FINA Committee Meeting

STANDING COMMITTEE ON FINANCE

COMITÉ PERMANENT DES FINANCES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 28, 1997

• 1838

[English]

The Chairman (Mr. Maurizio Bevilacqua (Vaughan—King—Aurora, Lib.)): Order.

I would like to start by welcoming the Minister of Finance and the Minister of Human Resources Development to our committee, and their respective officials.

Tonight we are meeting here to begin our study of Bill C-2, an act to establish the Canada Pension Plan Investment Board and to amend the Canada Pension Plan and the Old Age Security Act and to make consequential amendments to other acts.

Ministers, you have approximately 10 to 15 minutes to make your statements, or 20 minutes if you need them. Then we'll move to a question and answer session. Welcome.

Hon. Paul Martin (Minister of Finance, Lib.): Thank you very much, Mr. Chairman. This is the second time in a relatively short period of time that I have been gathered here with many of you. Perhaps I can congratulate you, Mr. Chairman, and in fact all the members of the committee from all parties, on the consultations that you've been engaging in on other subjects.

I would also like to say that, unlike the last time, what a pleasure it is for me to be here with my colleague the Minister of Human Resources Development.

[Translation]

Mr. Chairman, I welcome this opportunity to speak to the members of the Finance Committee about Bill C-2.

Changes will be made to the Canada Pension Plan.

[English]

The establishment of the Canada Pension Plan some 30 years ago was one of the most important social policy initiatives ever undertaken in this country. For more than three decades it has been a key part of the retirement plans of every working Canadian. The plan has also been there to meet the needs of some of the most vulnerable in our society—the disabled, the widowed, the orphan.

That being said, the Canada Pension Plan, which has done so much for so many, is under growing pressure, pressure that requires action now before it is too late.

• 1840

The joint federal-provincial agreement reached on the CPP last February paves the way for that action. The federal government and eight provinces were determined not to shirk our responsibility to act now, while the problems facing the CPP are still manageable.

The changes we are proposing deal fairly and squarely with the problems facing the CPP. Let me explain.

As we all know, Canada's population is aging rapidly. Today there are around 3.7 million Canadian seniors. But the baby boom will produce an explosion in the number of seniors starting around the year 2011, and by the year 2030 there will be some 8.8 million Canadian seniors. Because the post-war baby boom was followed by the baby bust, these seniors will represent a much larger share of the country's population than ever before in our country.

In 1966, when the CPP was put in place, there were about eight working-age Canadians for every senior. Today, in 1997, there are about five working-age people for every senior, and in the year 2030 there will be only three working-age Canadians for each senior.

[Translation]

Not only is our population aging, Canadians are living longer. Thanks to higher living standards and medical advances, life expectancy has leapt forward in just decades.

[English]

This means that Canadians will be collecting pensions for an average of 20 years, compared to 15 years when the CPP was established. As a result of these new realities, the CPP is no longer sustainable as it is now structured. It cannot meet the challenges that lie ahead.

Action needs to be taken now or we will be placing a punishing burden, an unjust burden, on millions of working Canadians tomorrow—a burden that justifiably they could be both unwilling and unable to bear.

To illustrate, the chief actuary of the CPP has shown that if we do nothing, Canada Pension Plan contribution rates will have to increase from under 6% now to over 14% to cover escalating costs. This would be an increase of over 140% for future generations.

This legislation reflects a consensus for change and a shared commitment to ensure that the Canada Pension Plan is there and that it is both sustainable and affordable for today's working Canadians and for our children.

[Translation]

I want to emphasize to our committee members that the proposed changes were not developed by the federal and provincial governments in isolation. They reflect the results of wide-ranging public consultations that began during our last term in office. We have always believed in, and encouraged, a full public debate on this very important issue.

That is why we and the provinces held joint hearings on the CPP in every province and territory across this country. These consultations heard from professionals in the actuarial and insurance professions, representatives of social planning organizations, seniors, youth, persons with disabilities, and many, many other Canadians who have a stake in the future of the CPP.

[English]

In short, we have consulted extensively and thoroughly with Canadians from coast to coast on the future of the Canada Pension Plan, the challenges facing it, and on the need for change. The clearest message that we heard is that Canadians want, Canadians need and Canadians count on the Canada Pension Plan. They told us that they want the CPP fixed now and they want it fixed right—not left to drip, not privatized and not scrapped, as some have suggested. They told us to fix it in a way that does not pass on an unbearable cost burden to future younger generations.

A full report of the consultations was made public last year, and the consensus among Canadians was unequivocal. They told us to preserve the CPP by strengthening its financing, by improving its investment practices and by moderating the growing costs of benefits.

• 1845

To strengthen the plan's financing, the provinces and ourselves are proposing to accelerate contribution rate increases over the next six years to 9.9% of contributory earnings. This is paid half by employees, half by employers. It is important to note that this 9.9% rate should be sufficient to sustain the CPP with no further rate increases.

Now, let us be very clear, 9.9% is a real cost for working Canadians and their employers. But we simply must begin paying our way as soon as possible. Let us not forget that under the existing legislation CPP contributions are already slated to go well beyond 9.9%. In fact, they were scheduled to reach 10.1% in the year 2016. The 9.9% steady-state rate will cover an individual's own benefits plus a uniform fair share of the burden of the plan's unfunded liability which has been built up over the years because we have not been paying our way. This is the fairest way to honour our outstanding obligations. The costs of the pensions will be spread evenly and fairly across generations.

With this fuller funding, the CPP cash in hand will grow substantially. A new investment policy therefore is being proposed to improve the way CPP funds are invested and to get the best possible return for each and every Canadian who contributes to the plan. Every dollar earned from investments is one dollar less that must be paid by working Canadians and their employers. Canadians deserve to earn the best possible rate of return and at the same time to know their benefits are completely secure.

Bill C-2 proposes that CPP funds be invested prudently in a diversified portfolio of securities by professionals. Great care will be taken to ensure investment decisions are insulated from any form of political interference whatsoever. The investment board will operate truly at arm's length from governments.

We are coupling these major changes in financing and investment policy with some modest changes to benefits. During the cross-Canada consultations, Canadians told us to go easy on benefits. Canadians recognize the need for adjustments, but most do not want to see any dramatic changes.

[Translation]

To illustrate the modest scale of changes to benefits, the Chief Actuary's report shows that 75 percent of the effort needed to keep contribution rates to affordable levels will be achieved through the new financing and investment policies, and only 25 percent through changes to benefits and their administration.

[English]

Finally, Canadians told us to treat them like members of a pension plan, and we are proposing, the provinces and the federal government, to do exactly that. Stewardship of the Canada Pension Plan will be improved and public accountability will be strengthened.

The federal-provincial review of the CPP on which Bill C-2 is based had one overriding goal: to make sure the CPP will not buckle under the weight of demands that will be placed on it when baby boomers retire. The next federal-provincial review will explore some ideas designed to keep the structure of the CPP in tune with changing times.

For example, we will look at survivor benefits to make sure they reflect changing realities and the needs of today's families. We will consider mandatory splitting of pension credits between spouses during marriage. We will examine the whole transition from work to retirement, including the possibility of providing partial CPP pensions to Canadians wanting to make a gradual transition to retirement. We will look at the question of people receiving retirement income and employment insurance benefits at the same time. But I wish to emphasize that no changes will be considered that would increase the steady-state rate of 9.9%, because we are determined that the Canada Pension Plan will not be put at risk again.

What I would like to do now is to turn for one minute to two minority views we heard during the consultations. The first claims that the CPP is not in danger and that there's no need to make fundamental changes. It claims that fears are based only on myths and misconceptions. The second view is that the CPP is so fundamentally flawed that it should be replaced with a system of mandatory RRSPs. Mr. Chairman, you will allow me, I hope, to briefly address both of these views.

• 1850

Those who claim that there is nothing wrong with the Canada Pension Plan must live on another planet. I meet with finance ministers from around the world, and I can tell you that the challenge of keeping public pension systems afloat in countries with aging populations is a deeply troubling one.

The easiest thing for a government to do is to stick its head in the sand and pretend that there is no problem. In fact, that's what governments in Canada have done for the past decade. They ignored the warning signs for the CPP, preferring to leave the problem for others to deal with.

The fairest thing to do, the only responsible thing to do is to make sure that people like me and the baby boomers in this room start paying more now, while we are still working, so that our children are not stuck with a truly punishing bill.

The other end of the spectrum are those who would suggest that the CPP is beyond repair and that better pensions can be provided through mandatory RRSPs at a better cost than the Canada Pension Plan.

