becoming increasingly less progressive partly because of pressures from organizations like yours that think we have a tax system now that is too progressive.

The spokesperson for the Reform Party, Mr. Jason Kenney, said in the House the other day that he thought Conrad Black and wealthy people are overtaxed. What recommendation are you making here? Are they overtaxed?

My main concern here is—

Mr. Michael Walker: Your main concern is about your constituents, and I can understand that.

Mr. Lorne Nystrom: —about having redistribution so we have more equality of opportunity in this country. An equality of condition in this country, is the way I want to put it. We have a lot of poor people in my riding and across the country who really support a Canada Pension Plan and public pensions. It's indexed. It's secure. It's there. They're concerned about going out into the marketplace and privatizing these plans when they don't have access to a lot of funds.

Mr. Michael Walker: You're discussion about Mr. Kenney and Mr. Black is very interesting, but it doesn't address the fact that your constituents are taxed more heavily under the CPP arrangements as they stand now than under a program that moves that subsidization component out of the CPP and into the general tax base, where many of your constituents would pay none of the burden at all. That's because their taxable income wouldn't be high enough for them to have to pay any of that burden. Whereas, they pay the CPP on every dollar of income they earn.

If you're really concerned about your constituents, you should be in favour of taking that subsidy out of the CPP, identifying it as a subsidy, and putting it into the general tax burden. Have them pay only for their own pensions through the....

They would be much better off. If they were putting the same 10% directly into their own pensions as they are currently putting into the Canada Pension Plan, they would have a pension twice as large as the one they're going to get as it stands now. They're not subsidizing my pension, but there are people around here who have pensions that they are subsidizing. They wouldn't be doing that if it were changed.

Mr. Lorne Nystrom: Under a private RSP plan, people of modest income cannot afford to contribute that much every year compared to what you and I can do.

Mr. Michael Walker: A private RRSP plan is some place you might want to go eventually. What I'm talking about would make it possible to go to a private RRSP plan, but that's not the main point.

The main point is that there's this big subsidy being levied as a payroll tax. It needs to be shifted over into another area. Then we could talk about a private RRSP, as I answered the last questioner.

The Chairman: Thank you very much, Mr. Walker and Mr. Nystrom. We'll go to Mr. Jones.

Mr. Jim Jones (Markham, PC): A lot has been said about the Chilean plan. I understand the Chilean plan didn't have the same problems we had. We have an unfunded liability of almost $600 billion.

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In your brief you talk about the British pension plan. Can you elaborate a little bit on what they have done?

Mr. Michael Walker: They have kept a base pension, and privatized part of their pension. Regrettably, my colleague, Karen Lam, was the person who did.... This is a joint article. She looked at the foreign experience more carefully. I would mislead you to say that I could provide you with any expertise.

I do know that they've privatized a portion of their retirement system. They call it “personalizing it”, actually. They've individualized it in the way that I'm suggesting we should do it in the Canada Pension Plan.

Although we get these individual returns from the government that now say this is what you paid and this is your pension, what they don't say is that you're subsidizing the pensions of all these other people. We have not personalized the Canada Pension Plan, which is the essential thing they've done in Britain. They personalized it. They made sure that what you contribute is paying your pension, not paying a subsidy to other people.

The issue of this unfunded liability that you talk about did in fact exist in Chile. It wasn't the same magnitude, of course. That was why they issued the recognition bonds. It was to account for that liability that had been incurred under their pension plan.

As for people, if they simply changed over to a private, personalized, and individualized plan without any subsidy in it, those people would have been left without any pension benefits. So what had to be said was that beyond a certain age, you're in the old system. Here are the recognition bonds. We're going to give you these recognition bonds to support your pension. If you're beyond a certain age, then you're in the new system and you pay only for your own pensions. The recognition bonds are then financed out of the general tax rate, instead of being financed out of the pension contribution rate.

I think the direction the whole world will go in is to separate out the redistribution from the financing of individual pension arrangements. It's in fact the only fair way to go. As I pointed out to Mr. Nystrom, this is what people who are really concerned about low-income participants' positions should really be pressing for.

Mr. Jim Jones: I also noticed in your brief here that you talked about the consolidation of the CPP with the seniors' benefit. That's an interesting notion. It would simplify it. There could be reduced administrative costs. But how would that work?

Mr. Michael Walker: I think the merging of those two benefits together is a much more complicated issue. This is an issue that you would want to take on only after you had accomplished the ones we've been talking about.

The number one thing is to get rid of that subsidization. Make the CPP a personalized, individualized retirement benefit. Separate the subsidy component of it. Then you could think about putting the whole retirement system under one envelope, and taking the subsidization component and putting it all under one envelope. But exactly how you would go about doing that is a more complicated issue than I want to go into this evening.

Mr. Jim Jones: This afternoon, we heard of the remarkable growth of the mutual fund industry. They've gone from about $47 billion to about $280 billion. There's the same growth in a lot of the other mutual and pension fund industries.

There's concern that the Canadian market is about 2.5% of the capitalization of the rest of the world. What are your comments on increasing the foreign content from 20% to 30%, and how this could impact earnings in these pension plans?

Mr. Michael Walker: I don't think there's any question that we should simply get rid of that requirement. I think if it ever did have any reason for existence, that reason is long since gone. I think that people are voting with their feet. They're diversifying their assets through the mutual fund industry. You've undoubtedly been told that where people have the choice, they are much more inclined to have a ratio that's higher than 20% in their investments just out of prudence.

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As you've pointed out, the Canadian economy is 3% of the world. Why would you put all your eggs in that basket? I think the common view now amongst people in the financial community is in fact that it makes no sense to have a limit on the extent to which people can diversify. Let people make their own choices about where to put their assets.

Mr. Jim Jones: I have one final comment.

The Chairman: Sorry; you're over your time.

Mr. Jim Jones: I think everybody else was too, weren't they?

The Chairman: It all evens out, though.

Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman.

Thank you, Mr. Walker, for coming down and making this presentation. In your opening remarks, for a while I got scared to think that you were supporting this. I said wait a minute, are we on the right side or the wrong side?

Mr. Michael Walker: I am supporting it.

Mr. Gary Pillitteri: But after seeing the points of discussion, sometimes you wonder where we're leading up to.

Mr. Walker, this being a public plan, I know I could possibly be one who benefits from a subsidy, being 61 years old and born in 1936. In my case the clawback would be there so I wouldn't be costing the government any money, but I have a lot of friends who have a hard time accepting.... In fact, a lot of times in discussion I talk to them and I say look, you are getting more than what you have put into the pension plan, the CPP. They come up with all kinds of excuses and say well, don't blame me, blame governments in the past. This is what I'm getting. I put in as much as people wanted me to put in, as government wanted me to put in. That was the right amount.

Now how do we as politicians say we're going to give you a fund put into a separate fund because this is a subsidy, and on the other hand tell the younger generation to invest because they're going to get more money if we take the subsidy out of it?

Mr. Walker, let me put it another way. The way I understand it, the way people see it when they come up and see me is that governments have made mistakes in the past, regardless of what government you are, provincial or federal. You have to fix it. If you fail to fix it, you're admitting that you have not fixed it before.

They say once you fix it, are you guaranteeing to me that this is enough to carry it through for my pension? I say it is, and people are comfortable in it. They're not comfortable with investment. They're not looking at CPP as an investment plan; they're looking for CPP as a security for the future and security for their retirement. This is what I am getting from my constituents. I'm not getting the idea that you would be getting more if you put it in a private pension plan.

Mr. Michael Walker: With all respect, sir, that's not what I'm suggesting.

Mr. Gary Pillitteri: You're suggesting that we should be given bonds. Did you evaluate in the Chilean system the bonds, the reimbursement they got? What are they worth? With the possible devaluation of money within the next few months, was it worth anything?

Mr. Michael Walker: You could leave the benefits under the Canada Pension Plan exactly as they are now. I'm not talking about any change in the benefits. The question is how we go about financing those benefits.

At the moment, we're financing those benefits from payroll tax that has a disproportionate impact on the young and on lower income people. If you were to change that so that you conceptually split the payment for the pension and the payment for the subsidy and you were to finance that subsidy out of the general tax rate, you could deliver exactly the same benefits you're delivering right now without having the perverse effect that those higher taxes, those higher contribution rates, have on the young and on lower income people.

Mr. Gary Pillitteri: Just to finish, I have one last comment.

By the way, you also made a comment that the prior pension plan, the old age security, was a contribution. It was 1971 the last time we made contributions to it. That was 2% and it only accounted for 15% of the total Old Age Security.

Mr. Michael Walker: No, no. The point is that it was a 3% contribution rate set up as a contributory plan. I'm only saying that Parliament disposes, but Parliament can change its mind about the way in which it disposes. It has done so in the past and can do so in the future. If you really want to provide a secure, politically insulated retirement plan for people, you would be thinking about ways to do that that would take this completely out of the ambit of political decision making.

• 1845

The move toward funding that is made, the move to raise the rates and flatten the contribution profile, all of those are moves in the right direction. But now let's build on that and say, gosh, now that we've recognized this problem of the intergenerational subsidy, let's look at other effects that subsidy is having on our society. One of the effects it's having is raising the rate of unemployment, because of the payroll tax burden it's imposing on the workforce. We can resolve that problem in the same way as we resolve these others. We can say now let's fine-tune it even further and separate the subsidy from the retirement contribution.

The Chairman: Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Mr. Walker, you raise an interesting point about the subsidy portion. Under our taxation system we have treated people born on or before a certain date in different fashions. For example, if you are 65 or over, or whatever it is—the age deduction—I think your deductions are a little higher. In view of the fact that there is a subsidy portion to make this work, what would happen in raising money to subsidize the future if you imposed a tax on those born in 1947 or earlier to reflect the fact that they have been major beneficiaries of the plan? It's quite astounding, in one sense. If you were born in 1910 and you are part of this plan, you are going to be...whatever the number was you referred to, five point something. Do you have any thoughts on that?

Mr. Michael Walker: That's probably more a political problem than it is.... From an economic point of view, we can solve the economic problem simply by shifting the burden of the subsidy from the payroll tax to the broader tax base. Getting involved in invidious comparisons amongst people....

We have to do it in the sense that we have to acknowledge that this is what we're doing, and we have to recognize we can accomplish our same retirement objective in a more effective way, one that doesn't have some of the downsides. Having said that, I think the more general a tax is the less distortionary it will be. I think generally speaking economists would be in favour of a broader tax rather than a narrower tax, because of the distortion in behaviour that otherwise can result.

The Chairman: Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Mr. Walker, I'm always fascinated by your comments.

The 9.9% that is being proposed is broken down by 4.3% for the pension, 1.7% for the insurance of the disability survivor and the death benefit, 0.1% administration, and 3.8% that I think you are characterizing as the subsidy, others as the unfunded liability. I think I understand what you're talking about, but I think I have identified a fundamental disagreement between what you have proposed and what the consultation with Canadians found last April through June in the David Walker consultations. The consultations determined that if today's seniors, who are getting a big part of this subsidy, were to lose any of that subsidy, they would not have a means to replace it with anything else, because they are already into their retirement years. Therefore one of the principles adopted was that we will not change the benefits or impact on today's beneficiaries of the CPP.

