Vincent J. Curtis
30 Dec 2013
I never cease to be amazed at the naiveté of the news media,
especially at times when their favored causes are at stake. Were a touch of H.L. Mencken to overcome
them, their political favorites would be crushed. Then again, Mencken played no favorites.
At issue this time is an editorial of my hometown newspaper,
entitled “Pension reform is no longer a sleeper issue.” The editorial supports Ontario Premier
Kathleen Wynne’s contention that the Canada Pension Plan needs to be
enriched. The editorial observes that
CPP provides pensioners with $12,000 a year, and Old Age Supplement adds
another $4,000 to a pensioner’s income.
Apparently, this sum is not enough for old people to live at the level the
editors think they ought, and about half of Ontario’s pensioners have no
pension plan other than the CPP.
Why Kathleen Wynne would get out of the provincial lane and
start driving in the federal lane was never considered. Let me help. The reason is that an election is coming, and
Wynne’s government is awash in scandal, waste, and concerns about tax
increases. The polls at this stage show
a minority NDP government in the offing.
Wynne is trying to divert attention from her problems and rally opinion
behind her as she takes on those heartless Conservatives in Ottawa. She is also on the look-out for new sources of
revenue so that she can build mass transit infrastructure in the Greater
Toronto Area. Finally, my hometown
newspaper from time to time exhibits zombie-like behavior in respect of a
Toronto newspaper which has served as the unofficial organ of Wynne’s party for
over a century.
Let’s deal with the merit of the case immediately before
us. What Wynne is proposing is a massive
transfer of wealth from the young to the old.
Not the old poor, but the old in general. Rather than call for an enhancement of the
OAS or some other means-tested form of welfare so that only those in need
receive it, Wynne calls for even the old and rich to get a raise in their CPP. Being a pension plan, everyone who
contributed gets a pension, even if they are worth millions. Not just the old-poor would benefit from
Lynne’s forced contribution from the young.
For an increase in the CPP to be actuarially sound, an
increase in pension benefits cannot be given to the current crop of retirees, i.e.
those in currently in need. An increase
has to be phased in, and CPP payroll deductions have to begin long before a
planned increase is actually given. All
this requires that money be taken out of consumer consumption and put into
investments instead. Therein lies the
economic problem. If the Federal government were to increase payments to the current crop of retirees by say, $6,000, it would blow a massive hole in their budget and create a new and unfunded liability for future Federal governments. And blowing a hole in the Federal budget to aid in her provincial reelection effort is exactly what Wynne wants.
The CPP was never intended to enable the retiree to live the
lap of luxury. It was intended as a
forced savings plan that would provide a minimum level of income sufficient to
survive. It was intended to work with
company pensions and tax-favored savings schemes such as the Registered
Retirement Savings Plan. If a retiree
today has nothing but the CPP-OAS to live on, that is the consequence of a
lifetime of choices and habits to live for the moment and not to set aside anything
for retirement. The working young of today
are supposed to pay for the foolishness of the old, and to give money
gratuitously to the old who were not foolish.
The economic problem of dealing with poverty of the old is
that if the solution is to enrich the CPP, that means more in payroll
deductions. Less money would be
available to the young for consumer spending, and less would be available for
private investment. Ontario needs
investment in order to pull itself out of the economic doldrums in which it
lies from a decade of mismanagement by Wynne’s predecessor. A more vigorous economy in Ontario would
generate the tax money the Federal government needs to close its own budgetary
deficit.
Canada’s Finance Minister Jim Flaherty prefers innovative
ways of tax-favored saving schemes outside of government management. These methods (such as the Pooled Retirement
Pension Plan) put the pension money into private sector investments and
indirectly force the government to put those deferred taxes into retirement
plans, rather than spend the money now and recoup it later in taxes as happens with the CPP. Flaherty's method of keeping money and control out of
the hands of government is not acceptable to those, like Wynne, who believe in BIG GOVERNMENT.
Wynne would like to build mass transit in the GTA, and she
can’t find the money in Ontario’s $130 billion budget. She has floated the idea of “green bonds,” but these only are a means of finding capital
now. And Ontario would be on the hook
alone for it later.
If the CPP were enhanced, that would provide the Ontario
government with a pool of capital from which it can borrow on the promise that
it will be paid back by taxes later. And
Ottawa would be on the hook for it.
And the beauty of this all is that the political bill for
all of this will be paid by Wynne’s successor.
Just as McGuinty stuck Lynne with the gas plant cancellation scandal, so
she will still her successor with a crippled Ontario budget and economy if she
succeeds in her spending plans.
Young people of today should not be taken in by Kathleen
Wynne’s call for an enhanced CPP. They
are being asked to give money to every old person for the foolishness of some
of them. Charity is not the wellspring
of Wynne’s call, but serious political calculation. She wants the Federal government to blow a hole in their budget to aid in her reelection effort.
But there is nothing the media love more than the smell of
fresh red herring.
-30-
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