First of all, let me be clear that RRSPs are an essential and very important part of Canada's retirement income system. Canadians planning for their retirement depend on both the Canada Pension Plan and income saved in their RRSPs. As I said in my economic and fiscal update, the tax assistance provided to Canadians saving for their retirement through RRSPs and RPPs will be improved as quickly as circumstances permit.

However, Canadians from coast to coast have made it abundantly clear, through public consultations on the CPP, that they do not want all of their basic retirement pension to be dependent on a fluctuating stock market. I would simply ask you to think of the insecurity, the volatility that we saw just yesterday and understand the consequences that that could lead to.

Canadians want the security that's provided by the CPP as a public plan with the government standing behind it. Canadians want the Canada Pension Plan fixed. They don't want it scrapped.

Apart from the security that the CPP provides, is it really true that mandatory RRSPs can provide equivalent or better benefits at lower costs than the CPP? I asked my officials this very question, and I would like to share their analysis with you. You will find it in a memo that I believe will be circulated to each member of this committee.

Let me tell you what the bottom line is. First, with the new investment policy, the Canada Pension Plan will earn as good returns as anyone investing privately could expect to earn. However, the Canadian government stands behind the defined benefit. Second, the administrative costs of the CPP and the costs of investing the pool of CPP funds can be expected to be considerably lower than the costs associated with millions of individual plans. Third, the CPP protects families when a breadwinner becomes disabled or dies and it protects the pensions of parents who take time out of the workforce to care for young children. RRSPs alone cannot do that.

So how can critics of the CPP maintain that mandatory retirement savings plans provide better value? I can only conclude that they are ignoring the very real cost of honouring outstanding commitments under the CPP, commitments not only to today's seniors but to those who have been paying into the CPP for years and who are counting on a pension when it is their turn to retire.

Are advocates of mandatory RRSPs going to renege on these outstanding commitments? If not, it is incumbent upon them to explain very clearly who is going to pay for the almost $600 billion at issue here. Which taxes will they raise and by how much?

Fuzzy talk about recognition bonds is simply not good enough, because no sleight of hand is going to take care of that $600 billion.

[Translation]

In conclusion, as all committee members can appreciate, the CPP is of direct personal importance to all Canadians. They want to be able to count on it being there when they need it. It's a question of personal security.

• 1855

[English]

It is our responsibility to make sure that now and in the years ahead the Canada Pension Plan continues to provide Canadians with a solid and secure base on which to plan their retirement, and at a cost they can afford. Bill C-2 reflects a landmark agreement with the provinces, one that faces up to and meets this responsibility squarely. It deserves our support.

On that, Mr. Chairman, I would turn the microphone over to my colleague, the Minister of Human Resources Development.

The Chairman: Mr. Minister.

[Translation]

Hon. Pierre S. Pettigrew (Minister of Human Resources Development, Lib.): Mr. Chairman, colleagues, thank you very much for your invitation to attend this meeting of the prestigious Standing Committee on Finance. This is my first visit here and I am quite honoured that it has occurred in the presence of my honoured colleague, the Minister of Finance himself.

[English]

I want to thank you for this opportunity to appear before you today.

As you know, Ministers of Human Resources Development and Ministers of Finance do not bring the same perspective to every issue. However, when it comes to maintaining the Canada Pension Plan, we are of similar minds. By acting to preserve and sustain the Canada Pension Plan now, by taking careful gradual steps today, we will ensure the Canada Pension Plan will be there for future generations. So I am here today with my colleague the Minister of Finance to present what we feel is the right package to ensure the sustainability and fairness of the Canada Pension Plan.

The changes contained in this legislation are vital and timely. The CPP is a fundamental element in the Canadian retirement income system. Moreover, by continuing to address the needs of disabled contributors and the survivors of deceased contributors we are achieving broader social objectives of income replacement.

To appreciate the significance of the Canada Pension Plan fully, we need to consider its role within the broader context of the Canadian social safety net. The CPP is one of the pillars of our public pension system, and the public pension system is itself a pillar of the network of social programs and supports that have evolved in Canada over the years.

Canadians have built a society that encourages and rewards individual responsibility and initiative. At the same time Canadians accept a shared social responsibility for their fellow citizens. They have a sense and a duty of solidarity.

[Translation]

Canada's social safety net is a complex mix of programs available to Canadians of all ages. These programs take our shared values and turn them into action. They demonstrate the willingness of governments to work together. And they acknowledge the importance that social investments play in building a strong economy.

For instance, we have developed programs to address the special needs of Canadian children and their families. The recently announced National Child Benefit constitutes a major element in Canada's attack on child poverty. And it shows how governments of all political stripes, from across the country, can unite around a national priority.

These same principles of co-operation and partnership apply to the proposed changes to the Canada Pension Plan before you today. They demonstrate how governments have worked together to secure a key social program for future generations.

[English]

Please allow me to remind you, as you begin to study this legislation, why the Canada Pension Plan was created 30 years ago. Many seniors who had lived through the Depression of the 1930s and fought to defend our freedoms in the second world war had not been able to set aside the necessary savings for their retirement. Private insurance plans were often expensive and often unavailable to people with pre-existing medical conditions. So seniors at the time had good reason to fear a major drop in income upon retirement. Therefore the Canada Pension Plan was created to provide security and retirement income for workers and their families.

• 1900

Canadians have come to count on the CPP and the security it provides. The CPP has proved worthy of their trust. Some 2.4 million Canadians currently collect Canada Pension Plan retirement pensions, while another 825,000 receive the Quebec Pension Plan retirement pensions. Some 790,000 collect Canada Pension Plan survivor benefits. Another 277,000 collect benefits under the Quebec Pension Plan survivor benefit programs. Some 340,000 disabled Canadians receive benefits from the CPP and the Quebec Pension Plan combined.

Canada Pension Plan benefits paid to Canadians in 1997-98 should total about $17.5 billion, while Quebec Pension Plan benefits will be $5.4 billion. Clearly this is an accomplishment of which all Canadians can be proud. It is an accomplishment that this Government does not take for granted.

In recent years a number of social, economic and demographic trends have emerged that challenge the sustainability of the plan. Canada's population is aging rapidly. Canadians are living longer. Birth rates are lower than they were when the Canada Pension Plan was created, which means that the ratio of workers to beneficiaries is dropping.

Economic growth over recent years has not been as robust as it was in the 1960s and the early 1970s. At the same time, real rates of return on investment are now higher. It makes sense to use additional investment income to slow the growth in contribution rate increases.

Therefore we all recognize that some changes need to be made to the Canada Pension Plan. We must ensure that it can continue to live up to its original objectives.

[Translation]

To do this, the Government of Canada has worked with the provinces and territories. And we have worked with Canadians.

Through extensive consultations across the country, Canadians made their views clear. They want us to fix the Canada Pension Plan, not eliminate it.

The changes contained in this legislation touch on the main elements of the Plan but in a way that retains all of its essential elements.

In fact as you will see from your examination of the bill, much remains the same. For instance, no one over 65 as of December 31, 1997 is affected by the proposed changes to future retirement pensions.

No Canada Pension Plan retirement pensions, disability benefits, survivor benefits or combined benefits in pay as of December 31, 1997 are affected. The age of retirement for early, normal or late pension benefits remains unchanged. All benefits under the Canada Pension Plan, except the death benefit, will remain fully indexed to inflation.

Federal and provincial ministers of Finance have settled on two essential features for a new financing strategy. They have agreed to an investment approach that better serves the future needs of the Plan. And they have agreed to a contribution rate that accelerates contributions over the short term but ensures that the rate will be held at a steady state in the long term.

[English]

From my perspective as Minister of Human Resources Development, the significance of these changes rests in the implications for benefits. A healthier fund means that the benefits that millions of Canadians rely on will be there for them in the future. While there is a cost involved in fixing the Canada Pension Plan, we believe that this is a reasonable and balanced package of measures that will restore Canadians' confidence in the Canada Pension Plan.

The changes proposed in this legislation will ensure that Canadians will be able to count on this important part of Canada's pension system now and in the future. Retired Canada Pension Plan contributors will continue to receive their current benefits. Young Canadians will be spared the larger rate increases in the future which would have faced them had we not acted. Disabled contributors will continue to receive benefits and will be able to take part in vocational rehabilitation programs aimed at helping them get back to work. Spouses and children of deceased contributors will receive the benefits they need to help support themselves and continue their education.

• 1905

The CPP testifies to the shared values which lie at the heart of this country: compassion, mutual responsibility, fairness, and concern for the most vulnerable of our citizens. It represents a basic building block which all workers can use as a starting point as they work toward planning a secure retirement.