Your proposal is suggesting that the 3.8% be funded by contributions through the fiscal dividend, which means you delay or restrict the amounts available for health, education, R and D, tax cuts, job creation, debt repayment, etc., so you can put this money into the ten investment boards and fund this 3.8%.

• 1850

When it's all over and the dust has settled, are you proposing that we do something that would effectively increase the tax burden on today's seniors or decrease the opportunities for doing more for seniors than under the proposed plan?

Mr. Michael Walker: No, I'm not proposing anything of the sort. The very simplest version of what I'm proposing is simply to substitute a portion of the CPP contribution rate for some points on the general income tax so that you have a revenue-neutral change between CPP and—

Mr. Paul Szabo: Seniors don't pay tax.

Mr. Michael Walker: And neither do a lot of his constituents.

Mr. Paul Szabo: Well, of course they pay tax. Okay.

Mr. Michael Walker: So I don't know why he's not supporting this.

So you do a revenue-neutral switch to change the incidence of this tax. What I would suggest is—and don't forget that the increase in the CPP is going to gradually occur—you could phase it in, as we're going to be having fiscal dividends, undoubtedly, and you could use some of that to mitigate some of that impact so that hopefully we're going to have actual tax reductions over this period. What we're talking about is somewhat less of a general tax cut than otherwise would be occurring, but by the same token, you'd be reducing the tax associated with the CPP.

The Chairman: Ms. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman. I have a few points of clarification.

When you speak of subsidy, you're basically talking about the unfunded liability. I wonder where in your plan the disability aspect would come in.

Mr. Michael Walker: Let me clarify. There are two parts to the unfunded liability. One is the part that is in fact going to be made up by increasing the rate. That's what produces the flattening of the rate for those who were born in 1980 and on. So we're funding part of that unfunded liability with this contribution. But there has always been built into the plan this subsidy by everybody else of the generation born before 1947. That has been built right into the structure of the plan. So that subsidy remains, even after the changes we're talking about here, and it is that subsidy that I would propose we eliminate.

With regard to disability, this is a feature of the pay-out of the plan, in some sense, and would have to be financed just like all of the other features of the plan. To make these divisions and say, well, some of it is for disability and some of it is for...we might have very strong reasons for worrying about the differential incidence of disability, as I'm sure you've already discussed, between Quebec and the rest of the provinces.

Quebec has a much, much lower disability rate than the rest of the provinces. The suspicion by those of us who are somewhat cynical is that the provinces are shifting some of their disability burden from welfare into the CPP, whereas it is not possible for this to happen in Quebec because both programs are run by the provincial government. So I'd be looking very carefully at whether we're looking at a real disability problem or at some sort of other breakdown in the system.

But that having been said, you would finance the disability portion of it in the same way. There is an unfunded portion of disability as well as with the rest of the plan because somebody who goes on a disability pension is going to get it for the duration.

Mrs. Karen Redman: In your plan, would that be borne out by this increase in overall tax, or by the contributions to CPP, or perhaps a combination of the two?

Mr. Michael Walker: What I'm suggesting is that the full subsidy portion be determined and be moved out of the CPP so that the only part left in the CPP is the direct contributions that people are making to their own retirement.

Mrs. Karen Redman: On that point, I'm going to quote from your brief:

Under the CPP, women who live longer collect more in total benefits but do not pay higher premiums. This is, simply put, inequitable.

So under your plan, would women then receive less if they've had less time in the workforce?

• 1855

Mr. Michael Walker: This piece is a general think piece covering all of the things you might possibly do beyond the changes that have currently been made. What I wanted to talk to you about here today was how you might go about resolving this problem of the inter-generational subsidy in a less economically destructive way, which we also talk about in the paper.

There's no question, and nobody denies it, that the same contribution rates for a different pay-out involve a subsidy in the same way that these other subsidies are involved. If you're taxing men and women equally, and you know that women are going to collect for six years longer or five years longer under the plan, that's a subsidy. You're subsidizing the women's pensions with the contributions of the men.

Once again it seems to me that's confusing an issue of subsidy with an issue of paying for people's pensions. I don't think we should be doing that either.

Mrs. Karen Redman: That gets back to whether or not unpaid work has value.

Mr. Michael Walker: No, that's a separate question altogether. If you then want to talk about whether homemakers should receive a pension or should get some compensation for that, it is a completely separate issue, about which we could have a long and interesting afternoon's chat.

The Chairman: Thank you, Mrs. Redman. Mr. Valeri, a final question.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

First of all, I appreciate the earlier comments that in fact you were supportive of the changes that are being made to the pension plan.

Mr. Michael Walker: I'm glad you didn't miss that. Everybody else seems to have missed it.

Mr. Tony Valeri: Actually I kind of walked in as you were saying it, so it caught my ear. I appreciate it very much.

I want to focus on that subsidy you referred to, the 3.8% that forms part of the 9.9%. You talk about breaking that out and dealing with it in some other fashion.

Number one, there is recognition that you would want to deal with the unfunded liability in some manner.

Mr. Michael Walker: Correct.

Mr. Tony Valeri: In order to do that, you talked about recognition bonds as an option. Going to recognition bonds would in fact merely defer the liability down the road.

Mr. Michael Walker: No, they would just be financed out of the general tax bill like all other obligations of the government, rather than being financed out of this very narrow tax on work—

Mr. Tony Valeri: It would still be there, but it would be down the road. As the liability occurs you'd have to issue the bond, so we'd deal with that liability at that time at some point in the future—financed through general revenues.

Mr. Michael Walker: You're absolutely right.

Mr. Tony Valeri: In order to deal with the unfunded liability you say take it out of general revenues in some way. It's been said that in order to deal with that unfunded liability, and to deal with it in general revenues, we'd be looking at a 25% increase in personal income tax or the doubling of the GST.

You state in your brief that the total tax burden on Canadians is already high, and I think through the pre-consultations there's been a lot of talk about the tax burden on Canadians. I'm not here to say it's not high; there is a burden there, and I think it needs to be addressed at some point. I just have some difficulty understanding, since we're looking for the best way to finance this unfunded liability, the idea that you would want to pull it out of the contribution, the 9.9%, and take it into general revenues. In order to do that we'd have to see a substantial increase in personal income taxes or the doubling of the GST.

Mr. Michael Walker: There would be no change in the total tax you're collecting. You're collecting currently enough to pay for the subsidy, and you're collecting in the form entirely of the CPP tax. If you move it into the general taxes you're going to raise exactly the same amount of revenue. It would be paid differently by a different group of people. Lower-income people would not pay as much.

Mr. Tony Valeri: So you're still talking about partial funding, or not paying out the liability entirely. You're still talking about moving that incremental amount into general revenues. Because in 1988 the unfunded liability would be essentially $20 billion: if you were to collapse the CPP tomorrow, in 1998 we'd have an unfunded liability of $20 billion. You're saying fund that out of general revenues?

• 1900

Mr. Michael Walker: Under none of these proposals are you going to collapse it. With regard to the current arrangements you are going to increase the contribution rate to 9.9%, and the contribution rate is going to go on for a very long time and then it is going to decline. That will not be a concern for us.

So nobody's talking about winding up anything. You are simply going to let this thing run out exactly as it is doing now, but instead of getting the revenue to finance the pensions that you are going to pay out, at least that portion of the pensions that you are going to pay out that amount to a subsidy, you are going to collect that amount out of the general tax base instead of collecting it out of the payroll tax that you are imposing right now in the CPP. So there is going to be an offsetting movement in the two taxes.

Mr. Tony Valeri: So you are supportive of the changes that are going on in Bill C-2.

Mr. Michael Walker: It is a move in the right direction.

Mr. Tony Valeri: It is a move in the right direction.

Mr. Michael Walker: We partially take the subsidy and we flatten off the contribution rate. Instead of the contribution rate continuing to rise, we flatten it. So we are doing part of the job, but only a very tiny part. As you can see from this chart, we have done a very tiny part of the job of redressing the intergenerational subsidies that are involved.

Mr. Tony Valeri: So on the amount of money that is being collected, which would be equal to the 3.8% of the contributions, you are saying we should raise that money in general revenues. Is that what you are saying?

Mr. Michael Walker: Exactly.

Mr. Tony Valeri: Raise that money in general revenues in some way?

Mr. Michael Walker: Yes.

Mr. Tony Valeri: So increase personal income taxes, corporate taxes, GST or something. Is that what you are saying?

Mr. Michael Walker: But reduce the contribution rate. The CPP contribution rate goes down—

Mr. Tony Valeri: Sure, by 3.8%.

Mr. Michael Walker: That is right.

So Mr. Nystrom's constituents will see a reduction in their overall tax bill. Young people trying to get into the labour market will see a reduction in the amount of an albatross that they have to wear around their neck when they go to an employer and say, “Please take me on as an employee”. They already have to deal with a minimum wage, and then they have all these payroll taxes. Well, we cut nearly in half the payroll tax that they will have to pay.

Mr. Tony Valeri: You would not be cutting it in half. You would be going to 9.9% less 3.8%. That is not quite half. But it is reducing it—I give you that.

Mr. Michael Walker: It depends on what the yield of the tax system is. If you get the tax rates down, you may get the yield of the tax system up so that you actually have to transfer less. You may be able to give a larger break than the 3.8%.

Mr. Tony Valeri: On the tax cut?

Mr. Michael Walker: Yes.

First, it is not clear that it is only 3.8%. That 3.8% that was mentioned by Mr. Szabo does not cover the full subsidy, because those who are on disability, for example, are also being subsidized because they are getting a pension that incorporates the subsidy. So that is why I said it is a very complicated calculation. By the time you work it all out and the dust settles, it probably is going to be more than 3.8%.

Mr. Tony Valeri: I don't know if I would agree with that. The breakdown affects the retirement pension. The percentage of CPP contributory earnings for retirement pension is 4.3%, disability is 1.1%, the administration is 0.01%. Right? So the total actuarially fair cost is 6.1%. You add the 3.8% to deal with the unfunded liability, and it gets you to 9.9%. So the breakout is there. It is difficult to see where you would get a better break.

Mr. Michael Walker: If you had been doing these calculations as long as I have, though, you would appreciate.... Saying that it is 3.8% or it is 6.2% involves simplification of what the overall calculation is. That is all I am saying.

The Chairman: Thank you very much, Mr. Walker. On behalf of the committee, I would like to express to you our sincerest gratitude for your presentation.

I would also be interested in any reports that were produced or filed with the Fraser Institute in reference to the study of the Chilean model. We would appreciate, as a committee, receiving those.

We are going to take a two-minute break. We will come back and hear from the National Federation of Nurses Unions, Ms. Kathleen Connors and Ms. Debra McPherson.

• 1904

• 1906

The Chairman: Order, please.

I take this opportunity to welcome representatives from the National Federation of Nurses Unions, Ms. Kathleen Connors and Debra McPherson. Welcome. We look forward to your comments.

Ms. Debra McPherson (Secretary-Treasurer, National Federation of Nurses Unions): We're glad to be here to be talking to you about pension issues on behalf of the unionized working nurses in Canada. It's good to see you again. I don't know if you recall, but we had a long conversation on an airplane many years ago when you were a neophyte on health care.

The Chairman: Still am.

