Canadian_Retirement

Dumb it up – CPP needs improvement

Published On November 4, 2013 | By Joseph (Ken) | Business, Economy, Government, Retirement

dumb it up

Provincial, territorial finance ministers agree that CPP needs improvements

“All of Canada’s provincial and territorial finance ministers agree that something needs to be done to enhance the Canada Pension Plan, Ontario’s treasurer said Friday.”

“Prince Edward Island wants to hike maximum CPP contributions to $4,681.20 a year from $2,356.20 starting in 2016, and boost the maximum benefit to $23,400 from $12,150.”

Sometimes I can be quite dense.  Originally when I read that the Prince Edward Island finance minister wanted to hike the maximum CPP contributions to $4,681.20 a year from $2,356.20 starting in 2016, I thought he wanted to increase CPP pensionable earnings – it didn’t even dawn on me that he wanted to double the existing contribution rate.

Currently the contribution rate for CPP is a 9.9% (employees and employers split the cost).  There is no way they could increase CPP to 19.8% and not push the economy into a recession. Small business is already struggling in this economy and can’t afford such a significant increase in wage costs not to mention self-employed individuals who must pay the entire burden (vs sharing it with an employer).  The lowest tax rate for self-employed individuals in BC would be 44.86% (25.06% federal and provincial tax + 19.8% CPP).  And that would be the “lowest” tax rate!!  

“CFIB said their analysis suggests the P.E.I. proposal would result in a one per cent drop in wages and the loss of 500,000 person years of employment.”

They would be lucky if that was all that happened.  Either the underground economy would explode or there would be a significant movement to incorporating and using dividends as remuneration to avoid a 19.8% tax called CPP.

“There’s a “tsunami” of workers retiring over the next few years who won’t be able to survive on CPP, he said. The pressure on social services will hit all the provinces hard financially.”

The reality is that the provinces are looking for a means to transfer this cost to the taxpayer.  Let’s be real, the mechanism we call government doesn’t generate an income in of itself and so, barring incurring huge deficits like the US, it can only spend what it takes in.  How then does it resolve this future pressure on social services without increasing the income it brings in through increased taxation?

This doesn’t even touch on problems with Old Age Security (OAS)  Please consider Unfunded liabilities won’t be solved with a debt ceiling

““Consider the Old Age Security (OAS) program, the “cornerstone” of Canada’s retirement income system. Old Age Security pensions are available to all Canadian citizens and legal residents 65 years and older, providing they have lived in Canada for a minimum of 10 years of their adult lives.  The problem with Old Age Security benefits is they are paid for out of current federal tax revenue.

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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