In conclusion, I want to thank you for this opportunity to appear before you today. I look forward to your comments and questions.

The Chairman: Thank you very much, Ministers.

Now we'll move to the question-and-answer session. Each opposition party will be allocated seven minutes. That includes the question and the answer. I don't like to cut people off, so please stay within your time slot. Mr. Manning.

Mr. Preston Manning (Calgary Southwest, Ref.): I would like to thank you, Mr. Chairman, for the chance to be with you again, and the ministers for their presentation.

I might begin by saying that some time relatively soon my colleagues and I would like the opportunity to present an approach to pension reform which is an alternative to that presented by the ministers. The alternative we would like the committee to consider rests on four pillars rather than three: the seniors' benefit, which is targeted to lower-income people; a smaller, more focused CPP, not a scrapped CPP; an expanded RRSP program; and tax relief to seniors. We will argue that our four-pillar plan delivers more retirement income per dollar invested than this three-pillar plan the government is putting forward.

I would suggest that the ministers' partial description of an alternative in the last page of this paper is completely in error if it purports to describe the Reform position. Frankly, I think the last two pages of this paper are a discredit to the finance department and an insult to the intelligence of this committee, and you have a right to demand something better.

For questions, I would like to lay four big questions on the table. These are primarily for the Minister of Finance, but I guess they are for both ministers. I would like to get them out there. These are questions this committee will wrestle with for the next two months, but the minister can respond at least to some degree at this stage.

The first one is the fairness question. We note that the chief actuary has calculated that a person born in the year 1911 receives a real annual return on his CPP contributions of 22.5%. Someone born in 1988 will receive a real return of 1.9%. That declines to 1.8% for every child born after that.

So our first question is the intergenerational fairness question. How can the minister defend that kind of intergenerational unfairness? No wonder young people look at this reformed CPP and the only thing they say is, how do I get out of it?

The second question is the rate-of-return question. Of course this is the investment question. The minister promised that CPP will earn a real rate of return of 3.8% per year, which is a bad rate of return. The chief actuary's September report says the best you can get from any government plan—I think he's particularly looking at the Quebec plan—has been a return of 4%, but he adds that the average real rate of return over the same period for private plans is 5%. When compounded over a period of 20 or 30 years, for a capital pool of $100 billion or more, the difference between a 4% return and a 5% return represents the potential loss of as much as $80 billion or $90 billion in investment income. So my second question is the rate-of-return question, namely, how can the minister justify the low rate of return the plan delivers to contributors?

The third question is the jobs question. To finance the fixing of CPP as the minister has proposed it, as we know, requires at least a 73% increase in payroll taxes. We think in the end it's going to be more, because every finance minister who has promised “this much will fix it” has been wrong in the past. The department itself says payroll taxes kill jobs. So our third question to the minister—and we've asked him this in the House, but we'll ask him again—is that this committee deserves to get the computer runs from the finance department showing what the job implications are of the 73% tax hike, and I think the committee should insist that it get the computer runs on the job implications of what is proposed.

• 1910

The fourth question is the alternatives question. The minister is trying essentially to perpetuate, with some minor modifications, a 30-year-old approach to the operation of government pension plans. The minister knows that there are newer ideas out there. In Canada, the C.D. Howe Institute's proposals on new ideas for pension reform are more enlightened than anything we've heard from the finance department, and C.D. Howe was a good old Liberal. He'd be turning over in his grave if he saw the minister's proposal. There are new proposals in the U.S., in Britain, in Chile, in Singapore.

My last question is, what alternatives has the minister examined? Surely he can't just have examined what's on the last page of his presentation. Would he present to this committee the alternatives that are being considered in other countries so that we would have the benefit of examining their relevance to Canada?

Those are my four big questions: the fairness question, the rate-of-return question, the job question and the alternatives question. If this committee can get the answers to those, we're going to end up with a better pension plan and a better one than the ministers presented.

The Chairman: Thank you, Mr. Manning.

Ministers.

Mr. Paul Martin: I think I can deal with these questions really quite succinctly.

In terms of the fairness question, number one, that is precisely the reason why we are acting. Because of the original design of the plan and because in fact at the time it was set up there were eight workers for every pensioner and we're on our way now through five to three, we had to act if in fact we were going to deal with this question of intergenerational unfairness.

If what the hon. member is suggesting is that in fact we cut the pensions of existing seniors, which is implicit in his statement, we're not prepared to do that.

Mr. Preston Manning: No, that's not right.

Mr. Paul Martin: These are people who are not in a position to make the adjustments in their lifestyles, but we certainly can in terms of my generation.

Precisely what we're doing is we're not going to make the mistake the previous governments made. We're going to say that my generation should pay their fair share so that in fact our children and our grandchildren do no have to pay more. So that's precisely why we're acting, because of the question of intergenerational fairness.

As far as the rate of return is concerned, the rate of 3.8% may well be a prudent return. It is going to be invested by professionals in the market. If they are able to earn a higher return, which certainly one would hope they could do—they can certainly earn as high a return as anybody else—then in fact the returns will be higher and obviously the plan will benefit, through either better benefits or in fact decreased premiums. But what is important is that we don't look at this through rose-coloured glasses. Governments have made those mistakes in the past, and I think it was far better to be prudent, although I have been accused sometimes of being a bit too prudent.

Mr. Jean J. Charest (Sherbrooke, PC): Conservative.

Mr. Paul Martin: No. God, never conservative.

On the third point, in terms of the increase in the premiums, first of all, I really think the leader of the Reform Party ought to be fair in his description. This money does not come into the government's coffers; it goes into a separate retirement fund, which will be invested separately. These are not taxes. This is an investment in someone's retirement.

The fact is that part of those premiums is going to pay for past liabilities.

What the Reform Party has never done is explain what it would do with the $600-billion liability, leading one to two conclusions: either the 13% to 15% rate, which we have said their plan would cost, is an accurate one, or they will renege on the $600-billion liability. Reform really has a responsibility to essentially state what they would do.

On the last thing, the alternatives, yes, we looked at a number of alternatives. We looked at the Chilean example; we looked at some of the things that were done, some of the proposals put on the table by John Major, in the previous Conservative government. We looked at a wide range of alternatives.

I've got to say, Mr. Chairman, on citing the C.D. Howe Institute, all I would do is suggest to the leader of the Reform Party that he ought to take a look at an article written for the British North American Committee, of which C.D. Howe is part, written by William Robson, in which he deals with the problems of Canada, the United States and the United Kingdom. Essentially, what that says is that the process in which we are involved and the ideas that we are putting forth are in fact the best solution. So, unfortunately, he's hoist somewhat on his own petard.

The last thing I would say is that if our description of the Reform plan is inadequate, unfinished or incompetent, it's because that's all they have given us. After two years of debate across the country, when all the provinces have come to the table, all the provinces have set their ideas out, the federal government has set its ideas out, all we've got are sound bites in the House of Commons. We have not got a decent plan. For the Reform Party leader to say that he will put one forth at some eventual date.... We've been hearing that for two years.

• 1915

The Chairman: Mr. Crête.

[Translation]

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ): First I should say that it is good to see the ministers of Finance and Human Resources Development together. This would be a good model to use to determine the amount of the surplus in the Employment Insurance Fund. It would be very interesting to meet with you on that subject.

I believe this is a good bill. I believe there has been enough consultation. We have benefited from the Quebec experience, that of the Caisse de dépôt et placement among others, and from the recommendations of the Auditor General, who said that the Quebec program was less laxist than the Canada Pension Plan has been in the past, particularly as regards disability.

However, I believe it could be improved. You say a great deal about the programs of the Canadian social safety net. We talk a great deal about intergenerational equity and reducing the pressure on employment, an argument that was presented by the Reform Party.

I would like to ask the Minister whether he would be prepared to support an amendment which the Bloc Québécois is preparing to table, an amendment whereby the increase in the CPP contribution rate planned by the government to ensure the Plan can continue would be conditional on a reduction in the employment insurance premium rate. That reduction could easily reach 50 cents per $100 of insurable earnings for employees and 70 cents per $100 of wages for employers.

A major problem has arisen in recent years. The Reform Party leader's argument could be countered by this recommendation because it would take a significant amount of pressure off employment. So would you be prepared to consider such an amendment for a reduction of the magnitude I just mentioned, which would relieve a significant amount of pressure for the people who pay? This would give young people a good plan in a number of years, but people who are between 35 and 55 today will pay, and they will pay for others as well. Isn't there any way to give them a little breathing space, particularly since we now have an impressive surplus in the fund?