Ms. Debra McPherson: The National Federation of Nurses Unions is an organization founded in 1981. We represent about 47,000 unionized nurses across Canada, from Newfoundland to British Columbia. We are recent affiliates of the Canadian Labour Congress, or will be as of January 1 of this year. Included in our organization are the British Columbia Nurses Union, the Staff Nurses Associations of Alberta, the Manitoba Nurses Union, the New Brunswick Nurses Union, the Newfoundland and Labrador Nurses Union, and the Nursing Group of PIPS. We have just joined with the Saskatchewan Union of Nurses as well, for our affiliation purposes.

Our members provide direct care to consumers of health services. In particular, we represent people who provide hands-on care in long-term care, chronic care institutions, dental health facilities, and acute care facilities, and in the community in all capacities of nursing work. We represent a broad spectrum of people who have a lot of contact with the consumers of health care—patients, as we like to call them.

Our members understand well the social determinants of health and the relationship between poverty and health. I don't suppose any of you have looked after a little old lady who arrives in the emergency room after having eaten cat food for about six months. It's not a pretty sight. There are some really strong correlations between poverty and health, and they have been well researched and documented over the years. It would be easy to find those in any library.

Our constitution provides that we should come to venues like this to promote legislation that supports the health of Canadians and to address concerns we have about legislation that may have an adverse impact on our members or on the public.

Kathleen, our president, will take up some of our concerns.

Ms. Kathleen Connors (President, National Federation of Nurses Unions): I would like to start by indicating that nurses have never held themselves out to be pension experts. We are experts in the provision of health care services, certainly, but when it comes to examining all the intricacies of pensions we've relied on people who have expertise there. Consequently we would recommend to this committee that if you have not already called expert witnesses the committee might well be advised to hear from Monica Townson, to provide some testimony on how pension issues specifically will impact on women. Monica has a very good ability to look at all the determinants of health issues too.

• 1910

Ms. Townson has just recently prepared a document—and I don't know if it's been released yet, but I certainly have seen it—for the Canadian Centre for Policy Alternatives, called “Myths vs. Realities: Protecting Public Pensions”. While it is not currently attached, , following our presentation I will make a copy of a presentation that Ms. Townson gave at our national convention in June 1997. The documentation is excellent and I think would really further this committee's appreciation and understanding of Canada pension issues.

As well, Debra made reference to the fact that in January 1998 the NFNU will affiliate with the Canadian Labour Congress. One of the earliest benefits for us of being CLC members has been the willingness of the Labour Congress to share its concerns around the CPP issues. In the past we have worked together on concerns around the pension program, the old age security, and the guaranteed income supplement. I understand the congress is appearing before the committee tomorrow. We would encourage the committee to pay special attention to issues the congress raises in their brief, which we certainly endorse but have not made reference to in ours.

The fact that income is such an important determinant of health is really significant. Trying to manage on inadequate incomes can cause serious stress and anxiety. We are very concerned about the well-being of our future seniors, because we're all getting there rather quickly ourselves. It's particularly important to us because 97% of our members are women, and we know that the majority of our senior citizens are women, so we are very concerned about it.

The 1991 census makes reference to the fact that women were 58% of the population 65 and over. They were 60% of those aged 75 to 84, and 70% of those aged 85 and over. What's more, demographers predict that if present mortality trends continue, the female-to-male ratio in the population will increase even further. As a result, when people talk about the aging of our population, they are really talking about a critically important women's issue.

The financial health of women is crucial to their well-being as they grow older—as we grow older. Certainly when the debate around pensions began, in the early 1980s, the issue of the poverty of elderly women and the importance of providing better pensions for women was clearly recognized. It was one of the four key issues on the agenda of a conference that looked at that issue in 1981. We are sad to see that in February 1996 the government's discussion paper on proposed changes had not a single word about the impact of the proposals on the incomes of future seniors.

We don't see CPP as a welfare program intended only for those with low income. We see the Canada Pension Plan as a social program where together we all have agreed to pool the risks of providing for the loss of income that we will face when we retire or become disabled.

We realize people can also provide for their own retirement. Certainly there has been room left for private retirement savings arrangements, and so that individuals could supplement what they get from the public program through their savings and pension plans. But I have to tell you, as a nurse and as a woman, that more and more of our members, because of the cutbacks in health care, are being forced into employment as part-time employees, and even worse, as casual nurses working in one, two, or three facilities in order to get enough income. Subsequent to the casual employment issue comes the fact that we do not qualify as casual employees for pension benefits. How can we build up our retirement benefits when we don't have access to pension plans in our workplaces? It's a travesty in 1997.

• 1915

We don't want the Canada Pension Plan eroded. We want a process to improve it. We know that the contribution rates have to be set well in advance and that there's a review process, but we're pleased to see, as the CLC is, that the review will now happen every three years rather than every five. With the review and this legislation we see it being a closure to the discussion that's happened.

What we're really ready to discuss is what we are going to do in the future. That's very important.

We need to pay particular attention to the fact—and I say this because we've done a little of the gender analysis of the issue—that women have lower earnings and different patterns of work. We tend to have greater job mobility, we retire earlier and we live longer. We believe those kinds of issues have been neglected in looking at what will happen to CPP.

For unionized Canadian nurses whose member pension plans may be integrated with the CPP, consideration has not been given to the need to renegotiate and fund bridging benefits. The current pension plan for nurses who have retired have assumed that CPP will be the way that it is right now, but it's changing.

Many early retirement packages that have been negotiated in the past few years assume current CPP benefits. We have no chance to renegotiate for those who have already left the workforce. So are we putting nurses and others who have taken the same kind of early retirement option into a fix when it comes to their retirement income down the road?

This isn't going to change unless this government suddenly sees the light and changes the amounts of money that are being transferred to the provinces for healthcare. We continue to see cutbacks, we see contracting out of our work and we see downsizing. None of these realities facing healthcare workers give us any reassurance with respect to the retirement issues.

We have to acknowledge that Canada has the lowest payroll pension tax among the major industrialized countries, including the United States, so to say the CPP is unfair or unstable is not truthful. I think we have to acknowledge that what we pay for CPP and what we will pay in the future is low compared to what other countries pay.

Again we come back to our concerns about the gender analysis that hasn't been done. We believe it was a commitment of this government following Beijing that gender analysis would occur in all pieces of legislation.

Adding to the 53% of elderly women already living below the poverty line is unacceptable, and again, we see them as nurses and we care about what is happening to those people.

We don't want this to be another social program that is eroded in this country. We don't want to let everyone fend for themselves.

One of the first things that Debra and I learned as nurses was how to be an advocate and to advocate for those who can't advocate for themselves. We believe that advocating for an improved public pension program is an important role for us. We have raised the issues of the special retirement income needs of women and we urge the committee to address the gender impact of these issues.

We will have to recognize that most women are not in a position to fund their own retirement. Taking into account both the changes in the labour market and what will likely be an increase in societal demands on women to undertake even more unpaid caregiving work in our homes, strengthening our public pension programs is esential if pensions are to play a role in maintaining Canada's health.

We would be pleased to answer any of the committee's questions. Debra has just a couple of more comments in conclusion.

Ms. Debra McPherson: I just thought the committee should be aware of the fact that nurses are a very large mostly female workforce in Canada. Right now the average age of nurses in Canada is at least 42 years. These are women who are well down the road in terms of accruing their pensionable earnings. Most of our members have only had access to municipal or public service pension plans for less than 15 years.

• 1920

For example, I work in British Columbia in critical care and intensive care for heart surgery patients, and after I'll have worked for 35 years at my current wage rate—which isn't likely to change, given all the freezes on public sector wages, either in writing or the ones that are just sort of out there in everyone's minds when we negotiate—I will retire on a pension of $1,300 a month. That includes the CPP offset.

So I'm going to work my whole life to make other people healthy and I will probably die in poverty under the current standards of poverty in Canada.

I think that's important for you to know, because with this large group of women this far down the road and on the wages that they earn.... Nurses are actually relatively well paid women in the workforce right now, but with years of struggle for pay equity, the wage gap between nurses and comparable male workers is still around 17%.

So even though you've increased the tax room around our municipal and public service pension plans, the harsh truth is that most nurses do not have enough disposable income left to max out their tax room. So in fact we are relying solely on our pension plans.

Also, with the increasing trends toward privatization that are happening right now in health care, private employers are not big into pension plans. We have nurses working in long-term care the majority of whom have either no pension or they have pension contribution rates of less than 3% with their employer. So they will have a pension even smaller than the pension that I anticipate having.

As you know, community services are an increasing portion of the health care budgets and increasingly they're going to societies and private employers across Canada.

I think you should be aware that, unless we really stand behind our public system, the wages of these women will probably stay low and not advance as we had hoped they would.

Those are just some of the things I wanted to say.

You might also be interested to know that in British Columbia right now 47% of the nurses in our province, 47% of 35,000 women, work either part-time or casually because they cannot find full-time work because of the reduction of the nursing workforce relative to health care cutbacks. They cannot get them. New graduates, young women entering the workforce in their twenties, cannot access full-time jobs for up to five years in British Columbia, and we're among the best provinces for that.

These are people who are not right now in any sort of pension plan and who, because the nature of their work is not continuous enough, are not earning enough money to start to put money into private plans or RRSPs.

We're a highly organized workforce. The majority of nurses in Canada, over 80%, are unionized. So we have among the better wages and pension plans of all the working women in the country. I would also draw that to your attention.

So if this is our picture, imagine what the picture looks like for a lot of other women out there.

The Chairman: Thank you, Ms. McPherson. Thank you, Ms. Connors.

Now we'll move to a five-minute round, starting with Diane Ablonczy.

Mrs. Diane Ablonczy: Thank you, Mr. Chairman. I did hear the five minutes this time. I want you to know that.

We appreciate your coming here. You say that you're here as advocates, and I must say that you're highly effective advocates, particularly when you give your personal lives, your concerns. I think all of us around the table are sitting here saying “Would I want to be living on $1,300 a month when I retire?” That is a very scary prospect.

My husband died many years ago, and I thought about having to provide not only for myself and my daughter but also for my retirement on my own. It is a very frightening prospect. So bringing that to the attention of the committee is very important. We need to realize that there are real people being affected by these changes.

One of the things that has troubled me is that although there's a contribution being made under the changes of this plan, the return on the contribution that particularly younger people will be earning is far less than is necessary. They'll be earning less than 2% in real terms on their investment over a lifetime, and that's a shame and a waste. It's because the plan has not been properly run.

• 1925

So here we are today. I was particularly wanting to ask about your concern about the poverty among elderly women. One of the things we've thought about to address that is to have a workers pension plan put into their own individually owned account. That way, when a worker passes away, instead of their spouse being left with only a portion of their pensionable entitlements, the survivor would inherit the entire pension account. We think this would go a long way toward giving more financial security to the surviving spouse, which is usually a woman, as you point out.

I don't know. As you say, you folks are not actuaries or accountants, but have you thought about a way in which spouses can share pension entitlements in such a way that there's greater protection for the survivor?

Ms. Debra McPherson: You make a huge assumption to start off with: you assume there is a spouse.

Mrs. Diane Ablonczy: Good point.

Ms. Debra McPherson: I would just like to point out that I have no spouse and I don't think I'm unusual out there in the world of women. Most nurses have been cast off by their first doctor husband in their thirties as he moved on to some younger thing. There's a whole bunch of those types of nurse women out there. You're making a huge assumption about how many people actually get to their pensionable age and still have a spouse.

