Canadian business’ call to inaction throws everyone else under the bus

It doesn’t require a lot of imagination to picture the discussions that took place amongst the business organizations that signed on to an advertisement that appeared in the Globe and Mail and other newspapers on June 1, 2016 in advance of the finance ministers’ meetings about CPP expansion.

The 14 signatories make for an interesting list. Seven provincial chambers of commerce. Six investment industry organizations. And one other organization, Generation Squeeze, a BC based organization focused on intergenerational equity issues.

The content is really revealing. The word “modest” features prominently. Modest, as in CPP expansion should be targeted to “modest” income individuals, because they’re the ones that have the retirement savings problem. “Modest” to make sure that the employer contributions would be as small as possible – the chambers must have liked that one. “Modest” to leave as much room in the system for the financial services industry to continue to rake in its exorbitant fees from a captive audience.

The problem that CPP expansion is to address is minimized. The ad states that “up to 25% of modest-income Canadians (say above 27,500) are not on track” for retirement income security. That characterization of the issue is way off the mark. The best study done to date on Canadians’ retirement readiness[1] concluded that “half of middle-earning Canadians born between 1945 and 1970 will experience a drop in living standards of at least 25 percent when they retire”, with the savings deficit problem deepening with each five-year birth cohort. This is not a “modest” problem deserving of a “modest” solution. This is a big problem.

The ad goes on to imply that the problem is the fault of these individual Canadians. They are in this position, the ad states, “because they do not save outside of the public system and/or do not have workplace plans”. Of course, it is hard to have a workplace based pension plan if the employer doesn’t offer one. And right now, only one in eight private sector workers is in a defined benefit or target benefit plan, and many of those plans are closed to new entrants. Perhaps the chambers of commerce weren’t keen to mention that.

And with mutual fund fees in Canada – the highest in the world – soaking up 40% or more of individual RRSP savings, it’s not hard to see why private savings for retirement in Canada would be lagging. Presumably, the six investment industry participants in this little exercise wouldn’t have been too keen to mention that either.

So here we are so far. It’s a small problem. It requires only a modest solution. And the fault lies not with the retirement income system but with individual Canadians.

Now we come to the serious horse trading. No need to do anything for people with incomes under the magic $27,500 income level. That lets low-wage employers off the hook – a feature that will make the chambers’ members happy. No need to contribute for low-wage workers,. And for high-income Canadians, there’s a “retirement plan” in the workplace – not a pension plan, but a savings plan – with the fee-income bonanza for the investment industry that would come with it.

And then there’s the coup-de-grace. Wait for it. Widows and orphans. Actually, just low-income elderly widows. I’m not making this up. Point number one in their advocacy platform is a proposal to end the claw-back of Guaranteed Income Supplement (GIS) benefits from surviving spouses (who are statistically more likely to be women). Rather than extending this concern to all all low-income recipients of GIS and CPP, which would be the  logical policy response,. It’s always helpful to have the odd elderly widow in your corner.

So it’s all very tidy. A small problem. A modest tightly targeted solution that is inexpensive for employers. And protection for the financial services industry’s cash cow – the savings of individual high-income earners.

But if you look at the proposal from the perspective of actual Canadians rather than of vested business interests, then it looks a whole lot different.

This is not a small problem, confined to a narrow income range. It is a big problem that affects the majority of the population. It is not a problem that is going to be solved by employers and the financial services industry. We have fifty years of experience to show that doesn’t work.

The size of the problem merits a big CPP, not tinkering around the edges.

The “solution” is also completely tone deaf when it comes to the realities of today’s labour market. Exempting the first $27,500 in income certainly helps employers of low-wage and insecurely-employed workers. But it means that part-time workers won’t get any benefit at all – even if they hold multiple part-time jobs. It implicitly assumes that workers earning under $27,500 a year will always earn under the equivalent to $27,500 a year, an assumption that we know is not valid. And that means that the typical worker in the modern labour market who will experience repeated ups and downs in income over a working lifetime will see his or her benefit from the change substantially reduced.

I suppose we should be grateful to the big 13 for clarifying exactly whose interests are advanced by calls for only “modest” and “targeted” CPP expansion – those of employers who have voted with their feet not to take any responsibility for their employees’ retirement income security; and those of the financial services industry, which has failed in delivering income security for anyone other than themselves.

The interests of Canadian employees – most of whom have been poorly served by our failed private-sector-based retirement income system – are best served by a big CPP expansion, with first dollar earnings coverage, coupled with a change in the Guaranteed Income Supplement to protect all CPP benefits – not just those of widows – from the current unfair and extremely regressive claw-back.

That won’t appear in a full-page ad directed to just 14 people. But it’s something the finance ministers should be thinking about before they do the bidding of business and throw millions of Canadians under the retirement income inadequacy bus.

[1] Michael Wolfson, “Projecting the Adequacy of Canadians’ Retirement Incomes”, Institute for Research on Public Policy, No. 17, April 2011.