Mr. Pierre S. Pettigrew: I'll answer the first part of your question and my colleague from Finance will answer the second part.

You noted that our reform has drawn on a number of ideas of the Quebec government on certain points, particularly investment policy.

There definitely is a rich and progressive social tradition in Quebec which has very often been very useful to the country. I would even say that is why, in addressing the Laval Chamber of Commerce last Friday, I invited the Quebec government to join the Council of Ministers, where we are doing a tremendous job with the governments from across the country so that the rest of the federation can benefit from Quebec's rich tradition, not only as regards pensions, but also as regards the National Child Benefit and in other areas.

Mr. Paul Crête: I would like to add, Mr. Minister, that, when we are left to our own devices, we do good things.

Mr. Pierre S. Pettigrew: Fortunately, Quebec is already a very free society which enjoys a very high degree of sovereignty within the Canadian system, with which you are also familiar.

All that to say that I am sensitive to the fact that you realize we can draw on examples that are good.

Mr. Paul Martin: As regards the question linking employment insurance premiums and Canada Pension Plan contributions, I can tell you that, since we have taken power, the reductions in employment insurance premiums have covered the increases provided for here, at least for the first two years. So we're part of the way there already.

Second, since this is a joint federal-provincial program and there are also premiums based on provincial payrolls, the provinces could also review their payroll taxes.

Third, if we want to continue putting our fiscal house in order, we may consider more widespread tax cuts which could offset the increase in these premiums.

• 1920

Mr. Paul Crête: Mr. Minister, some say this situation is going to choke off Canadians' purchasing power. So I'll repeat my question. Wouldn't my suggestion be a good answer to give those who advance this argument, and wouldn't it help inject money into the economy right away? We know that the Employment Insurance Fund is a very efficient way to collect money, but it can also be a very effective way to return money to the economy and to people who earn $39,000 or less. All those who earn less than $39,000 would receive money. This would be an egalitarian measure which would be consistent with the spirit of the amendments to the Pension Plan.

Mr. Paul Martin: We definitely want to proceed as soon as possible with a tax cut. And we are definitely going to reduce employment insurance premiums as soon as possible. But you must realize the amount of leeway we have. Our financial situation is much healthier today than it was four years ago, but we still have to be fairly careful. Moreover, when we saw what happened yesterday and, in part, today, I believe we are right to be careful.

Where should the cuts begin? I think that's part of the discussion. It's also part of the consultations that have already begun with the Standing Committee on Finance.

[English]

The Chairman: Next, the leader of the New Democratic Party, Ms. McDonough.

Ms. Alexa McDonough (Halifax, NDP): Thank you very much, Mr. Chairman.

I note the Minister of Finance in his opening comments characterized the views of Canadians consulted about what to do with Canada Pension Plan as falling into two categories, those who said it's too flawed to be fixed, don't bother, and those who said we don't need to fix it, do nothing. I want to make it clear I associate with a third view, which I think in fact was the majority view of Canadians: fix it, but fix it fairly.

I would like first of all to ask the minister about the commitment Canada made in 1995 at Beijing to subject all government initiatives and program changes to specific, detailed, comprehensive gender analysis. I know the minister is well aware tha in the changes to CPP that are now before Parliament there is a reduction in survivors' benefits, which will primarily impact on women. It tightens eligibility for benefits to the disabled, and that will also impact disproportionally on women, because women tend to be the principal caregivers. It imposes a premium formula that is most punishing to the low-income; and again, women are disproportionate as a share of the low-income earner. Women are the largest proportion of the seniors population and of course are forced to depend more heavily on public pensions than men because of their lower lifetime earnings and also because of their more limited access to private pensions.

So my question to the minister is what specific gender impact analysis has in fact been carried out, and will the minister tonight commit to tabling with this committee any such studies that have been carried out?

Mr. Paul Martin: First of all, there is no doubt that women depend more on the public pension system than do men, often unfortunately because throughout their lives their incomes were lower. For that reason protecting the Canada Pension Plan, not scrapping it, is very important to Canadians and primarily to women.

A gender analysis was prepared, and I would be delighted to table it with this committee and make a copy available to the Leader of the NDP.

The Chairman: Mr. Nystrom.

Mr. Lorne Nystrom (Qu'Appelle, NDP): Mr. Martin, again on progressivity, we believe the plan has to be fixed. I think in the negotiations you saw both B.C. and Saskatchewan are concerned that some of the changes were regressive rather than progressive. You have said you are prudent; you denied you are conservative. Maybe you are a “regressive conservative”. I say that out of respect to Jean Charest.

I think what you have here are some regressive changes. For example, the year's basic minimum, the year's basic exemption, has been frozen at $3,500. That will hurt the low-income people. There has not been an immediate increase in the year's maximum pensionable earnings, which again could take more money from higher-income people, Mr. Minister, and perhaps make the rate increase a bit lower for some others.

• 1925

The self-employed are hit with a double whammy. Again, I think that's very tough for a lot of the self-employed, who are making less than $20,000 a year. Certainly an overwhelming majority are under $30,000 a year. They have to pay both the employer's and the employee's contribution. Therefore their contribution is going to go up from about $1,700 or $1,800 a year to over $3,000. That's very difficult in terms of making this more progressive.

Finally, the survivors' benefits will be less and the disability benefits more difficult to attain.

These are the concerns we have about making this more progressive. I'm not talking here, Mr. Minister, about the CPP plan being a plan to redistribute income massively in this country. I'm saying any changes to the plan being made by the federal government and the provinces should be more progressive. Certainly there is a large community out there which feels some of these changes you are making, with the provinces, with the exceptions of Saskatchewan and B.C., consenting, are more regressive than they should be.

Mr. Paul Martin: Mr. Nystrom, the fact of the matter is that all the provinces understood that because previous governments—and this is not a partisan statement; I use the word “governments”; I could make a partisan statement, but I won't—

Mr. Lorne Nystrom: But you never would.

Mr. Paul Martin: —no, I never would—simply did not come to grips with the Canada Pension Plan, and it was absolutely crucial in order that Canadians have confidence in it that we deal with the issue of financial sustainability.

There was give-and-take around the table. Compromises were made by the provinces. Some argued one way, some other ways. But finally most provinces came together. To be quite honest, while there were differences of opinion, obviously, with British Columbia and Saskatchewan, they also subscribed to a substantial portion of the changes that were made: the fact that it would be invested and this kind of thing.

What we agreed was that there would be a whole series of items that would be dealt with in track two, and that we would sit down with track two as soon as the CPP was passed and the financial sustainability was ensured, and that we would look at all of those items.

Unfortunately, what happened, as I mentioned earlier, was an extensive consultation went public. There was a consultation document all the provinces, including British Columbia and Saskatchewan, agreed to. But then, as happens, there were changes of ministers in some of the provinces and some of the suggestions that came up came up too late, and it was very important that we come to an agreement.

But I can tell you we are quite prepared to look at a wide range of suggestions in track two.

Mr. Lorne Nystrom: Including things I've mentioned here tonight.

Mr. Paul Martin: Yes. But may I just say we are not prepared to see the rates hiked. We are not prepared to see a further rate hike.

Mr. Lorne Nystrom: Which I'm not advocating either.

Mr. Paul Martin: No; and I understand that. But that was the basic agreement around the table.

The Chairman: I'm glad we're all in agreement.

Now for the leader of the Progressive Conservative Party, Mr. Charest.

Mr. Jean Charest: Thank you, Mr. Chairman. It's a pleasure for me to participate in what I guess we can describe as leaders' night at the finance committee.

I want to start by saying I think I understand the government's position on this issue.

[Translation]

To go back a little way and see this in context, the Minister says he doesn't want to make a partisan statement. It's important to recognize that this proposal has sprung from an agreement between the Government of Canada and the provinces of Canada. According to the act, it must involve two-thirds of the provinces representing at least two-thirds of the population.

In other words, there are Progressive-Conservative, New Democratic and Liberal governments at the provincial level that have taken part in this. Finally, a consensus has grown out of these discussions.

The Government of Quebec is headed in the same direction as the Caisse de dépôt, and I recognize that. However, today I would like to try to determine the real issues that this committee must consider.

[English]

Let me start by recognizing the positions of the parties around the table. I certainly recognize the government's position. I may not agree with some of it, but I recognize it. I think I understand the position of the Bloc. I understand the position of the New Democrats. Much like you, on such a serious issue we felt it was important to lay out our position in the election campaign. We did so. You may not have agreed with it, but we certainly expressed it with numbers.