Then you're making an assumption that their spouse has a pension and that their spouse has been working. With the unemployment figures what they are, a lot of the nurses I know are supporting their entire family, including their laid-off husband.

I think that might work for some people. I don't know. I'm not the person who's going to do the costing on it. It just leaves out a whole bunch of people. That's my first brush at it.

Ms. Kathleen Connors: I think it's important to recognize that as a federation one of the fundamental things we believe in is the collective putting together. I have some real problems creating individual funds. As an organization I think we do reject the creation of individual super-RRSPs or those kinds of concepts. As an organization we believe in the collective addressing of issues.

We come here to say that the Canada Pension Plan has its flaws, but they can be repaired. By raising these issues we would hope that the committee and the government turn their attention to addressing the collective issues, because we care about all Canadians, whether they're working and have a spouse or not. We all should have relative degrees of equity as citizens of this country.

The Chairman: Thank you, Mrs. Ablonczy. Mr. Crête.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): I was particularly interested by what you said in your memoir regarding the review to be made every three years and your appeal to the committee for a study of the impacts, for each sex, of the changes that will be made to the Plan. I believe the liberal majority had a similar commitment in their election platform, which has not necessarily been met to this day. Would this take the form of an amendment to the bill? For example, we could say that, for the next review, there will need to be a formal study. Or will there need to be a commitment by the government, without amending the legislation, which could be a letter of intent that would confirm this? I think your have a fairly constructive attitude.

You could have said that this should have been done a long time ago, but you are telling us that it would not be that bad if it were done during the next reviews. What is your preferred option on this?

[English]

Ms. Kathleen Connors: In response to the issue, I have to tell the committee that it was about two years ago that the National Federation of Nurses Unions had to use the Access to Information Act to get hold of a piece of work Monica Townson had done for a women's analysis of pension issues. We had to use the Access to Information Act to get hold of that. Monica expressed concern that even following Beijing this has not happened.

• 1930

So in response to your question, a commitment isn't good enough. We've heard the commitment; we want to see it done. Why wasn't it done on Bill C-2? Why were the amendments not given a gender analysis? Consequently, if it requires an amendment, that to me would be the way for the required commitment to be enshrined in law, so it happens for the women of Canada.

The Chairman: Ms. Connors, just as a point of information, this time, the day after they appeared before our committee officials did in fact file a gender analysis with us.

Ms. Kathleen Connors: We are pleased to hear that, but certainly it would have been useful for us to have had that gender analysis as we prepared our documents.

The Chairman: I understand. I just was pointing out that in fact a gender analysis was done and it was tabled with the committee.

Mr. Crête.

[Translation]

Mr. Paul Crête: If the analyses have been tabled, maybe the bill does not reflect the conclusions you drew. The analyses will need to be verified to see if they give the same results. Maybe the best amendment would be to say that steps need to be taken to follow up on the analysis, if it does exist. Do you agree on that?

[English]

Ms. Debra McPherson: We haven't seen the gender analysis, to give our assessment of it. Assuming it's comprehensive and accurate and all those things, that would be the way to go.

The Chairman: We'll make that available to you.

Mr. Nystrom.

Mr. Lorne Nystrom: I want to commend the National Federation of Nurses Unions for appearing here this evening. I also commend you for the decision you took recently to join with the Canadian Labour Congress, Bob White and the CLC. I think that's a step in the right direction of unifying working people, a very progressive step, and I'm sure my Liberal friends would agree with that.

Mr. Joe Fontana (London North Centre, Lib.): In your opinion.

Mr. Lorne Nystrom: I also want to—

Ms. Debra McPherson: Our opinion is the only one that counts on that. We decided and we joined. It's not your opinion.

Mr. Lorne Nystrom: I admit it. I'm sure they would agree with me in complimenting you on that, but I wanted to compliment you before they did.

The Chairman: We all know what you meant.

Mr. Lorne Nystrom: Anyway, I wanted to say I certainly agree with you in your theme of how you approach this issue by talking about the collective approach and doing things together as Canadians. I think that's very, very important.

One of the concerns I have about the bill personally, and I know other groups looking at it, such as the Saskatchewan government and the B.C. government, do not support this process, is that the CPP becomes less progressive. Survivors' benefits, for example, are reduced from $3,580 to $2,500. There tend to be more widows than widowers, and I think that affects women. Even in the gender analysis I saw—I don't have it with me tonight—there is a bigger decrease in benefits for women than there is for men. I can show you the page on that tomorrow if you happen to be near the committee when the CLC is here.

Also, there's going to be the freezing of the basic yearly exemption at $3,500. That was always indexed to inflation. When it's indexed to inflation it helps low-income people. Now that's no longer going to be indexed. As inflation goes up, that means more and more people are caught in the net, and more people in this country who are low-income happen to be women, as you say, than men, so once again it's going to have a greater impact on women.

I'm concerned about that lack of progressivity, and I just wonder if you could expand on that. I know that's a concern of the CLC and other progressive groups. As I said, the Government of Saskatchewan and the Government of B.C., the two NDP governments, are not part of this package because they didn't think it was as progressive as it should be. In other words, our Liberal friends have become very conservative.

Ms. Kathleen Connors: I think the information Monica Townson shared with the National Federation of Nurses Unions was some information on how non-standard jobs are increasing: part-time work, temporary work, the so-called setting up of your own business, multiple job holding. There are some very interesting statistics out there about the number of nurses working for at least three employers. There are some nurses in this country who work for six employers in order to get full-time employment.

• 1935

In 1994, 40% of women's jobs, compared with 27% of men's jobs, were non-standard. So I think that's a useful stat. Workers in non-standard jobs don't have workplace pension plans because they don't have long-term relationships. A casual employee is hired at the beginning of every shift and fired at the end, so there is no access to pension benefits.

Debra talked about the absolutely disgusting level of pensions in our long-term-care facilities. I have to say the absolute worst of these are the private for-profit companies that run our nursing homes. So many nurses do not have access...as do other women working in long-term care. In the variety of community-based nursing services, the private groups are in there too, and there are no pension plans available to workers.

So those issues are of legitimate concern. And when we hear from employer groups that call for a need for more flexible, contingent workers, that wreaks havoc in the retirement ability of people to have some quality and income security at the time when they're finally able to retire.

I think the other reality Debra made reference to is the fact that we have an aging workforce within nursing. In regard to that, certainly one of the options governments have not made available to nurses is the same option that is made available to other male-dominated employee groups, and that is the ability to retire early without pension loss because of the public safety aspects of our job.

And I can tell you that nurses in Canada are injured on the job and are as exposed to a violent workplace as are the police of this country, and police have access to early retirement with full pension benefits, as do air traffic controllers, the military, firefighters, etc. I've appeared before government committees pleading that case in the past. It's another reality: nurses' backs and bodies can't work until they're 65, in many cases, so our retirement income is even going to be lower because we can't get to the maximum in those last big years of service just because of the realities of the workplace.

Ms. Debra McPherson: I know the British Columbia stats quite well, and in fact health care workers in British Columbia have the highest level of musculoskeletal injury, even over loggers, miners, and people who work on the docks, stevedores, and also have had more violent episodes that cause time loss from work than policemen. They have been physically assaulted more than policemen and yet don't have access to early retirement.

I want to say also, in response to your question, that women are under a lot of financial stress right now because of the restructuring by the government of all the programs that impact on women. They're under increasing stress around the cost of providing home care because of all the early discharges and the fact that there isn't comprehensive coverage of home care services by the Canada Health Act. So they're having to pick that up. There are also the changes to the old age pension, and there is the fact of public sector wage restrictions when a lot of women work in the public sector or service industries. The privatization of government services to contractors is having a huge downward pressure on wages and on our ability to deal with pension issues and other issues.

And then of course there's the failure to deal with the promise of child care programs, which is also a huge financial burden for women these days as child care providers who can't get an adequate wage in a child care provision workplace, but also then as wage earners seeing the vast majority of their take-home pay go to child care. So where are women going to find retirement moneys at the end of the day? In regard to that young person who's being so unfairly taxed, as is asserted by your colleague, maybe the reason they're doing that is because the woman had to spend all her money to pay for that kid's child care while he was growing up.

The Chairman: Thank you very much.

Mr. Jones.

• 1940

Mr. Jim Jones: Thank you, Mr. Chairman.

First of all, thank you very much for coming here this evening. Your presentations were well received.

Yesterday we had the firefighters and the police here. They were asking for CPP benefits at 55 and 60 years of age because of disability and stress on the job. I suggest that if we're going to look at them, and I'm not sure we are, then we definitely should consider the hazards of nursing, not only the stress and the lifting and all that, but also the possibilities of getting infected by a needle that could be HIV and all those hazards that go along with it.

I have only one question. I was really curious about what Debra said about her pension, that it was $1,300. When I look at the old system and I look at Canada Pension Plan and old age security, it's $14,000 a year. I look at the new system, and it's going to be roughly $12,000 a year. So it doesn't sound like the nurses have a very good pension.

Ms. Debra McPherson: We don't. Where I live, we're legislated into the municipal superannuation plan. We make a contribution rate—it was just increased recently—of 6%.

It has a huge unfunded liability right now from years of nobody ever putting money in, just putting it on paper. It's hard to go to the trustees and the government officials and say you have to change the plan and increase it, when they can't really in fact pay for it. With a huge percentage of our members in their forties, if we all suddenly decided to retire when we turn sixty, they'd be in a huge problem.

Also, a lot of nurses just don't have the time in the plan. First of all, they haven't been allowed to be in it for a long time. Secondly, women for a long time took time off work when they had children. Nurses were not encouraged to work. As a nursing student, you were expelled if you were pregnant. Nurses were not encouraged to work during their child-rearing years. So a lot of nurses in the retiring age group right now don't have time in the plan because they took lots of time out, off and on, when they had children.

Then our professional organization undertook an initiative to have all nurses educated at the baccalaureate level. Well, 80% of nurses in Canada don't have a baccalaureate degree, and a lot of nurses took money out of their pension plan so they could go back to school to get a degree so they could have job security and career mobility. They didn't make enough money to be able to go back to school, and they couldn't get student loans because they had an income, so they were in a catch-22.

Nurses don't have a lot of contributions in their pension plans for a number of reasons.

The Chairman: Thank you, Mr. Jones.

Are there any questions?

Ms. Debra McPherson: I want to say one other thing, and it's about portability of pensions.

Nurses' pensions are not portable from province to province in this country. Typically, for many years nurses have followed their spouse to his job, leaving their pension behind. As they move from province to province, they leave behind their pension contributions. It can't all be added together to give them one pension that reflects the length of their working life.

The Chairman: On behalf of the committee, I'd like to thank you very much for bringing to us some very valuable information. We'll be using it as we write the report. Thank you.

Ms. Kathleen Connors: Thank you.

The Chairman: I'm going to suspend these hearings for approximately two minutes, and we will be back with the Council of Canadians with Disabilities, with Mr. Mel Graham.

• 1944

• 1947

The Chairman: I call the meeting back to order.

We have with us the representatives from the Council of Canadians with Disabilities, Mr. Mel Graham and Mr. Harry Beatty.

