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Jun 23, 2016

Proposed Changes to the Canada Pension Plan

On Monday (June 20), the provincial and federal governments announced they had agreed on changes to the Canada Pension Plan. Although details aren't available at this time, the increases are expected to be substantial. This expansion poses significant repercussions to Canadian businesses who are already struggling in our competitive global environment. The Canadian Chamber of Commerce membership anticipated this issue and passed a resolution last autumn urging the federal government to make enhancements voluntary without imposing new costs to employers. Additional correspondence was also sent to the Minister of Finance from the Canadian Chamber lobbying against the impacts the businesses will incur from this. The details that have been announced to the public include an additional 2% shared equally between employees and employers (on top of the current 9.9%) phased in over five years beginning in 2019. Under the current CPP, employers and employees each contribute 4.95% of a salaried person's earnings between $3,500 and $54,900, up to a yearly maximum of $2,356.20. Self-employed workers must pay both portions for a total of 9.9%. The new agreement would see the upper salary limit progressively increased to $82,700 and would aim at moving from a payout of 25% of earnings to a 33% payout. CPP rates will have to increase if the income replacement rises from one quarter to one third, but the government has so far not stated how much this will cost. Small business owners are opposed to this change. It will likely result in hesitation for job creation as it will become costlier to hire people and could delay important business investments. Simply put, it means a jump in payroll expenses for employers, which the Canadian Federation of Independent Business claimed as "a devastating move for Canadian workers and the economy in general." The Kelowna Chamber of Commerce policy committee chair, Jeff Robinson, commented "the Kelowna Chamber of Commerce shares the concerns of businesses across Canada that the recently announced plans to expand the Canada Pension Plan (CPP) could have severe negative repercussions. As all our members do, we support programs that help prepare Canadians for a dignified and comfortable retirement. However, the recently announced changes to the CPP will amount to a form a payroll tax, which many businesses will struggle to afford. The result will be to reduce job growth and delay investments that will bring future prosperity to our community. We share the view of the Canadian Chamber of Commerce that there are better ways our government can ensure that Canadians are financially prepared for retirement." There is, however, a positive that will arise from this agreement. This likely means that Ontario will eliminate their plans to launch the proposed Ontario Retirement Pension Plan, which would have been even more strenuous on businesses in that province. The Canadian Chamber of Commerce is asking the government to consult all Canadians on this significant change before proceeding. They believe there is a better way to encourage Canadians to save for retirement without bringing in an increase to payroll taxes that will hurt the economy. - 30 - For further details, please contact: Tom Dyas President Kelowna Chamber of Commerce P 250.861.8834 E tom@kelownachamber.org Works Cited Canadian Chamber of Commerce. Policy Alert: Proposed Changes to the Canada Pension Plan. CPP Expansion Will Increase Burden for Struggling Business Sector. Perrin Beatty, President and Chief Executive Officer, 20 June 2016. Web. 21 June 2016. About Kelowna Chamber of Commerce The Kelowna Chamber of Commerce acts as a single powerful voice for their 1300 members and their 25,000 plus employees to promote local business interests. The Chamber provides a cohesive business network for its members to expand their business contacts, value-added benefits, programs, and services aimed at improving the bottom line of Chamber members. Their mission is to foster a positive business environment by providing members with leadership, advocacy and services of value.