• 1930

I do want to say that—and I regret this—there is one political party that has not done that. Frankly, I think you said it correctly, Mr. Martin, Mr. Minister, that the issue for the Reform Party and Mr. Manning boils down to one simple question: show us the money.

A voice: Where's the beef?

Mr. Jean Charest: Its $600 billion hole is a pretty big hit on Canadians.

Young Canadians will pay a heck of a lot of money for their grandparents'. They will also have to pay for their parents' and, suffice, for their own, and that's a serious issue that cannot be compensated with TV clips.

My concerns revolve around a few issues. First of all, the cost of business: The Canadian Federation of Independent Business has certainly stated what it would cost the average employer that they represent. I think it's about $7,000. Self-employed Canadians, who are going to be taking the biggest hit through this, are also going to be very dramatically affected.

One question that I think the government needs to address is how this will affect the equity markets. If we're going to build a new pool of capital, how are we going to deal with this in regard to the equity markets? The same applies for RRSPs. I would be interested in your view on the 20% threshold on RRSPs. Our own view, by the way, is that it should disappear.

I'm also very concerned about the issue of jobs. Because this is a payroll tax, it will have a very direct impact on employment.

The position we laid out had three benchmarks associated to what the outcome should be. The first is that the Canada Pension Plan should be made self-financing; secondly, that this should more than offset CPP premiums with tax cuts—I guess that's the main question I want to put to the minister—and, finally, encourage more RRSP savings.

On the issue of tax cuts we're not alone, by the way, certainly not on the issue of payroll taxes. The Canadian Federation of Independent Business, the Canadian Chamber of Commerce, the Quebec Chamber of Commerce, le Conseil du patronat du Québec, unions, the Alliance of Manufacturers and Exporters, both the Quebec and the Canada sections—all of them, every one, in the country today are making the point about payroll taxes, and in particular the high EI premiums.

If I understood him correctly, the minister admitted a few minutes ago that he is using the employment insurance system for the purpose of reducing the deficit. I deeply disagree with that policy of this government. It means this government has made a choice between jobs and reducing the deficit on the backs of the unemployed.

I couldn't blame the Minister of Human Resources Development for being embarrassed by this position. He should be deeply embarrassed, given the fact that young Canadians in particular are paying for this choice.

My question to the minister, among the others I have already put to him in regard to a number of issues, is how the government can justify this increase in premiums without offsetting them with tax reductions. Furthermore, does the government have any studies? If they do, I would be very interested in receiving whatever studies the Department of Finance has done on the impact this will have on jobs.

I would like to have a copy of the same study that will be made available to my colleague Ms. McDonough in regard to women. I think it is important that we all have a look at that.

I would like to know how the government can justify this $11 billion bite out of the economy without offsetting this extra bite with tax reductions that will allow Canadians some breathing room, will allow us to create more jobs.

I will conclude on one theme. Yes, I do think that this is an intergenerational issue, that if we are not careful in the way we handle this, we'll end up leaving a new generation of Canadians an economic environment of high debt, high taxes, and low pensions. They will make choices that other generations may not have had.

To give a very graphic example of what is happening in this economy today, I understand that about one-third of the graduating class for the University of Waterloo in the area of computer programming are scooped up by Microsoft every year. This represents the best and the brightest educated in Canada, in part at taxpayers' expense, at the greatest expense of the students and their families themselves, who leave the country. When they are faced with a decision on their future, if it's a quality of life decision and they can make a reasonable salary elsewhere in the world, the quality of life decision doesn't weigh in the balance as it used to. If that's what they're faced with, we are facing a very dire future and these young people will make their own future elsewhere.

I would like to know how the minister sees this, how he intends to address this and whether he doesn't think that gouging the employment insurance system, as he has already done, is just unacceptable public policy, especially for the unemployed.

• 1935

The Chairman: Minister.

Mr. Paul Martin: The leader of the Conservative Party has given me about two hours worth of questions to answer. I'll try to be as succint as possible.

I've got to say, Mr. Chairman, that the last time I was in this room with the leader of the Progressive Conservatives, I was over there and he was the environment minister. I think I did the same thing to him, but he just kept on going. So I've learned something.

Let me just say, first of all, as far as the equity markets are concerned, this will build up to a very large fund. It is expected that by the year 2007 it could be a fund of $75 billion to $95 billion. So we're looking at a very large fund. Therefore, it is incumbent upon those who will be investing it to do it in a way that will not disrupt markets. Certainly after a period of transition, where the provinces will be rolling over their existing obligations at market rates, in fact it will be invested passively in the indexes. Later on there will be a decision as to whether in fact there will be a more aggressive stance taken. The position of not disrupting equity markets is one that is very well taken and one we are very conscious of.

At the present time, it is not our intention to change the 20% foreign content rule. This is something that can be under review. Obviously, if Canada became a capital exporting country, if it was impossible for pension funds to find decent investments, one would review it. But certainly at the present time, when we are so heavily dependent upon foreign borrowing as a country, in our view it would not be wise to do it.

You did ask a question about RRSPs. I think I mentioned that it is our intention, as circumstances permit, to improve the RRSPs.

Now to come to your overall question, I think the first thing to understand is that I said that as far as the employment insurance fund is concerned, in 1986.... There is no intention on our part to use the employment insurance fund to fund the deficit or to fund other things. The simple fact of the matter is that the Auditor General in 1986 said that the unemployment insurance fund was consolidated with the government's regular accounts. That was his decision. It was a decision made under a previous government. It is one with which we are living.

Very clearly, Mr. Chairman, there is a 10¢ reduction in the employment insurance rate, which does therefore cost $700 million, and that's $700 million the government has to take into account. Let there be no doubt about that.

Now, on the issue of inter-generational fairness, let me come back to it. The easiest thing in the world for this government to have done would have been to do what previous governments did and simply ignore the problem, which was not going to become a crisis until the year 2011. But what we did was to say we can no longer continue to operate in that way.

The leader of the Conservative Party is right: it was not only the federal government. It was governments of all political stripes but one, all of the provincial governments, who came together and said we've got to deal with this now. And the reason we have to deal with it is that it is not fair to pass this on to our grandchildren. So it is a question of inter-generational fairness, and we have dealt with it in the best way we could. But we were not prepared to simply disrupt the lives of people who had already retired over the age of 65, who were unable to adjust.

On the issue of tax cuts, there is no government that would like to cut taxes as much as we did. We did it in last year's budget and we will continue to do it. We will do it as long as we have and to the extent that we have the room to manoeuvre. But we are not going to jeopardize the financial health of this country. We are not going to see us go back into deficit. We are not going to see our backs to wall where we are controlled by foreign bankers. That, essentially, is the balance.

In terms of inter-generational fairness, if I could close on this, it is really important to understand that in fact if we were to cut taxes now and put ourselves in a situation where in four or five years we have to raise taxes again, from a generational point of view that would be the most unfair thing we could do. What we've got to do is to make sure that when we cut taxes, they stay cut.

Mr. Jean Charest: May I raise a point of order, Mr. Chairman?

The Chairman: You may.

Mr. Jean Charest: I would just like assurances from the minister that the study he has already announced he will make available to Ms. McDonough will be made available to other members of the committee. I have to assume the Department of Finance has done studies on the impact this will have on jobs. Will he also make those studies available?

Mr. Paul Martin: I think that most of the material in fact has been made available. I certainly will. I can assure the leader of the Conservative Party that if I make a study available to the leader of the NDP, I will make it available to him or anybody else who would like it.

• 1940

The Chairman: Ms. Redman.

Mrs. Karen Redman (Kitchener Centre, Lib.): Thank you, Mr. Chairman.

I'd like to ask a question of Minister Pettigrew, although if Minister Martin wants to jump in, that's fine too. Specifically, it's around the proposed changes to disability benefits. With these changes, is the government reneging on its commitment to help people with disabilities following the Scott task force?

Ms. Paddy Torsney (Burlington, Lib.): Say no.

Mr. Pierre Pettigrew: No, we're not reneging on our commitments on the Scott task force. The Scott task force continues to be what we as a government see as a plan for the next few years.

On the disability elements, there is some tightening up around the eligibility, because there have been vast increases in the last few years that have been attributed to reasons that are not always clear. So the eligibility criteria were tightened in a way that we want to make sure that the pensions go to the people who are covered by the law covering disabled people. There is a bit of clean-up around them because of the vast increases in the last few years. We remain committed to work in that direction.

Mrs. Karen Redman: Thank you.

The Chairman: Mr. Pillitteri.