Welcome. You have 10 or 15 minutes to make your presentation and then we'll enter into a question and answer session.

Mr. Mel Graham (Communications Officer, Council of Canadians with Disabilities): Thank you, Senator Bevilacqua—

The Chairman: I'm not a senator yet.

Some hon. members: Oh, oh.

The Chairman: But one day, if it's an elected Senate, I'll run.

Mr. Mel Graham: Okay. Thank you very much.

I'm with the Council of Canadians with Disabilities and I'm from Winnipeg. I'll be calling upon Harry Beatty fairly shortly, who will provide the substance of the presentation.

There are just one or two things I wanted to mention first, mainly with regard to the organization of the Council of Canadians with Disabilities. We are a cross-disability organization. We're entirely democratic. We mostly have other organizations as constituent members and they're largely provincial organizations of people with disabilities. We've been in business for about the last 20 years.

We're very concerned about matters that relate to income security. That's one of our four major priorities, as a matter of fact. Employment, human rights and transportation are the others. But certainly income security is an extremely central issue with regard to the kind of work we do. We're concerned because the CPP as it relates to disability is one of the major social safety net structures for people with disabilities.

One of the points I'd like to make is that government has provided ways in which people with disabilities are able to participate in an equal way; that is, via the charter's section 15, the equality section, by including disability there in terms of the Human Rights Act, and we hope that shortly there will be some amendments that will provide for the duty to accommodate, things like the Canadian Transportation Association and the Andy Scott task force, and we'd go on and on.

• 1950

Nonetheless, those things are predicated on the ability for people with disabilities actually to have the means to leave their houses and be out in the community and there to be able to do the participation.

I would just like to mention one of the things that concern us a lot. We have a phrase that we use a lot among ourselves, and it's TABs. We have a lot of affectionate sorts of nomenclature that's monosyllabic and refers to us in various ways. I'm a “blink”, for example. TAB refers to people who are temporarily able-bodied, which I would tend to suppose is the case with a great many of the folks here. One of the things that I find really problematic with the current legislation you're looking at is that while it would not tend to be a problem for people who are currently disabled, it would certainly be a major problem for all people who are temporarily able-bodied, and that's, as I say, most of you here.

With that, I'll turn the actual presentation, in terms of the text, over to Mr. Beatty.

Mr. Harry Beatty (Legal Counsel (ARCH), Council of Canadians with Disabilities): The disability component of the Canada Pension Plan has been targeted for billions of dollars in cutbacks in the recent reforms. The cutbacks began to be implemented by administrative changes to the disability determination process in 1995, especially the changes in the guidelines, and are continued by the new rules in Bill C-2.

The cumulative impact of these changes on Canadians with disabilities is much greater than it might seem from a superficial review of the new rules. To a great many disadvantaged and vulnerable individuals the new rules will be devastating.

The sixteenth CPP actuarial report prepared by the federal chief actuary projects a total cumulative reduction in CPP spending on disability pensions by the year 2005 of over $1 billion—that's cumulative, not annual—while the cutback in retirement pensions and other benefits for the same period is less than $700 million. Since the disability program is only about one-fifth of the total CPP, this means that on a proportional basis it is being cut much more than any other component.

The depth of this reduction in the CPP disability program has been carefully hidden from the public by the federal government and the eight provincial governments that support the cutbacks.

CCD does not support cuts in CPP to anyone. The pensions and other benefits are modest enough at present, but we object especially to cuts targeted at the disability community.

In 1994 the committee on disability issues of the then-existing CPP advisory board presented its report to the Minister of Human Resources Development and in it recommended unequivocally against reducing eligibility or pension levels with respect to the disability pension. The committee said:

Canadians with disabilities are generally poor. A 1986 survey found that CPP disability benefit recipients (probably not the poorest of the disabled) had incomes only 79% of the national average, and 46% had incomes below Statistics Canada low income cut-offs. 1991 survey figures indicated that 60% of Canadians with disabilities had annual incomes below Statistics Canada Low-Income Cut-offs. For CPP disability recipients, CPP benefits were their single most important source of income, accounting for 27.9% of their total income. The 1986 survey found that 36% of the CPP disability benefits simply reduced benefits from other sources, an indication of the interaction of the CPP and other parts of the system.

A more recent study, by Dr. Gail Fawcett, entitled Living with Disability in Canada: An Economic Portrait, paints the same picture. Dr. Fawcett's research, sponsored by HRDC and the Office for Disability Issues, concluded that almost 28% of CPP and QPP disability pensioners were poor. She also found that 10% of Canadian adults with disabilities and under 65 received CPP or QPP disability pensions. This is further evidence that the CPP disability pensions are desperately needed in many cases.

• 1955

You don't get rich on CPP disability. As I'm sure members will be aware, the minimum in 1987 is about $330 and the maximum is $883. Payments are taxable, so they are reduced in value for those with higher incomes, but for many who have a limited attachment to the workforce because of unemployment, caregiving, home-making, or the onset of disability, the CPP disability benefit is desperately needed. It may be the only benefit a disabled person qualifies for. For example, if his or her spouse is working or if there is a modest income from savings, the person will typically not be eligible for provincial social assistance.

What is Bill C-2 going to do to the CPP disability pension? First, there is the new contribution rule which will require CPP disability pension applicants to have earned more than a specified minimum amount in four of the last six years before being determined to be disabled. The current rule requires contributions in either two of the last three years or five of the last ten years.

What sorts of people will typically be excluded from eligibility? Young people in their first three years of employment won't qualify. Neither will those whose recent attachment to the workforce is limited by reasons beyond their control, such as unemployment or caregiving responsibilities.

To come back again to the gender issue raised by the previous presenters, those people who are unemployed or out of the workforce for caregiving will tend to have non-contributory years. The child-rearing drop-out will assist those who have caregiving responsibilities for children under seven but will not assist those outside the workforce caregiving for older disabled children or for adults.

Of particular concern to us are those who have tried to keep working despite the onset of a disability such as MS or psychiatric disability, cancer, and many others. Again, people who have the onset of these serious disabilities, particularly those which can be somewhat episodic, such as MS or psychiatric disability or even cancer, which can go into remission, tend to have years in which they don't contribute, and these individuals may be rewarded for their determined efforts to keep working as much as they can by complete disentitlement to the CPP pension.

There's a second, I think somewhat hidden, cutback in the new formula. It relates to proposed paragraph 44(2)(a) as it's going to be amended, “calculated without regard to subsection 20(2)”. Because of this qualification the minimum level of earnings in a year for that year to count towards a disability pension will now start to rise above the minimum level to contribute to CPP. Someone with low earnings may have to pay CPP contributions to the government in a year, only to be told later that the contributions don't help in qualifying for a disability pension. Previously the minimum contribution level and the level at which a person was considered to have contributed for the year for purposes of the disability pension were the same. That begins to be changed by this new provision.

Thirdly, the formula by which the amount of the earnings-related portion of the disability pension is calculated has also been changed by Bill C-2 increasing the minimum number of months in the contributory period from 24 to 48, which will decrease the amount of the disability pension for some who qualify.

There are further cutbacks related to disability. Those who do qualify for CPP disability pensions will have their eventual retirement pensions lowered by the new rules; and there is a reduction in the combined survivor disability benefits for widows and widowers who are themselves disabled.

• 2000

All of this is being added on to the administrative changes in the CPP disability program, as I already mentioned. As described in the literature from HRDC, the administrative improvements really encompass a restricted approach to determining who is disabled. This has disentitled thousands of Canadians unfairly, and will disentitle more. Older workers in particular, those in their fifties and sixties, are being found capable of working despite significant health problems leading to physical and mental limitations. The jobs they are supposedly able to do may exist in a bureaucrat's CPP manual, but don't actually exist in Canadian communities.

CPP also continues to penalize those who attempt training, education, rehabilitation programs, or a part-time or time-limited return to work by finding them employable as well. In spite of a supposed policy that says this shouldn't happen, we still get reports that it does.

Taken all together, these cutbacks add up to the $1 billion reduction to the CPP disability pension program that is to be achieved over the next seven or eight years. As well, there will be a spillover effect into other disability income programs that offset the CPP, including provincial social assistance, workers' compensation in some provinces, and LTD. These other programs top up CPP when a person qualifies for both; so if CPP is cut, the cost of the other programs is increased. This contributes to downward pressure on benefits from these other programs.

Mel has already spoken about the grandfathering. This is perhaps why there is not much of an outcry on this issue at present. People who have disabilities now are not adversely affected by any of this. Perhaps some will be by the administrative changes, but the changes in Bill C-2 will affect those who are working away and are not yet disabled—“TABs”, as Mel put it—quite blissfully unaware that they will need this program in a few years time.

The CPP disability program, while it has its weaknesses, nevertheless has been an important cornerstone of Canada's safety net for those who become disabled. While these cuts will save a few pennies from people's paycheques—the many will save a little bit—the cost of the cutbacks will be borne by the minority who acquire a disability.

Mel, do you want to add anything?

Mr. Mel Graham: No, I don't think so, other than to say that we appreciate having been asked to come. I really appreciate your serious consideration of the effect the adoption of this bill will have on a population that is, as you know, only going to grow larger as the baby boom generation gets older and acquires more disabilities. What is seen as a theoretical problem now could become a fairly major problem for a pretty large minority in the years to come.

I think that's probably all I have. Thanks very much.

The Chairman: Thank you for your presentations, Mr. Beatty, Mr. Graham.

We'll now have a five-minute question and answer session. Mrs. Diane Ablonczy.

Mrs. Diane Ablonczy: Thank you, Mr. Chairman.

We appreciate that you folks came in.

When I talk about some better alternatives to these particular changes, what I keep hearing the government talking about is the disability component. So it's very instructive for me to hear from people like yourselves how these changes are not particularly compassionate when it comes to people who have disabilities.

I just don't understand your first discussion of the first cutback to the disability program, as you mention on page 4. You could clear that up pretty quickly for me. You say that people who are trying to work will be disentitled of a CPP disability pension. I just wonder how that is. I don't quite understand how that works.

• 2005

Mr. Harry Beatty: If someone is dealing with a major disability, he may well get into an earning pattern in which he earns enough to contribute in some years when he's doing better, but in other years he won't. A person in that situation would perhaps be more likely to get into a situation in which he wouldn't have four of the last six.

Mrs. Diane Ablonczy: That's because he doesn't have pensionable earnings.

Mr. Harry Beatty: It's the people who are in and out of the workforce who are most at risk. By tightening up this rule, there's a better chance that they will wind up with nothing.

Mrs. Diane Ablonczy: And that's because although they're working, they don't have enough to reach pensionable earnings, is that correct?

Mr. Harry Beatty: Or they may work in some years and not at all in others, or less than the minimum amount—the 10% of the year's maximum pensionable earnings.

Mrs. Diane Ablonczy: Thanks for clearing that up. I just wasn't quite sure.

What people with disabilities require, then, is some kind of a safety net that gives them some security, so that they will have adequate income to meet their needs. With these changes in CPP, what I hear you saying is that this is not going to happen. Is that correct?

Mr. Harry Beatty: The program is basically being cut back, and I guess our major argument is that it's being cut back by more than it might appear. Clearly, we don't even have the numbers as to how many will be made ineligible by these changes over the next few years, although presumably the chief actuary must have done a calculation to come up with the reductions.

