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The Tooth Fairy Doesn't Fund Ontario's Retirement Pension Plan

06/09/2014 01:39 EDT | Updated 06/16/2017 01:07 EDT
Lexington Herald-Leader via Getty Images
USA - 2013 300 dpi Chris Ware illustration of tooth fairy leaving big sack of cash for child who has lost a tooth. (Lexington Herald-Leader/MCT via Getty Images)

With the Ontario election only days away, one of the issues that has remained largely under the radar is the proposed Ontario Retirement Pension Plan (ORPP). While the idea surfaced when federal-provincial talks to expand the Canada Pension Plan (CPP) failed late last year, specifics were shared in the 2014 Ontario budget tabled just before the election call.

Throughout the campaign there have been important debates about job creation numbers, deficit elimination time frames and various scandals, but sadly, very little discussion of the government's proposal to create a new tax on jobs.

Worse, this idea has gone beyond Ontario's borders. PEI and Manitoba have been full participants in the planning process for the ORPP and BC, Alberta and Newfoundland and Labrador have been at the table too.

This should be of great concern to taxpayers in all five of these provinces. At a time when many firms are struggling to meet their payroll and 65 per cent of Canadians report they cannot afford to save more for their retirement, several governments are considering slapping a 3.8 per cent payroll tax on jobs. Not only that, but this new tax is focused exclusively on employers and employees in small and medium-sized firms, with full exemptions for those working in the public sector or big businesses with existing pension plans.

The proponents of the plan talk about the plan as if government or the tooth fairy will just generously give us more money when we retire. But make no mistake, the ORPP or the various plans to expand the CPP would simply force us to do with less of our own income today and then save it for 40 years before drawing the full benefits of the plan. If you are within 10 or 15 years of retiring, this plan would do very little for you.

There are many good voluntary retirement savings options available to Canadians (RRSPs, TFSAs), but the main reason people are not using them to their maximum is that they report they cannot afford to do so. Sadly, the three provinces that are most keen to implement this new payroll tax on SMEs are slow to implement Pooled Registered Pension Plans (PRPPs) -- a lower-cost, voluntary retirement savings option for employers and employees that is fully exempt from payroll taxes.

When my organization -- the Canadian Federation of Independent Business -- crunched the numbers, we found that implementing the ORPP in the three provinces mentioned would be a job and wage killer too. It would mean 171,000 lost person-years of employment in the short-term, and a permanent drop in wages of 0.7 per cent. For some, this would mean losing their jobs. For many others, it would mean a cut in hours, and a freeze (or drop) in wages, all while paying much more in pension premiums.

To put it bluntly, trying to force the average worker to save more for tomorrow would mean a significantly lower quality of life today. In fact, our poll found that nearly half of Canadians would have to cut spending on essentials like food or even rent if they were forced to contribute more. It simply wouldn't be realistic -- or affordable.

The biggest supporters of the ORPP, of course, are public sector unions, whose members would be exempt. They would not pay the higher ORPP premiums and their own gold-plated pensions, which are paid for by all of us, would not be impacted in the least. It is easy enough for them to support taking a bigger chunk of your hard-earned pay as it keeps our eyes off of massive unfunded liabilities in public sector pensions.

Ultimately, any government that advocates a bigger CPP or the new ORPP model is really saying that it believes citizens are just too stupid to save for their own retirement and that government needs to force them to do so. These governments are also saying that they believe local, small firms are just too cheap to cough up money for their employee pension plans.

We need to challenge these beliefs. Canadians tell us they are not saving more for their retirement because they don't have enough money at the end of the month. Small firms that don't offer pension plans to their employees report that it is because they too are struggling to meet their payroll, pay their taxes and all the other costs they face.

Governments should treat Canadians like the intelligent adults they are and work to provide them with better, cheaper, voluntary retirement savings options. Now that would be an election debate worth having.

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