BUSINESS

Ontario Budget: Businesses Oppose Proposed Mandatory Pension Plan

07/15/2014 04:56 EDT | Updated 07/16/2014 09:59 EDT
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Kathleen Wynne, premier of Ontario, speaks at the Bloomberg Canada Economic Summit in Toronto, Ontario, Canada, on Tuesday, May 21, 2013. Wynne said she won't increase corporate taxes. Photographer: Galit Rodan/Bloomberg via Getty Images

Canadian business groups are railing on Ontario’s re-released budget over the proposed mandatory pension plan in a fight that could shape up to be the province’s Obamacare moment.

The Canadian Federation of Independent Businesses and the Retail Council of Canada released statements condemning Monday’s budget for its inclusion of the Ontario Registered Pension Plan, which they say could kill jobs and investment, resulting in more damage to the already struggling economy.

Ontario’s Liberal government pitched the proposal for employees who are not covered by work pension plans as part of a government-directed effort to make people save more for retirement.

Under the plan, employers and employees would contribute an equal share – 1.9 per cent – beginning in 2017. The Ontario government is stepping in after national efforts to expand the Canada Pension Plan failed.

Talk about retirement savings has heated up in recent years at all levels of government, with people living longer, holding debt later in life and saving less at the same time as employers scale back on their benefits packages. It is getting harder to argue that the current CPP system is enough to cover retirement costs as the population ages, since fewer people are paying in and more are drawing from it.

The CFIB called the plan “a new payroll tax, carefully disguised as a pension premium,” adding that it unfairly singles out small business owners and their employees. Many small businesses are opposed to the plan, because it will force them to shell out to help their employees save for retirement, a new cost that will take away from their often small profit margins.

“This new payroll tax would require employees and employers to pay up to $1,643 each per year per employee and would force many small firms out of the province or out of business altogether,” CFIB president Dan Kelly said.

“This is clearly a contradiction coming from a new government that claims to be focused on creating jobs and growing the economy.”

Their opposition is similar to the fierce resistance by some U.S. businesses to the Obama government’s health-care plan, which aimed to help those without insurance but adds new responsibilities and costs for businesses. Some U.S. employers said they would be forced to hire part-time rather than full-time employees or to stop hiring altogether.

The CFIB says its economic analysis of the plan suggests it would cost the province 160,000 person-years of employment – a figure measuring the people who would have jobs for a single year – which would increase the province’s unemployment rate by 0.5 per cent.

It also conducted a survey that suggested that 86 per cent of small business owners oppose the plan, 69 per cent who said they would have to freeze or cut salaries because of it and half who said they would have to cut jobs.

The Retail Council of Canada was slightly more forgiving, recognizing the need to shore up retirement savings for millions of Canadians and the economic implications of a consumer base with healthy bank accounts in its statement.

"The level of retirees' incomes affects the overall economy and, of course, determines people's abilities to buy goods from our members,” said Diane J. Brisebois, president and CEO of the RCC.

“The challenge will be to balance the importance of long-term pension incomes against the nearer-term impact on growth, jobs and investment."

Brisebois said there is a limit to the payroll contributions retailers will be able to pay without suffering an economic impact on hiring and investment.

Members of the RCC have expressed concerns about being able to recoup the costs without raising prices or reducing staff.

Former finance minister Jim Flaherty concluded last year that it was not the time to hit employers with more payroll costs, because the economy is still on shaky ground. The “made in Ontario” plan was opposed by Ontario’s Progressive Conservatives during this spring’s election, while the NDP favoured an expansion of the existing CPP.

Most of the details of the centrepiece of the Liberal election platform have yet to be worked out or debated in Queen’s Park.

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