Sure, fewer people will qualify, but it's worse than that. Even within those who become disabled, those who are more disadvantaged to begin with—those with marginal attachment to the workforce, the unemployed, young people in their first few years of employment—are the people who will tend to lose. These are people who would typically not have long-term disability insurance or other programs to go to.

Mrs. Diane Ablonczy: I just want to get this in. In a perfect world then, if you folks are writing the committee report, what do you want to see in it with respect to disability coverage and benefits?

Mr. Harry Beatty: On behalf of CCD, I guess the basic position is not to do the cuts, and to at least keep the status quo in terms of the rules.

Mr. Mel Graham: Could I just add a point regarding the safety net?

It's really important to not only discuss substantially what's going to happen to people in respect to things like changes to the CPP pension, because the tracking process itself is also being undermined. It's been decided that in the year 2001, unlike in past census years, there isn't going to be major questioning on the topic of disability. That's another cut in costs that is going to be very difficult from the point of view of people who are actually trying to find out what's happening to people who are being cut in terms of programs.

[Translation]

The Chairman: Mr. Crête, do you have another question?

Mr. Paul Crête: Thank you for the presentation. I was wondering if you preferred that, for the Canada Pension Plan, there would be a clause similar to that of the Régie des rentes du Québec, where progressive diseases are included, i.e. diseases which progress in such a way that people are not totally unable to work, which allows for more flexibility and better support. Would you like to have that in the Plan?

• 2010

[English]

Mr. Harry Beatty: I believe it would be good to have a provision addressing progressive disabilities. I would have to go back and look at the bill, but I believe that if someone is already a CPP disability pensioner, once that person leaves to take employment and then tries to go back on again, he basically has to have contributed in every intervening year under this bill. Certainly a more flexible approach than that would be preferable for people who may be making a real effort to stay in the workforce despite a disability.

The Chairman: Mr. Jones.

Mr. Jim Jones: Thank you very much for your presentation and for bringing your concerns to this committee.

I'd like to have a clarification on the top of page six. I don't understand that sentence there:

CPP continues as well to penalize those who attempt training, education, rehabilitation programs or a part-time or time-limited return to work by finding them “employable” as well, in spite of a supposed policy which says this shouldn't happen.

What's going on there?

Mr. Harry Beatty: About two years ago, the Minister of Human Resources Development issued a new policy that basically said these efforts should be encouraged. Still, people report to legal clinics like mine, to disability organizations, that if they take a part-time job or if they're going to school, their ongoing entitlement to CPP disability will be questioned. In effect, these are taken as factors to find people ineligible.

We really only have anecdotal or individual case examples. In my experience, it depends somewhat on the nature of the disability that HRDC officials.... There are examples of when they have taken a very liberal approach with people who are paraplegic or blind. In other cases with other disabilities—for example, the MS Society has expressed concerns—when someone manages to make it up to part-time employment or whatever, it's taken as an indication that the person is no longer eligible under the definition.

Essentially, the policy was changed but nothing was put in the legislation. The legislation still basically says you have to be totally unemployable. In some cases it's interpreted pretty strictly.

The Chairman: Ms. Redman.

Mrs. Karen Redman: Thank you, Mr. Chairman. I have a couple of questions.

Still on that same page of your brief, page six, you talk about the cutbacks adding up to $1 billion in reductions to CPP. Some of this is tightening that was actually suggested by the Auditor General, and those savings actually come outside of Bill C-2.

We've had other presentations, and there are two questions I would like to ask of you gentlemen this evening. A previous presenter talked about the Quebec Pension Plan and the fact there were much lower claims, this despite the fact that they have a virtually identical definition. I just wonder if your organization has looked at that anomaly and at why those differences exist. We've heard other theories.

Mr. Mel Graham: I can't say that we really have. We do have a Quebec affiliate, but we really never got into a comparison on that basis. I'd be very hard-put to say why there is any sort of an appreciable difference between the two plans. I really don't know the answer to that.

Mrs. Karen Redman: Mr. Beatty, do you?

Mr. Harry Beatty: I really cannot assist very much either. In the Quebec system, the configuration of all the disability programs is quite different. I only have a very general notion of how that system works. I couldn't really give an informed answer to your question.

• 2015

Mrs. Karen Redman: I really appreciate the fact that you're bringing these concerns forward. One of the reasons we're looking at overhauling the Canada Pension Plan is so that it will be there for people who need it.

There have been suggestions from other presenters that it might be a good idea to wrestle down the unfunded liability and in fact take the disability portion out of Canada Pension Plan. I was wondering if you had a comment on that suggestion.

Mr. Harry Beatty: If the proposal is that there be in effect no public disability plan through employment on the CPP model, the first question would be what, if anything, would replace it. Would it just be a system where people in better jobs would qualify for LTD and people in poorer jobs or in part-time or contract jobs would have nothing?

The advantage of the CPP is that people who have this sort of irregular or limited attachment to the workforce can at least participate to a limited extent. They can at least get a small pension. Because it's more or less universal among those who are working, there is at least something there. If it were taken away with the nothing put in its place, then people would have nothing else until presumably they fell to the provincial social assistance levels, and those are being eroded too.

Mel, do you want to add to that?

Mr. Mel Graham: I would just wonder about the extent to which the folks who might have brought this plan up have had access to the discussion about why the disability portion would have been added in the first place when the pension plan was formulated. Have we really gone down in terms of our responsibility towards people in marginalized situations from that point when we did decide to bring this advantage to people with disabilities? I just really question the extent to which that cost is not being brought in as kind of a sacred cow or something. There really isn't a full-blown discussion about that kind of a possibility taking place.

Mr. Harry Beatty: In terms of fairness of course, if you change it so there's no disability component, it means that people who have become disabled pay in and don't get anything out.

The Chairman: Thank you very much, Mr. Graham and Mr. Beatty. Also on behalf of the committee I'd like to thank the Council of Canadians with Disabilities for your help in helping us study Bill C-2.

I will now suspend for approximately two minutes. We will be back with the representative from the Canadian Youth Foundation.

• 2018

• 2021

The Chairman: I'd like to call this meeting back to order.

As I said earlier, we have a representative from the Canadian Youth Foundation, Lucie Bohac Konrad. Welcome. You have approximately 10 to 15 minutes to make your presentation, and thereafter we will proceed to a question and answer session.

Ms. Lucie Bohac Konrad (Executive Director, Canadian Youth Foundation): Thank you very much. Mr. Chairman, the Canadian Youth Foundation welcomes this opportunity to speak to the members of the finance committee about Bill C-2 and the changes to the Canada Pension Plan.

Debates on social policy in Canada are typically concerned with fairness between income groups and economic efficiency in the short to medium term. Yet there is a case to be made that policy should be concerned with the longer-term issues of inter-generational fairness and long-run economic growth.

Now that the elimination of the deficit is in sight, more focus is put on longer-term concerns such as the size of the government debt and social insurance obligations. Part and parcel of these concerns is the economic and social capital that is being left to future generations, and whether these will be sufficient to maintain the high standard of living that Canadians have come to expect.

The current debate on the Canada Pension Plan is therefore typical of other policy debates that will unfold as Canadians adjust to the reality of an aging population and high levels of indebtedness. The debate is also a critical one, as few issues hit at the heart of inter-generational fairness and the question of passing on social and economic capital the way the CPP does.

Although the Canadian Youth Foundation does not presume to speak for Canadian youth, as a national research organization with expertise and focus on Canadian youth, the CYF is well placed to comment on the inter-generational aspects of the CPP.

Last year the CYF published a report, Ponzi Game Up?: Canadian Youth and the Canada Pension Plan Reforms. What you have before you is a summary document. This report was to look at the implications the CPP has upon youth and to comment on possible reforms. Today I would like to review the recommendations the Canadian Youth Foundation made in the report and comment on how the changes proposed in Bill C-2 correspond to these recommendations.

The Canadian Youth Foundation is interested in the welfare of today's young Canadians and future generations of young Canadians. We believe the current pay-as-you go system lowers the welfare of young people because it transfers burdens from other generations onto them through a tax system that discourages them from getting jobs.

In making our recommendations, we encouraged the government to make structural decisions on social insurance programs that would greatly reduce the unfunded liability and allow for greater room to tackle public debt equitably. We also urge policy makers to appreciate the broader ramifications of their decisions for the economy and for the job market in particular.

• 2025

Our recommendations were as follows:

(1). Recognize that income security means income security for all. Income security has not been improved for all Canadians if an inefficient system of income security for seniors is undermining the income security of future generations. Greater discipline must be used in sorting out the nature of this income security market failure and being very specific in addressing this through public programs.

(2). Declare the intention to move to a funded system. Today's public policy makers must be as bold as the original architects of the CPP. They need to recognize that the underlying economics call for a movement to a funded system. A move to a funded system will increase the welfare for all Canadians in the long-term and address inter-generational equity.

(3). Change the funding mechanism. The funding of the pension system must recognize the role of tax policy in creating a competitive high-employment Canadian economy. The funded system should not rely on current payroll tax, which should be phased out over time; rather, a new mandatory savings scheme should be established on a sliding scale in accordance to lifetime saving patterns.

(4). Manage the transition equitably and efficiently. There's still time to manage the transition in a reasonably efficient and equitable way. Many of today's workers have not paid their fair share and therefore they should bear the burden of the adjustment. After a system of shrinking entitlements is in place a mechanism should be used to recognize outstanding commitments. A temporary increase in non-payroll taxation should be used to fund these commitments.

(5). Change the governance for the new system. A change should be made in the governance for the new system away from political administration. The preferred option is to extend the existing registered retirement savings plan system. This would effectively put the governance into the marketplace, and if there are still concerns about market and efficiencies other mechanisms may need to be in place to deal specifically with these inefficiencies.

These were the recommendations we had made in the study we did last year. How Bill C-2 responds to these recommendations is what I'd like to talk about next.

Overall, the recommended changes in the CPP suggest that income security for all Canadians would be an underlying principle of the reformed CPP. In this regard our recommendation 1 has been addressed. The changes proposed recognize the crippling burden that the pay-as-you-go system places on young Canadians in a context of the difficulties and demographic odds Canadian youth face.

In addition, the proposal to contain costs and the tightening up of benefits in effect suggest that the government would take a closer look at the income security market failure. This is an important consideration, since in the past various changes in the CPP, while they may have resulted in greater benefits, were not matched by corresponding increases in rates, hence contributing to the growing unfunded liability.

The new investment policy in Bill C-2, which would convert the pay-as-you-go system to a partially funded system, takes significant steps in the direction of our call to move towards a funded system—our recommendation 2. This element of the proposed changes alone has the most significant impact upon the current bias against younger generations of Canadians under the present plan.

And perhaps as significant is the move to have this partially funded system managed by an arm's-length investment board directly corresponding to our recommendation 5. This move will address, we believe, some of the efficiency concerns we have identified as also having major ramifications upon young Canadians. And we hope that this fund would be managed with the interest of young Canadians in mind.

We should be clear that these changes and the resulting positive outcomes will be felt in time. The challenge is in managing the transition.

We acknowledge the need to recognize the outstanding commitments under the CPP, and Bill C-2's proposed increases in contributions would see that those commitments are honoured as well as contribute to the move towards a more fully funded system.