Mr. Gary Pillitteri (Niagara Falls, Lib.): Thank you, Mr. Chairman. Thank you for the opportunity to ask my question.

Being a businessman, I think that everybody, through some remarks on what was best for independent business people.... May I say that as an employee I never thought of contributions to the Canada Pension Plan as being taxes. As an employer for almost 30 years, I never thought of them as being taxes. I always thought of them as being part of a contribution. It was a way of life. It was a way of business to do business and to make these contributions.

Of late, specifically in the late 1980s and the early 1990s, business was not really so comfortable. A lot of us ran into a lot of problems. I for one had to cash in my retirement plan, my RRSPs, and my wife's, in order to survive, in order to reinvest in my business in order to survive. I just wonder how I would have been treated under these proposed plans. I thought my RRSPs were not an investment; I thought of them as buying my old age security, buying security for myself. I made the contributions to these plans as security for the future. I never thought of it as an investment.

On the other hand, if I were to have an investment scheme I surely wouldn't want the government to be investing for me. I would do my own investing. If I were to fail, at least I would be doing it with my own hands.

I don't really know who I'm going to ask my question. Mr. Martin, I think you probably would answer me the best. Under the scheme proposed by others.... And by the way, if I had been a businessman and thinking of earning only $18,000 to $20,000 a year, I would have never even bothered to cash in my RRSPs in order to provide for my future. How would I have been penalized or what slot would I have been fitted in if I were in compulsory RRSPs and I couldn't cash them in? What slot would I have been fitted in under their plan?

Mr. Paul Martin: I'll answer as best I can. You're asking me, to a certain extent, to look at this through the eyes of Reform. That's almost impossible. Let me address it from my own vantage point.

I think your question is very well taken. This is why it is important to preserve the three pillars, as Minister Pettigrew said, of the retirement income system.

• 1945

In fact, the Canada Pension Plan is there, available for working Canadians, and it protects them, as the minister has indicated, in case of disability or in case people take time out to take care of their children. It is a plan which, while it will be invested in the market and therefore may well, and we hope will, earn much higher returns, nonetheless will have the Government of Canada guarantee behind it, so if there are huge market fluctuations such as we've just seen, you won't retire at a point when your pension plan will have been wiped out.

At the same time, we will eventually be bringing in the seniors' benefit. What the seniors' benefit is going to do is really to take care of that very wide section of the Canadian population, many of whom are women, as we discussed at the finance committee, whose salaries throughout their lives were simply too low to enable them to save sufficiently, for example through RRSPs.

Then of course we will have the RRSP pillar, Mr. Pillitteri, and what that will do will be to enable you to do exactly what you've just said: to invest your own money, to earn your own returns, and, one hopes, to do very well; but always with the confidence that if for any reason you had to cash them in, you did whatever you had to do because of adverse circumstances, you would have standing behind you the public-sector pension programs; that is to say, the Canada Pension Plan and the seniors' benefit.

The Chairman: Ms. Torsney.

Ms. Paddy Torsney (Burlington, Lib.): Thank you, Ministers. First of all, I want to congratulate you on your efforts, but also to talk about the confidence issue. As a young Canadian...certainly there has been a lot of destructive language about how there won't be a pension plan. There's a lack of awareness. And I think Mr. Pettigrew did a great job in identifying what was going on in the 1960s, when this plan was brought in, because some of us might not remember that far, or couldn't. I think that's very important.

Since it seems to be a balancing whether it's going to be a public plan or it's going to be private plans, and in light of the fact that so many workers do not have benefits, do not have a private pension plan, I wonder if we've done some analysis of the participation rates in RRSPs, of the number of Canadians who are participating, the amounts they are investing, the age and gender of contributors, really to understand what is going on if we were to leave this up to people themselves.

Mr. Pettigrew, disabled Canadians who are receiving CPP benefits: do we have any idea what kind of extra pockets of cash they have for their RRSPs for when they reach 65, or are they sitting on extra funds and this is just a nice bonus?

Mr. Paul Martin: We've done a division of duty here. I'm going to answer the first part and Pierre will answer the second part.

I'm going to give you approximate numbers. The take-up on RRSPs is roughly a quarter of the population. It's somewhere between 25% and 28%. Those are the last numbers I saw. The average take-up is around $3,000 to $3,500. These are broad numbers, but that's roughly what you're looking at. So there is nowhere near the take-up one would want to see, nor nearly as large a take-up as one would want to see.

On the gender take-up, as I understand it, I can't remember the exact number, but I do know the number of women is increasing substantially.

The age take-up is, not surprisingly.... The late 1940s, early 1950s, are when it really begins, because essentially people with young families often find the disposable income to put into an RRSP is simply not there in sufficient size for them. That's why—I'm sure this is one of the things you were coming to—in a previous budget what we did was to eliminate the limitation on carry-back and effectively we said, look, we understand that when you're 30 with two children it may be very hard for you, but when you're 40 and your children are a little older and you have more disposable income you can go back and make up for all that room. We hope this is something somebody will be taking up.

• 1950

I have to say that there are some very encouraging signs. I've been meeting with groups of students across the country as part of the budget consultation, and it's quite interesting how a number of students are saying that while in post-secondary education they're actually starting to put money aside for RRSPs, which I think is really quite a change.

Mr. Pierre Pettigrew: You are quite right that it is very important to make sure young people maintain confidence in very important Canadian values and Canadian institutions, and I think it's very important that they get that from a young age. It's not an either/or, because they can have a private one, but we want to make sure everyone has access to a public one at least.

On disability, benefits have gone up and are very high. For some of the reasons I gave for eligibility, there is a problem of higher unemployment as well. The problem is that the income levels of disabled Canadians tend to be low, on average. If they are on CPP they do not have employment income, so they cannot invest in an RRSP at that stage; they're out of it completely. That is why we want to make sure this system continues to address the problem of Canadians with disabilities.

The Chairman: Thank you, Ministers.

Mr. Szabo.

Mr. Paul Szabo (Mississauga South, Lib.): Thank you, Mr. Chairman, and welcome, Ministers.

I have a comment and then a question. From the information provided by your ministries—and I think most members would agree in talking to their constituents—the public knowledge about the breadth and extent of benefits under the CPP program is very low. Canadians do not really understand, in fact so much so—and I've been thinking about this—that maybe we should rename it the Canada pension and insurance plan because of the significant insurance component that exists within the CPP. It is simply not a pension plan, and the spectre of a super RRSP, or whatever, continues to reinforce that kind of thinking. I raise that with you maybe as a rhetorical suggestion.

The question has to do with universality. In the review that David Walker led across the country and the report they did after several months of consultation, there was some appetite, I sense, for a reduction in benefits if there could be a greater certitude or confidence level that benefits would be there for them. We know that current seniors get somewhere in the neighbourhood of $7 out for every $1 they put in, and this is starting to slowly come down. The difference between the OIS, GIS, and the replacement seniors' benefit coming up...that is an income redistribution benefit where it's based on income, whereas the CPP is not.

My question is, have you satisfied yourself that a rate change alone will be sufficient to get us to where we want to go in terms of optimizing inter-generational equity without the need to maybe redistribute or means test benefits at least in a transition period until we get a handle on this thing?

Mr. Paul Martin: Thank you, Mr. Szabo.

Incidentally, David Walker, the chairman, is in fact here.

I think your first point is well taken. One of the things that is amazing is how little information is out there or is understood, and I think perhaps all governments have a major responsibility.

I think the knowledge of the Canada Pension Plan is substantially higher today than it was, because of the process that was led by David Walker, and led by all of the provinces and territories; there were very extensive consultations. It's quite clear that it is higher, but you're right, there are still some major misconceptions and you have certainly identified some of them.

The question of a reduction of benefits, the question of the increases in the premiums—it would be a mistake to say there was unanimity. For instance, there was unanimity that we should not increase the age of eligibility from 65 to 67. There was strong unanimity on that point of view. But on the other things there was a preponderance of view, but essentially that's what the individual provincial finance ministers and the federal finance minister had to agree on.

• 1955

On your basic question, on the question of the rate change, clearly one does to a certain extent rely on the chief actuary. But essentially, yes, we are confident that the 9.9%, which leads to fuller funding, will enable us to assure young Canadians that the plan will be there for them when the time comes, and that nailing my generation was in fact the best way that we could deal with the question of intergenerational fairness. This is because if we did not do that, what would have happened is that my generation would have simply paid an inadequate amount for the return that we were going to get, and of course my children and grandchildren would have had to bear a far greater burden.