Ontario Provincial Auditor Throws P3s in the Trash

In her 2014 report, Ontario’s Provincial Auditor has published a damning assessment of the cost effectiveness of Ontario’s large and growing P3 program for public infrastructure. Looking at 75 P3 projects, it found a cost disadvantage for P3 procurement compared with conventional government contracting of $8 billion. More important for P3 advocates, it found that the risk transfer to the P3 operator that supposedly offset higher P3 financing costs is either wildly overstated or non-existent.

Four headlines from the report give a flavour for the its conclusions on the incorporation of risk into its analysis.

“No empirical data supports the valuation of the costs of the risks”

“Some risks considered transferred to the private sector are not supported by project agreements”

“Two significant risks on the public-sector comparator side should not have been included”

The Auditor noted that an addition is made to the public sector alternative’s costs in Infrastructure Ontario’s comparative analysis to offset the benefit to the public sector as a non-taxable entity. In addition to the absurdity of effectively defining the tax not paid by governments as a cost of public procurement, this adjustment ignores the fact that while public project sponsors are not taxable, all of the entities that do the work — from designers to contractors — are themselves taxable.

The Auditor also blew the whistle on a new adjustment planned by Infrastructure Ontario that would award an arbitrary and unsupported  “innovation” bonus to the private side of the comparison, thereby tilting the comparison even further towards the P3 option.

None of this is new, of course.

As far back as 2004 the Association of Chartered Certified Accountants in the United Kingdom issued a massive report debunking the claim that risk was actually transferred in P3 projects and questioning the basis for the valuation of such supposed risk transfers.

Pam Edwards, Jean Shaoul, Anne Stafford and Lorna Arblaster, “Evaluating the operation of PFI in roads and hospitals”, Research Report No. 84, Association of Chartered Certified Accountants, Certified Accountants Educational Trust, 2004

That report actually went further, concluding not only that very little risk was actually transferred to private P3 operators but also that, in the process a significant new risk — the risk that the P3 operator would fail — was created.

I’ve explored this issue in several reports on Canadian P3s. One dealing with P3s for elementary and secondary schools in Alberta; one dealing with privatization of water treatment in Regina; and one dealing with the construction of a new hospital in North Bay Ontario.



and North Bay for the Ontario Health Coalition.

Canadians are paying an enormous price for the ideological predispositions of P3 advocates in provincial governments across Canada and in the Federal government. P3 projects cost more. A lot more. And to add insult to injury, much of the advocacy for this ridiculously expensive approach to financing public infrastructure is, you guessed it, publicly funded via Federal Government funding for P3 Canada.

So not only are we the victims of “don’t confuse me with facts” P3 advocacy, we’re paying for it.


Inequality — the good news and the bad news.

It seems we are no longer in denial about growing inequality in Canada, and about its potential consequences. In mid-November, a lot of attention was paid to new Statistics Canada data which show that inequality as measured by the income share of the top 1% of income earners stopped growing in Canada after the Great Recession, whereas it continued to grow in the United States. And while there was a fair bit of self-congratulation about that fact, it was also pointed out that inequality in Canada is still very close to the highest on record.

However, the state of debate on the issue in Canada continues to be one of good news / bad news.

The next week, the Broadbent Institute Gala featured former US Secretary of Labour and current inequality crusader  Robert Reich as its guest speaker. The good news was that Reich is a very compelling and entertaining speaker, and he has put a lot of effort into popularizing the issue of inequality in America. Check out the trailer.

The bad news is that, despite the compelling information and analysis, the prescriptions leave us hanging. Some are simply beside the point. Sure, investment in education and increasing productivity may enable higher living standards, but as Reich’s own data show, the problem in the past 35 years or so has not been a lack of productivity improvement, it has been the distribution of the benefits from productivity improvement. Others point in the right direction — the need to renew a progressive tax system and strengthen the trade union movement, for example — but fall short of even a hint as to how those things might materialize in the current environment. And perhaps most important, Reich’s prescriptions ignore the way that different levels of public service — collective consumption, if you will — play into differences in income and wealth inequality among nations.

And near the end of November, a report from the TD Bank, no less, warned of the social, political and economic consequences of allowing inequality to continue to grow unchecked.

You can find the report here:

Like Reich’s presentation, the TD report is full of compelling statistical analysis of the problem of growing inequality, and its potential consequences. And despite the case it makes, the TD report falls even further short of a credible and compelling response. Not surprisingly, the bank is cool to the idea of increasing income taxes on those with high incomes. And it fails even to mention an important part of Reich’s message — the link between growing inequality and the weakening of workers’ bargaining power as union representation in the private sector continues its absolute and relative decline.

But, astonishingly, the TD report advocates as a solution to inequality one of the key factors behind the growing gap in living standards between the middle and the top of Canadian income earners.  Rather than point to the importance of strong public services as contributors to reducing inequality — just look at a list of countries in reverse order of inequality compared with a list of countries by public services as a share of GDP to see the point — the TD report actually recommends more of the very income targeting of public services that has been a key driver of growing inequality in Canada in the past 25 years.

So the good news is, we’ve moved from denial, to dismissal to acknowledgement of the social, economic and political impact of inequality. The bad news is, we’re not much closer to a response that stands a chance of reversing the trend.