An increase in the contributions now in effect means shorter-term pain for longer-term gain. The Canadian Youth Foundation, however, is concerned that the pain will be more painful for young Canadians because the increase in contributions will result in an increase in payroll taxes.

• 2030

The CYF's research has established quite clearly that Canada is experiencing a very worrying trend of increasing levels of structural unemployment among youth. While the economy continues to grow, it is not creating jobs in the youth labour market.

Consider that payroll taxes are the main reason behind the growing gap between labour productivity and the cost of labour in the period 1989 to 1993. This induced employers to use greater capital as opposed to labour in their production. Given that young Canadians absorbed a third of all full-time job losses during the recession of the early 1990s, it's pretty hard to avoid the conclusion that payroll taxes played a significant roll in creating the youth jobless recovery we are experiencing.

We have in Canada today a youth unemployment rate close to 17%. We know about half of young people today have part-time rather than full-time employment. We know the rate of young people who have never held jobs has doubled. I could spend a whole evening talking about what we all know is a national concern and priority, as it is for this government. That being the case, is it truly realistic to place an extra tax burden, one that has already shown to be detrimental to the employment prospects of young people, on Canada's youth today?

In our fourth and fifth recommendations we suggest that yes, Canada should honour its outstanding commitments, but we would have preferred to see a non-payroll taxation mechanism used to recognize these commitments. Furthermore, we suggest the funding of pension systems should not rely on the current payroll tax; rather, a mandatory savings scheme should be established on a sliding scale in accordance with lifetime savings patterns.

When a young person is starting out in the world of work, assuming he or she will find work, every penny counts towards making ends meet. We are concerned that increasing payroll taxes would create a further barrier to finding employment, and once these young people do find jobs, an increase in the payroll tax would lower the capital stock they have to work with; in other words, reduce their long-term income and increase their taxes. I urge the committee to give this consideration. Even with the tightening of benefits, with the new investment policies and the increase in contributions to reduce the intergenerational unfairness of the CPP, these changes will not entirely eliminate the bias against young Canadians.

All of this underlines an important factor, one of which the committee is no doubt aware, and that is the lack of confidence in the CPP on the part of young Canadians. In light of the current conditions facing young people in the labour market, we do not believe this perspective will change, especially if young workers feel that extra burden today and have a less than clear idea that they will receive their fair share of retirement benefits, and if they question whether they could not have saved more effectively through an open marketplace such as through an RRSP vehicle.

In conclusion, we would like to give due recognition to the much needed and clearly carefully considered reforms of the Canada Pension Plan proposed in Bill C-2. The authors of the reform package have indeed been courageous and the Canadian Youth Foundation salutes the obvious efforts to balance the intergenerational unfairness the current system holds. Work remains to be done and we are still concerned that certain implications of the reforms will be disproportionately burdensome for today's young people entering the labour market. Ironically, those young people are very much needed to build and contribute to the CPP as well as other social programs which are publicly funded.

I thank you for this opportunity to speak to you today, and I welcome any questions you may have.

The Chairman: Thank you very much for your presentation.

We will now proceed to the question and answer session. We will begin with Ms. Ablonczy.

Mrs. Diane Ablonczy: We really appreciate your coming. Of course we know these changes to the CPP impact very heavily not just on people in your organization but on people even younger, many of whom have not reached adulthood, or maybe are not even born. One of the things I keep saying in this committee—my colleagues are probably tired of hearing it—is that the negative return on investment for children and grandchildren is not only unfair for us to put on their shoulders but will actually, in my view, make the plan completely not viable in the long term.

One of the earlier witnesses submitted a brief in which was written this:

Requiring one age group to pay a discriminatory taxation will face increasing resistance as the burden young people face increases and they begin to control the political apparatus.

• 2035

You're essentially confirming that there is going to be some resistance to carrying the burden for programs when there are other burdens to be carried as well, such as the cost of health care and other programs and the cost of the existing national debt.

I wonder if you could comment on that particular aspect. What do younger people feel about these changes in regard to fairness and what do you think can be done to address it?

You've put four recommendations in your brief. I personally agree with every one of them. I have been working to urge changes that would address them all. If you could comment on how these would make the system fairer, perhaps we could persuade others that there are better and fairer ways in which to structure these changes.

Ms. Lucie Bohac Konrad: I would like to address two things that you've said.

In the long run, the proposed changes, the increased contributions, actually very much serve the interests of future generations of young Canadians. The ones that will feel the kick are actually the young people today, here and now.

I haven't got the report and the numbers crunched in front of me, but a very excellent paper and analysis was done by Bill Robson of the C.D. Howe Institute where he essentially does the quick and dirty math. Actually, he does it in a very complex, economical way, but the long and the short of it are that it actually shows that in the long run there's a great deal of benefit for young people. The problem is that the transitional period is going to be a difficulty.

That being said, coming back to your question about how we address the issue of young people not having confidence in the CPP, that is an issue. It's an issue particularly because, on the one hand, young Canadians certainly understand and aspire to the value of fairness; indeed, they do. It is very important for all Canadians to buy into, to believe in some of these values that we hold near and dear as a nation and that I believe define some of our citizenship.

What needs to be understood is the fact that if in fact people are making fair contributions into an overall social plan and people are getting fair benefits back and their interests are being protected through a variety of mechanisms, then people will say, yes, this is something we value, this is something we will participate in and we know we are actually getting benefit out of it. That's really at the heart of the matter.

At the present time young Canadians are acutely aware of the fact that Canada is facing a variety of financial difficulties. That is a burden to them, because young Canadians today know very well what it means to be indebted. There is an intimidation factor that is hard to overcome unless you can actually demonstrate that there is a benefit out of changes, that the benefit actually will be accrued to them. This is one of the reasons why we're saying let's put a little bit of focus into making the transition a bit more passable for young Canadians today, because they are opinion makers as well.

Though it is obviously very important for young Canadians to buy into these social programs, to say yes, we're participants, we believe in the benefits for all Canadians, I might underline one little thing that is nonetheless important. Young people today will never in their lifetime be a voting majority. If that is the case, will they really be in a position to create the ultimate upheaval of any program they don't believe in? That might be a question, because young people do face, at least on a, strictly speaking, political level, a certain disempowerment.

But I think young people would also be the first ones to say we're part of the team as well, and we want to do our fair share; our expectation is that we will be taking care of our parents in the future, and that's okay, but we need a leg up to get ourselves into the system so that we can be fully participating citizens on an economic and a societal level in Canada.

• 2040

I think we do need to communicate to young people.

Mrs. Diane Ablonczy: Thank you very much.

[Translation]

The Chairman: Mr. Crête.

Mr. Paul Crête: Thank you. You have made us particularly aware of the importance of intergenerational fairness, but do you not find that, while we would require the younger people to pay higher premiums in the first years, it would be interesting to see what can be done about jobs for youth based on other programs as well? For example, to reduce the impact of the implementation of the premiums, the Employment Insurance premiums could be reduced, a reduction that could be introduced at the same time, or even the number of hours required of youths for Employment Insurance for a first job could be reduced. The net impact of this would be to reduce the cost of the premium increases during the first years.

Does this not seem important to you, considering the way young people are treated in the economy, so they can have the best possible chances? Do you have anything else to suggest for this?

Ms. Lucie Bohac Konrad: Allow me to respond in English; it will be a little easier for me.

[English]

If we are concerned about finding ways to facilitate the transition of young people from school into the labour market, I believe that the most effective way would be to find a mechanism in the form a partnership with the private sector that will encourage young people to find work.

By that I mean that it would be more important to show the value that new labour force entrants have when coming into the world of work. I think it's important to show that in fact the labour of those young Canadians is not made more expensive by extra taxes the employer has to pay, or, by the way, in cases of young people entering into the world of entrepreneurship. And increasingly they are doing so and of course are increasing taxes, which they bear themselves as an employer.

I think the best way to really tackle that issue is to make that transition easier rather than creating barriers or finding the opportunity for barriers from the business side. Ultimately the private sector is the job creator. And finding ways to smooth that entry would be, I think, better than doing some engineering on other policy fronts.

[Translation]

The Chairman: Mr. Crête, do you have another question?

Mr. Paul Crête: No.

The Chairman: Mr. Fontana.

[English]

Mr. Joe Fontana (London North Centre, Lib.): Thank you, Mr. Chairman.

Thank you very much for your presentation. The way I scored out of your recommendations, I think you have us at about 2.5 by the year five, or three...it's pretty close.

I do have some questions I need some clarification on with regard to your recommendations.

Firstly, I should tell you that as the father of three kids who in fact are just entering the workplace, I can understand that they don't want any taxes either. They keep telling me that every time we're at the supper table.

Secondly, as an employer, to tell you the truth I've never said I'm not going to hire someone because I'm going to have to pay extra EI premiums or CPP. A lot more goes into the decision of hiring the person than these so-called payroll taxes, which I believe employers in some cases feel are an investment in society and are for the betterment of workers. I'm not sure that it's fair to say that the issue of payroll taxes—and we have some of the lowest in the world if in fact we want to compare ourselves to other countries, including the United States—is a real big issue at all in terms of creating jobs.

Let me just ask you this. In recommendation 2 you say you want to move to a more funded system. In fact, if you moved to a more funded system that means the premium increases would have to go up even further. In fact, if we haven't made the changes by 2015, when some of the young people would probably be in their best earning years, we'd be paying something like 14%. I'm not sure that I understand what you meant by a move to a more funded system. We are moving that way, but how much?

• 2045

In your recommendation 4, if in fact you wanted to build some equity and efficiency into the system and not have it through contributions, then obviously you must be talking about income tax increases. You have to look at the general taxpayer having to pay a little more of that. I wonder if you could address your recommendations 2 and 4 for the moment.

Ms. Lucie Bohac Konrad: Essentially the move to a more funded system is precisely to get away from the pay-as-you-go system, which inevitably has sort of a dumping effect to future generations. As I indicated, this was very much addressed by even moving to a partially funded system. It means you are in fact decreasing some of those obligations. That is something that is the right move. Ultimately whenever you have a transition from a system that already has a built-up unfunded liability among other things, the transition period is going to be difficult.

One of the things we are trying to suggest is that while we should recognize that the transition will be difficult, let's recognize also that there are those who are going to be receiving increasing benefits and they should have a role in funding that burden of change. Obviously that means the current people who are part of the boomer population would therefore take a greater share of the responsibility in the transition.

We should also keep in mind that we're seeing a greater affluence in the more adult population right now. When we look back at the CPP system, historically one of the original goals was to really address the question of seniors' poverty, to address the situation where we had people who served the country very well during great hardships such as the depression and the world wars. This was to provide for them in their years of retirement. Today in Canada we're facing a situation where we'd better also start looking at youth poverty and certainly child poverty as well. We've heard about these things in a variety of other forms.

Obviously what we're saying is if we're really going to be fair and equitable, we should realize that we need to make a change. There is going to be a need for an adjustment. That adjustment is going to be difficult. We are seeing this changing. The situation of the CPP is not that much different from battling the deficit or the debt, for that matter. The principles are pretty similar, but the idea is that you need to make the move. I think we've indicated that this is a positive thing. Yes, people will have to increase contributions.