The suggestion was made that what we should be doing is in fact proceeding to cuts to those who are already retired. I'll be honest with you: we were not prepared to do that. Our reason was pretty clear: that it is really not fair to ask somebody who has retired, who has planned for their retirement on a certain basis. It's impossible for them to make the adjustments that are required, and we just felt that it would be unfair to proceed to do that.

The Chairman: Now we'll move to the next round. I understand that Mr. Solberg and Ms. Ablonczy will be sharing the time.

Mr. Monte Solberg (Medicine Hat, Ref.): Yes. Thank you very much, Mr. Chairman.

Welcome to the ministers.

Minister Martin said in his statement that if we don't take action, we will be placing an unjust burden on millions of Canadians. I want to argue that by taking the actions the minister has taken, he is in fact placing an unjust burden on millions of Canadians.

I want to make my point by reading excerpts from a letter that was sent to my colleague the member from Cariboo—Chilcotin, Philip Mayfield over here. I think this letter underlines just how much damage the minister's changes are going to cause to many Canadians.

It says:

I am writing in regard to the increase in CPP. I am a housewife with two small children. My husband works 12-hour days, six or seven days a week. Even with all the hours my husband works, we are only making ends meet. We cannot afford an increase in CPP.

This increase only means my husband has to work even harder, which means we will see even less of him.

How is this good for my two children? How is this good for our marriage? How can I afford to put my children in swimming lessons, or baseball, when any extra money we have the government takes?

My oldest son is five and has said to me, “Why can't I, Mummy? We can't afford it, right?” This is from a five-year-old.

I have rent, house insurance, truck insurance, life insurance, hydro, gas, phone, food, truck payments. These are basic bills. As for fun, what's that?

I have a friend who at 28 is having to declare bankruptcy. She has three children. I know that it could be us.

Kids are in trouble today more than ever because parents aren't there. They have to work harder and longer, so the kids are on their own. The future looks bleaker.

Something has to be done about the CPP. Canada is on its way to ruin, the way I see it.

Sincerely,

Margaret Snell, Quesnel, B.C.

Mr. Chairman, I think there are hundreds of thousands of people like Margaret Snell in Canada today. The government has refused to offer tax relief. How in the world are people like Margaret Snell supposed to pay for the minister's changes?

Mr. Paul Martin: Mr. Chairman, this really is the problem with this debate. The Reform Party—

Mr. Monte Solberg: I asked a question, Minister.

Mr. Paul Martin: I'm about to answer your question.

Mr. Monte Solberg: Then let's hear a straight answer, instead of attacking the Reform Party.

The Chairman: Mr. Solberg.

Mr. Paul Martin: I'm not attacking the Reform Party, Mr. Chairman.

The Chairman: Mr. Solberg, you've been given an opportunity to question. Let's hear the answer.

Mr. Paul Martin: I'm asking the Reform Party to address the issue that every other political party at this table has addressed.

Mr. Monte Solberg: We have offered $15 billion in tax relief in the last election.

The Chairman: Order.

Mr. Paul Martin: Mr. Chairman, every other political party at this table understands the issue. All of the provincial governments, without an exception, of all political stripes, understand the issue. The issue is that there is a $600 billion liability—

Mr. Monte Solberg: You can't answer.

Mr. Paul Martin: —and unless you're prepared to renege on that liability, it has to be dealt with.

Mr. Monte Solberg: You can't answer the question.

• 2000

Mr. Paul Martin: Mr. Speaker.... Mr. Chairman, sorry; but you look alike.

The Chairman: Withdraw, withdraw.

Mr. Paul Martin: Listen, I'm the guy who is going to get cut off in question period tomorrow.

Ms. Paddy Torsney: Wrong generation.

Mr. Paul Martin: The fact of the matter is that nobody around this table created this problem. Nobody around this table wishes that problem existed. None of those provincial governments created that problem. The fact is that there is a problem because of a design flaw in the CPP which goes back a couple of decades—

Mr. Preston Manning: It was a Liberal government.

Mr. Paul Martin: —and there is a $600 billion liability. That $600 billion liability is now owed by all Canadians and it has to be dealt with.

Now, if you're not prepared to deal with it in the CPP, then you are prepared to accept a 25% increase in income taxes, because that's what it would cost; or you're going to accept a doubling of the GST, because that's what it would cost; or you will accept a much larger increase in a different way.

Mr. Solberg, we want to deal with the problem. The problem we have is not the Canada Pension Plan design as we're discussing it around this table. It is the $600 billion liability, which exists. It's there. You can't ignore it.

I think the hearts of all of us go out to Mrs. Snell, and they go out to Canadians who are going to have to pay this, and I wish governments had dealt with it in the past. But Mr. Solberg, blowing up the CPP and reneging on a $600 billion liability is not the answer.

Mr. Monte Solberg: We believe tax relief is, and I guess we can tell people like Mrs. Snell the government has no answer for them.

Mr. Paul Martin: How are you going to pay for the tax relief? We understand what you have put forth. Your tax relief, and it's part of your program, is a $3 billion cut in the old age pension.

Mr. Monte Solberg: That's untrue, absolutely untrue.

Mr. Paul Martin: It's a $3 billion cut in equalization, which will hit Manitoba and Saskatchewan right between the eyes, and it is a $3.5 billion cut in the health and social transfer to the provinces.

Mr. Monte Solberg: That is absolutely untrue.

Mr. Paul Martin: Then you're telling us that—

Mr. Monte Solberg: That is a barefaced lie. We would increase it by $800 million. How can you say it's a cut?

Mr. Paul Martin: I've read your program. If you're telling me your program is untrue, well, then I'll concede.

The Chairman: Ms. Ablonczy, go ahead.

Mrs. Diane Ablonczy (Calgary—Nose Hill, Ref.): We appreciate the ministers being here. As you can see by the full house, the packed gallery, it is an issue Canadians care deeply about. This is our retirement security, and quite frankly, many of us are very, very concerned about it. It's an issue that should be bigger than attacks and partisan shots on members of Parliament who are honestly and openly trying to deal with a difficult subject.

The minister just said all other parties understand the issue but Reform. I wonder if that's because all the other parties essentially accept the changes he's making. Reform is saying there is a better way and pointing to the fact that other countries have found a better way.

On December 7 and 8 there's a big conference in London. A number of countries from around the world are moving away from these crumbling public pension plans to individually owned and privately managed pension accounts. These are substantial, mature democracies. These are not ideas that rise or fall on one opposition party in this House.

I fail to understand why the best this minister can come up with when asked about alternatives and concerns is simply cheap shots back at the people who are criticizing his program. He was asked whether he had looked at some of these alternatives. Quite frankly, Mr. Chairman, these alternatives are being very seriously studied by a number of other countries, many of whom moved to these alternatives years ago.

So I wonder whether the minister would be good enough to table with this committee the analysis that was done by his department, with all the resources of government behind it, of the alternatives other countries have not only considered but actually adopted, and be able, clearly and without any rhetoric, to tell Canadians why he has rejected these other alternatives and why he thinks this one is the best.

• 2005

Mr. Paul Martin: The fact of the matter is that in the three pillars we deal essentially with the three basic thrusts. We are certainly not against RRSPs. In fact, RRSPs are an increasingly important part of the retirement system and one of the three pillars.

Mrs. Diane Ablonczy: But you have cut back on them.

Mr. Paul Martin: Unfortunately, we had to cut back on a lot of things, and we would hope that as the financial situation in the country continues to improve we will be able to improve a number of the government's programs.

On the other hand, when you start going to compulsory RRSPs—and there are certainly advantages there—one of the things you find is that the vast majority of countries who are able to do it are countries where the age of the population is substantially less than the age of the population in Canada. If you have a young population, where you don't have this kind of problem, which is an aging population and a very large liability, it is much easier to make the transition.

That doesn't mean there aren't problems. In the case of Chile, for example, they are starting to run into great problems with their annuity system, simply because people are jumping from one annuity to another and they are living longer.

The fact of the matter is that we are very open to looking at as many alternatives as possible. When you think of how many different governments came together to preserve the Canada Pension Plan, you can understand that all of those diverse points of view had to be reconciled only when they understood the financial circumstances facing us.

I don't want to engage in a partisan debate. This is far too important for Canadians. It really is the kind of thing on which we all ought to be able to come together, which is why I was so happy to see what happened at the provincial table when all of those different provincial governments came together with the federal government to try to work this out. The one thing we cannot avoid in the discussion is that $600 billion liability. It is there. We can't come up with a plan that simply ignores its existence. Whatever plan we come up with has to deal with the cost of funding it, and that is the reality we're faced with.

