By Dan Kelly
Years ago, 100 per cent job security, an early retirement, guaranteed retirement income and extended benefits for life were the reward for toiling away for taxpayers at more modest incomes. These days, the benefits of working for the public seem endless: up to 17 per cent more in salary than similar jobs in the private sector, topped up parental leave benefits, shorter work weeks, extra leave days, volunteer days and even pet bereavement days for some municipal workers.
All in, the public sector wage and benefit advantage balloons past 30 per cent – with a 42 per cent premium for our lucky federal public servants.
Nowhere is the gap between public and private sector compensation plainer than in pension arrangements. While over 80 per cent of entrepreneurs and employees in small business have no company retirement savings plan at all, the vast majority of those working for government have a defined benefit pension plan, where the taxpayer takes all of the risk.
Pension and other retiree benefits (such as dental care and extended health) are provided to government workers and their survivors for life while the rest of us have seen our retirement savings take major hits in recent years. On top of the gold-plated benefits, federal civil servants don’t even contribute half towards their own pensions – taxpayers pay nearly two-thirds of the costs directly. Clearly there is a lack of fairness in Canada’s retirement income schemes.
But quite beyond the issue of fairness is the other major concern with respect to public sector pensions: sustainability. Most public sector pension funds are significantly underfunded, with the main federal government pension fund short $208 billion. At the provincial and municipal level, there is no common system of measuring the degree to which taxpayers are on the hook for unfunded public sector pensions.
Small business is very concerned about these giant liabilities. We know that today’s deficits, including unfunded pension promises to government workers, are tomorrow’s taxes. So what are government’s doing about it?
Rather than looking at ways to address the challenge, the majority of Canadian governments are looking at increasing a mandatory payroll tax on all firms and employees. Seven out of 10 provincial governments, led by Ontario, are advocating an increase in Canada Pension Plan premiums – a play right out of the unions’ handbook. While these governments have said they want a “modest, phased-in” increase in CPP, rather than the doubling of benefits called for by the Canadian Labour Congress, this would still amount to an increase in CPP payroll taxes at a time when Employment Insurance premiums are also on the rise.
We are not advocating that earned pension benefits for retirees or government workers be taken away. It should be noted that countries and states that have left this issue unchecked are now in the position of gutting or even defaulting on pension promises to civil servants. Even if one believes it is appropriate for our civil servants to deserve a far better retirement than any other taxpayer, surely we can agree that giant unfunded liabilities serve no one.
Governments should ensure that all workers are paying at least 50 per cent of the cost of their pensions. Early retirement provisions should be phased-out, not only for cost-savings, but to ensure we don’t drain the civil service of talent (and then, of course, hire them back on contract after they retire and are drawing a pension). Governments should continue with the positive development of a voluntary Pooled Retirement Pension Plan (PRPP).
Governments must also lead by example and convert all MP/political pensions to defined contributions plans; fully disclose all public sector pension liabilities with the same methodology every year; and not increase CPP/QPP premiums, especially given that the self-employed already pay double the rate of employees. Governments and unions cannot continue to ignore the problems of unfunded public sector pensions and demographics, leaving taxpayers and future generations on the hook. Where’s the fairness in that?
Dan Kelly is senior vice president of legislative affairs for the Canadian Federation of Independent Business.