Young people today who are just entering the labour market are in a difficult situation, but as they age they too would be in a better position. Lifetime savings patterns would suggest that they'd be in a better position to support the system more greatly. The ideal was to have a phased contribution so that it doesn't create an extra burden at a time when young people are less able to absorb it.

Mr. Joe Fontana: While you say you don't represent all youth, surely you must hear from young people. I can understand that they're just getting started and there's going to be tremendous pressure on them in their beginning years, but surely there must be an appreciation among young people. How do you think they got to where they are in terms of education? In fact their parents and grandparents and seniors and those who have contributed into the system have been subsidizing their education to the tune of 75% for 10 or 14 years. This infrastructure you now enjoy has been built on the backs of the taxpayers, the very people who are receiving retirements.

I don't know how many young people you know who can start an RRSP tomorrow. This is a joint compulsory saving program where the employer pays half as much. If you look at 9.9% of an average wage, the average person is only going to be contributing $450 or $500 to it. I don't know what you're going to get if in fact you want to put it into an RRSP.

My Reform Party colleague continues to make the statement that young people shouldn't invest in the CPP because they're only going to get 50¢ out of every $1 they contribute. I wonder if you know that for every dollar a young person contributes we will get $1.80 back out of the system, and not, as Diane would have it....

• 2050

Yes, that's what it is. I'll give you the figures to prove it. But I wondered if you knew that. It is a responsibility shared by the employer. They are contributing half to the retirement of a young person.

Ms. Lucie Bohac Konrad: I'm aware of that; and certainly young people are not against participating in a larger social program which touches on all Canadians.

Mr. Joe Fontana: But how is an individual RRSP plan at $400 a year, if you can get a young person to put it in, going to achieve their ultimate aim? Obviously the employer would not be involved. Or are you suggesting they would be involved in your personal RRSP plan too?

Ms. Lucie Bohac Konrad: In fact it is not uncommon for employers to have a shared RRSP, a sort of self-directed RRSP program into which both the employer and the employee contribute. The idea was really speaking to some of the inefficiencies that existed in the unreformed CPP mechanism. Obviously some of those issues will be addressed by moving to a new policy of having the fund also independently managed.

Mr. Joe Fontana: Yes. Thank you.

The Chairman: Mr. Szabo.

Mr. Paul Szabo: Thank you, Ms. Konrad, for your interventions here. I think you've handled yourself very well on behalf of the youth of Canada.

On page 2 of your executive summary are figures about how someone born in 1911 gets $48 out for every $1, someone born in 1948 gets $11 out for $1, and somebody born in 1988—in other words, they are 9 years old—will be getting $5 out for every $1 put in. I don't want to discuss these numbers with you, but I would certainly like to know where you got them and have the references to those so we could compare it with others who have provided us with information. That would be very helpful, because this would change my total outlook—my total outlook—on CPP.

I think there's a great opportunity here for the youth to have an impact on the balance of this dialogue, and it has to do with the intergenerational equity issue. As you know, current seniors do get a subsidy, or a premium, or more out than they put in. It doesn't matter what the number is, but they do get a very good deal. But also it has to be acknowledged that they came through two wars and the Depression, their working careers were ostensibly restricted or shortened, and in fact they had very little opportunity to provide for their retirement. That's one of the reasons why the CPP came in in the first place: otherwise you had a whole bunch of poor seniors who would have had to be on public welfare in any event. Your suggestion is that we consider not burdening today's workers and future workers as much but shift some of this catch-up or funding of the unfunded liability, or the “subsidy”, as Mr. Walker said earlier, by somehow putting it into the income tax system and letting it be handled by all Canadians.

Here's the question. If you do that, seniors also make income and pay taxes. What you are suggesting by this recommendation is that today's beneficiaries, today's seniors, today's pensioners, should be paying a bit of this subsidy or unfunded liability, whereas the proposal that Canadians through consultations and the provinces and all the experts...the first thing they said is we will not touch today's seniors, because they have no opportunity to replace that income because they are already in retirement; you can't do this retroactively. You are on the other side of the football field, as it were, and I want to be sure you are aware that would be the impact and you stand behind it: that today's seniors shouldn't get it as good as they have it, they have to pay some of it.

• 2055

Ms. Lucie Bohac Konrad: Maybe I should clarify it. I wouldn't want anybody to misinterpret our position as saying that we're trying to create sort of a tit-for-tat situation between today's seniors and today's young people. That's not at all the intention.

What we are saying is that we must respect and honour the kind of commitment and expectations that have been made. We're not suggesting that we take an approach that would put an unfair burden on the older generation, the seniors who are now retired. As you say, they do not have an income, a new or regular income, as somebody currently employed would have. That's not the suggestion we're making.

In fact, if anything, as I indicated, we really see that the greater responsibility, if you like, would tend to fall on the current working population, probably those who have spent more years in the labour market as opposed to those who are entering the labour market.

That is also the large population that in many ways—this is not of their own doing, obviously, as people aren't responsible for the year in which they're born—is going to be entering retirement and putting a burden on the whole pension system simply by virtue of numbers, among other things.

If, for example, we have a fund that is managed properly and earns better rates of return, etc., some of these disparities can be addressed as well. But let me be clear that we're not suggesting for a moment that today's seniors be in some way penalized.

Yes, there is a recognition. Those people who came into the system who worked and contributed to the system for 10 years will get greater returns out of it. These things are an accepted reality because we can't change that reality. I was about to use a colloquial expression, but we're in Parliament, so I won't; I'll leave it right there.

The Chairman: Are there any further questions? Mr. Valeri, you have the final question.

Mr. Tony Valeri: Thank you, Mr. Chairman. I just have a couple of comments and a question. I just want to make sure I understand this.

Your recommendation number one is to recognize that income security means income security for all. Essentially what you're saying is that Bill C-2 is achieving that objective. I heard you say that earlier.

Ms. Lucie Bohac Konrad: It appears to us that it has the intention to respect income security.

Mr. Tony Valeri: Okay. Recommendation number two is to declare the intention to move to a funded system. I'm not sure whether you're aware of that, but in Bill C-2, there is a commitment based on the agreement between the provinces that any future changes to the pension plan would, in fact, have to be fully funded. I don't know whether you were aware of that. As for the idea that the premiums have gone up, we are moving to a fuller-funded system. So as for recommendation number two, you agree with that as well.

Ms. Lucie Bohac Konrad: You're pretty much getting there.

Mr. Tony Valeri: As for changing the funding mechanism, you talk about perhaps establishing a mandatory savings scheme or plan. In providing that recommendation, I wonder whether you considered in your research that the concept of a pension system, a pure pension system, does have an insurance component to it. The insurance component is essentially that one would not outlive their pension.

With a mandatory retirement pension system, there is the possibility that someone would actually outlive their pool of savings and essentially would be out of money and out of a pension. I wonder whether you considered that aspect of it when you recommended perhaps a move to a mandatory registered retirement savings plan. It is, I think, a crucial point: one would not outlive their pension if, in fact, you have a pure pension system, such as the Canada Pension Plan.

These are the last couple of points I wanted to make. You talk about a temporary increase in non-payroll taxation to deal with the transition. Here is effectively what would happen. I'll go back to Mr. Walker's comment earlier about the subsidy figure, which would actually equal approximately $8 billion a year. We would have to find that somewhere in the general tax system. Robson talks about a 4.5% increase in payroll taxes or a 2.5% increase in income tax, a surtax, essentially for a 30-year period. I'm not sure whether his figures would come up equal to that $8 billion figure.

• 2100

I guess what I'm saying is you're recognizing that there is a liability and that we have to fund that liability. I'm just wondering why you feel so strongly that the premium that's being collected out of the pension plan is going to so adversely affect youth when we've had people like David Perry coming forward saying that payroll taxes in fact are not the big deterrent to job creation that we keep hearing about out there.

The last point I want to make is about the change in governance to the new system. You agree that the new investment board does in fact speak to your recommendation 1 and assist in dealing with some of the intergenerational issues you have with respect to youth?

Ms. Lucie Bohac Konrad: Working backwards from the comments you're making, yes, having the arm's length board to manage the fund obviously addresses a number of concerns and allows not only for a safeguard, if you like. The approach to managing the fund isn't viewed in short-term cycles. When you look at it in a very short-term way it's very easy to sort of pass the buck beyond a certain timeframe, and that's some of the kind of management I think we've seen in the CPP in the past. So we feel that is a very important aspect that has been addressed.

Now I'm going to back up to some of the other points you were making.

Mr. Tony Valeri: In recommendation three you talk about changing the funding mechanism to a mandatory RRSP versus a pure pension system. I wondered whether you considered the fact that under a pure pension system a recipient would not outlive the actual pension, but under a mandatory RRSP in fact there is a possibility that someone could run out of....

Ms. Lucie Bohac Konrad: Clearly that's something that would have to be taken into the calculation. I don't have the magic recipe for the ultimate RRSP system that is going to take care of absolutely every exception to a case that we might imagine, but that's something that clearly has to be taken into account. I recognize that is something that would make it difficult to make it a simple RRSP. I don't think the intention is to make something a simple RRSP. We are looking at the continuation of contributions from the employers, for example.

I think the idea with reference to the payroll tax is to say that in the recent past we've seen a situation where in fact there's been a tremendous increase in payroll taxes. We've seen that this has had an impact on literally creating an opportunity for a shedding of jobs and that has impacted on the youth job market. It certainly did in the 1993 session.

If you're an employer with 50 employees, for example, taxes go up by a certain percentage. You might grump and groan, pay those taxes, and carry on if in fact the sum of those costs will do a couple of things. First it would reduce your margin for hiring increased labour or it might give you further incentive to invest in capital as opposed to labour to increase your productivity. That is something that we certainly saw happen in the early 1990s.

In addition to that, we need to recognize the fact that a young person entering the labour market is considered to be not worth the full value of their wage, if you like. There is a general perception that young people in fact don't bring a lot of value to the job in the first instance, and increasing the payroll tax upon a young labour force essentially makes their labour more expensive than what the employer feels they will get out of it.

We've certainly seen a demonstration in the early 1990s that this had a tremendous impact, so we're worried about making this more entrenched in the situation we have in Canada where young people can't seem to break into the labour market and when we're seeing persistently high unemployment rates. Employers are telling us this is an issue for them. We are therefore saying if this is an issue for them, then we'd better understand it and we'd better pay attention.

Mr. Tony Valeri: Could I just make a last comment, Mr. Chairman?

• 2105

Since 1993 the EI premium in fact has been reduced by $4 billion. You also might want to relay to some of those employers who might be speaking to your association that there is a new hires program in place that would in fact eliminate the EI premiums for any new employee they might hire. That's just a point of information.

The Chairman: Thank you, Ms. Bohac Konrad. As always, you've provided a very insightful presentation. On behalf of the committee, I'd also like to thank you for the excellent work you do with the Canadian Youth Foundation. It's a foundation that in a very short time has established itself as a first-rate organization. On behalf of the committee, thank you again.

Ms. Lucie Bohac Konrad: Thank you.

The Chairman: There are just some housekeeping items I want to deal with. The finance committee will meet tomorrow from 9 a.m. to 12 p.m. right in this room and again at 12.30 p.m. and 2 p.m. See you then.

The meeting is adjourned.