Economy still too weak to boost CPP, Flaherty says

A spokesperson for Ontario Finance Minister Dwight Duncan, who is leading the charge on pension reform, said Friday the province would not enact Flaherty’s voluntary pooled pension plan concept unless there is “enhancement” of the Canadian Pension Plan.

But in a pre-meeting session with reporters, Flaherty said while he supports in principle boosting the CPP — which would mean increasing premiums as well as benefits — the economy remains too weak.

“I don’t think we should do this now because of the softness of the economy,” he said.

“This is not the time to put another burden on employers and dampen employment prospects of Canadians.”

That’s also the view of Saskatchewan Finance Minister Ken Krawetz, who said while modest tweaks are not out of the question, he would oppose “radical changes” to CPP.

“We do not want to see certain restrictions on employers that may prohibit growth,” he said.

Flaherty said one option that likely will be discussed is whether there is agreement on expanding the Canada Pension Plan once the economy improves, calling it a “reasonable position.”

Growing CPP was the main option for pension reform before the finance ministers in 2010. However, Ottawa withdrew its backing in the face of opposition from Quebec and Alberta and a weak economy.

In response, the federal government introduced the so-called registered pooled pension plan concept, a voluntary system designed for workers in small and medium-sized firms that many believe will do little to address the problem of Canadians entering retirement with insufficient savings.

New Democrats and the Canadian Labour Congress have proposed doubling what CPP would pay out over a seven-year period to $1,868 a month, although that would also entail raising premiums on both workers and employers.

Enriching the CPP also has the backing of CARP, the main lobby group for seniors.

NDP deputy finance critic Guy Caron said Flaherty shouldn’t just look at the impact of added premiums on the economy — there are benefits as well.

“One of the aspects for (premiums) increase is that this money will actually be invested … which will have an effect on economy,” he said.

Given that not all provinces are on side and that opposition among business groups remains stiff, any improvements to the CPP would likely be modest and come with a lengthy phase-in period.

Flaherty said he would not act unless the decision is unanimous, even though technically he needs the support of only two-thirds of provinces representing two-thirds of Canada’s population.

“It’s important in the federation that if you want to do something fundamental with respect to the Canada Pension Plan, we really try to do it all together,” he explained.

A spokesman for Quebec’s finance minister, Nicolas Marceau, said the province’s key issue is ensuring it gets its fair share of transfer payments.

Flaherty said that the top issue at the meeting should be the economy, noting that some provinces — specifically naming Ontario and Quebec — have high unemployment and serious fiscal deficit problems.

“That’s the No. 1 priority, not the Canada Pension Plan or the Quebec Pension Plan,” he said.

Canada’s economy remains soft and vulnerable to outside risks, particularly if there is no budget deal in the U.S. to avert a “fiscal decline” in January, he said. The minister said he had just gotten off the phone with Treasury Secretary Tim Geithner, and he remained concerned.

Economists estimate that would result in a four percentage point drop in economic activity south of the border, and send both the U.S. and Canada back into recession.

“The reality is there’s more work to be done. (But) we are in the middle of December,” Flaherty said.

“I think there’s a desire by the Americans to get to a resolution, but we’re in for a bit of a bumpy road and we need to fasten our seat belts.”

Flaherty said if the issue is not resolved satisfactorily, it will affect “confidence and create uncertainty.”