(This article ran in the National Post on Friday May 8, 2015)
On April 29th, the Ontario Retirement Pension Plan Act (ORPP) was
approved by the Ontario Legislature, which means soon enough Ontario workers will have 1.9 per cent less take home pay, and Ontario employers will need to pay 1.9 per cent more for each employee.
Like each of Kathleen Wynne’s schemes to take money out of the pockets of Ontario families, the ORPP is couched in the government-knows-best ideology of altruism. Kathleen Wynne thinks we don’t save enough for retirement, so she’s going to take care of our money for us.
The approaches of the Ontario and federal governments couldn’t be more different, and reflect diametrically opposed views of the role of government and faith in the spending choices of citizens. The federal plan to increase TFSA limits to $10,000 requires little government intervention and empowers citizens to take control of their own retirement futures.
In contrast, Wynne’s planned ORPP shows a fundamental belief that the more of their income Ontarians can keep, the more they will squander it. The irony is that the Ontario government doesn’t have a very good track record on managing their own finances. As of the end of 2013,
92 per cent of Ontario government-employee pension plans were underfunded. The 2015 Ontario budget revealed the government plans to spend
$11.4 billion on debt interest, and Ontario once again has the largest deficit in the country.
Unfortunately, like many of Wynne’s big government solutions, the ORPP is more likely to hurt Ontario families than it is to achieve its goal.
Once this new payroll tax is implemented by 2017, it will mean less money for families who are already being squeezed. Ontario families are faced with enormous hydro bills, stagnating income growth and by new tax burdens like a new
beer tax and the proposed cap-and-trade
carbon tax.
Families already struggling to make ends meet will have less money to pay off their debts, which is a financial priority that should come before saving for retirement. Young couples will have less take home pay to put towards building equity in a home, which for many families is one of their largest retirement assets.
As take home pay is reduced by another 1.9 per cent, many families will be forced to choose between maintaining an increasingly expensive standard of living in Ontario, and voluntary savings like RRSPs and TFSAs.
The ORPP will also create market distortions against small businesses, and in favour of large, unionized workplaces. Small businesses operate on slimmer margins, so adding a new 1.9 per cent pay roll tax, in addition to mandatory CPP and EI contributions is potentially destructive. Every employee will become more expensive to hire, which will lead to fewer new jobs, and possibly job cuts.
However, even those employers that offer defined-contribution plans or group RRSPs will likely be forced into contributing to the ORPP, even when their own voluntary plans are more generous. Private, employer-sponsored plans have, on average, higher rates of contribution than ORPP’s 1.9 per cent. Private defined-contribution plans have an average
6.5 per cent employer contribution, and group RRSPs have an average
3.9 per cent employer contribution. If forced to contribute to ORPP, employers will almost certainly claw back their voluntary plans or eliminate them entirely, which will unquestionably leave Ontarians worse off for their retirement.
Of course, some employers will likely be excluded from the ORPP: employers who already offer defined-benefit pension plans. Unsurprisingly, defined-benefit plans, which promise a guaranteed monthly payment until death, exist almost exclusively in the realm of government. Private employers are more likely to offer defined-contribution plans, which have a payment that is based on the size of the contribution and performance of the fund. The ORPP won’t take a penny away from the groups that the Premier relies on most heavily for votes.
Instead of implementing the ORPP, Wynne should reduce the overall tax burden on Ontarians, and allow them to retain more of their own income so they can save for their own retirement.
