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CPP expansion will pinch at first

By Andrew Rickard | September 20 2016 01:26PM

Photo: Freepik

The Department of Finance Canada says that expanding the Canada Pension Plan (CPP) will provide a more secure retirement for the middle-class. After an initial period in which employment is expected to decline slightly, a report argues that the new program will eventually create new jobs and add to the gross domestic product (GDP).

Finance Minister Bill Morneau spoke before the House of Commons Standing Committee on Finance yesterday and presented an analysis on the benefits and long-term impact of expanding the CPP system. In a media backgrounder released on the same day, the Department of Finance Canada said that an expanded CPP would increase Canada’s GDP by between 0.05% to 0.09% over the status quo "in the long term". Based on 2015 employment levels, this means an enhanced CPP has the potential to create between 6,000 and 11,000 jobs.

Temporary decline in employment 

The media backgrounder, however, did not mention that the departmental report also predicts that a richer CPP will result in a temporary decline in employment of between 0.04% to 0.07%.

"The reduction is very modest because the proposed increase in contributions constitutes such a small proportion of overall employee compensation and the phase-in period will give firms time to adjust to the new contribution rate regime," reads the report. "As with employment, GDP would continue to grow over the short term and it would be largely unaffected as a result of CPP enhancement. Compared to the status quo growth track of GDP, at its maximum impact the level of output is projected to be only between 0.03% and 0.05% lower. By way of comparison, the measures contained in Budget 2016 are projected to increase the level of GDP by 0.5% in 2016–17 and 1.0% in 2017–18."

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