Mrs. Diane Ablonczy: I think we all agree on that, Mr. Chairman.

Will the minister table the analysis of some of the other proposals that were studied so that we know what other prospects we have to solve this problem?

Mr. Paul Martin: Absolutely. I'm quite prepared to make whatever information that is available to us available to the committee.

The Chairman: Thank you, Minister.

[Translation]

Mr. Crête.

Mr. Paul Crête: My question is for the Minister of Human Resources Development, who said in his remarks that the Plan was a basic option all workers relied on when planning a secure retirement.

Based on that presentation, would he be prepared to recommend to the Minister of Finance that the seniors' benefit plan apply at an earlier age than 59 so that people who have already begun to prepare for retirement and can see amendments coming to the Canada Pension Plan at least have the opportunity, as regards the seniors' benefit, to choose between the existing plan and the new plan at a much more reasonable age, perhaps 55 or 50?

Mr. Pierre S. Pettigrew: You're starting the discussion on the next subject, the seniors' benefit.

Mr. Paul Crête: That's part of income. A person who has only one income calculates all that when preparing for retirement.

Mr. Pierre S. Pettigrew: I absolutely agree with you that it's all part of the same thing, but you'll admit that this isn't in the bill we're considering. I believe we have enough work to do with this one without starting in on the issue of seniors' security.

[English]

The Chairman: Ms. McDonough.

Ms. Alexa McDonough: Thank you very much.

• 2010

There has been a lot of talk in recent times about the fact that the economy is robust and, except for the last 48 hours, the stock market is soaring, so everybody should be very optimistic about the future. But of course the market that really matters to most Canadians is the labour market. I'm wondering if the minister would address some questions on the role the continuing high unemployment has played and unfortunately, based on the very pessimistic assumptions of projections your studies seem to be based on, the fact that high unemployment is anticipated to continue well into the future.

The fact of the matter is that we have 1.5 billion Canadians who aren't paying into the Canada Pension Plan at all, because they don't have jobs and therefore they are not making premium payments. We have at least as many people again who are paying far lower premiums, a lot less into the fund, than they would wish to and they are capable of doing because they are in situations of severe underemployment. For 84 consecutive months we've had unemployment above 9%.

I have three questions. First, is it not true that one of the major reasons why the CPP fund is not as sustainable as it needs to be is that we have continued to tolerate such high levels of unemployment?

Secondly, given the fact that the assumptions about the future sustainability of the fund seem to be extremely pessimistic as they relate to economic growth and employment levels, I wonder if the minister could address the contradiction between all the discussion about how robust the economy is, how promising prospects are, and what seem to very pessimistic assumptions.

Thirdly, flowing from that, will the minister table with the committee the precise projections and assumptions on which the future projections about the fund are based?

Mr. Paul Martin: As was indicated earlier, I'm prepared to table whatever information we have for the committee's consideration.

The fundamental problem with the Canada Pension Plan is that it was based on a far higher number of workers per pensioner than appears to be the case and it was designed as a pay-as-you-go system, because, given productivity levels, given interest rate levels, all set at the time of its original inception, which have not been borne out over time, it makes a lot of sense to go to fuller funding. The basic problem we face, and I simply go back to it, is that when you have eight workers for every pensioner you have one configuration, and when you have three workers for every pensioner you have another configuration. There is simply no getting around that.

On the issue of the pessimism of the projections, I think the leader of the NDP will agree that when you are making projections and when an actuary is looking at this kind of fund, he has to err, if anything, on the side of prudence, because the benefits of a pleasant surprise are very easily absorbable and the unpleasantness of bad news is very difficult to handle. We're seeing that now. We are wrestling with a large problem, and that large problem arises out of the fact that people in the past used rose-coloured glasses and as a result of that were able to avoid a very real problem they should have dealt with. We don't want to make that same mistake.

But if your basic question is, apart from the prudence of these projections, as the Minister of Finance, am I confident in looking towards the future? Yes, I am very, very, very confident in looking towards the future, in terms of our job creation, our economy, and our position in the world economy.

• 2015

Ms. Alexa McDonough: Just by way of a supplementary, I want to make it clear I'm not talking about actuarial considerations as much as about the government's deliberate policy to continue with very high unemployment levels. Of course the effect of that, if that's what this government certainly has persisted in doing and proposes to continue doing, is that the large number of unemployed and underemployed are not contributing to the plan to the extent that could be. So it's a very unhappy by-product of a situation that's already very punishing for those people.

What the government is doing here is turning around and saying, we're going to maintain the high levels of unemployment, and unfortunately that means we're not going to have enough money to maintain survivors benefits at a decent level. We're not going to have the money in order to make sure that the most vulnerable, the lowest-income, workers will enjoy the benefits that they have enjoyed in the past. So it's a definite trade-off that the government has made, which is why New Democrats—not just members of Parliament, but also New Democrat governments—felt that it is not supportable.

It is not fair to say that the most vulnerable segment of the population shall be sacrificed.

It comes back, really, to the government's decision to maintain...or, putting it in the positive, the failure to make employment the number one priority here, for obvious purposes, including the obvious benefit of sustaining the Canada Pension Plan fund.

Mr. Paul Martin: I've got to say that the reasoning of the leader of the NDP is convoluted at best, and really somewhat silly partisanship at worst. The fact of the matter is that no government seeks to maintain a high level of unemployment and it's nonsense to say that. There is a very important debate—

Ms. Alexa McDonough: Let's have that debate on another day.

Mr. Paul Martin: No, we're having it right now, and let's have it.

The fact of the matter is that at the time when we took office the unemployment rate was at approximately 11.5%. It's down to 9%. We have brought it down. I wish we could bring it down a lot more. There have been over a million jobs created by the private sector. I wish there were a lot more. In the last four months, there were 63,000 youth jobs, the highest number of youth jobs in a four month period since 1990. All of us at this table, I am sure, wish it were more.

The fact of the matter is that we inherited a very difficult financial situation and there has been a substantial improvement in Canada's overall economy.

At the fiscal update in Vancouver two weeks ago, we again reaffirmed that employment was our number one economic priority, and we essentially laid out a plan in terms of skills training, in terms of research and development and in terms of developing a new economy to deal with it.

There can be disagreements as to how we would go at it, and there are NDP governments in two of the provinces that are also wrestling with exactly the same problems. The basic issue is that reducing unemployment is our number one priority and what we should be doing is trying to work together to figure out how we can improve our situation. We're a lot better off than the Europeans, but we're not as well off as the Americans and we ought to get there.

Let's deal with reality. Let's not deal with a lot of rhetoric.

The Chairman: Mr. Charest.

Mr. Jean Charest: I am happy to take issue with the Minister of Finance on this and deal with reality instead of rhetoric, because, to listen to him speak, it's as though he has nothing to do with the unemployment rate in this country. It's as though he might as well not run for office, if I am to take him at his word in regard to the unemployment rate. Why did he run for office, if things can't change and they are just the way they are?

He describes the position of our colleague from the NDP as silly. I disagree with that. The fact of the matter is the minister and his government make choices and they're accountable for that. The choices you make speak to your priorities. That's the bottom line.

This government is faced with a very clear choice in regard to payroll taxes and the employment insurance system. Even though the minister would say that the Auditor General has taken the view that the employment insurance fund is rolled into the consolidated revenue fund, as he did in 1986, that takes nothing away from the fact that it has always been considered a stand-alone fund.

The employment insurance fund was never designed for the purpose of reducing the deficit of Canada. It is a payroll tax, taken off the paycheque of workers and employers every week, including a lot of small businesses.

• 2020

This minister and his colleagues have made a choice. They chose to use a payroll tax at the expense of the unemployed, at the expense of young Canadians who are out of a job.

What I say to you today in all frankness, Mr. Minister, is you deliberately chose to put people out of work for the purpose of writing down your deficit, when you had other choices.

One of them, by the way, was reducing program spending in Ottawa. The last report I saw on that is that you had missed your targets by half. This was a report that was out last spring, I think, by the accounts. If I remember in public accounts, you had set an objective—and I'm quoting from memory here, so please correct me if I'm wrong—of about 19% in 1995, and you had missed by half.

So you have made choices. You have created more unemployment than you had to. You did not have to make that choice, and I fault you for it. And I'm not alone, and I say this again respectfully, because beyond our partisan speeches there are the Canadian Chamber of Commerce and the Canadian Federation of Independent Business, who are not raging socialists. There's the Conseil du patronat du Québec, who don't happen to have the same opinion.

I was talking to Lorne.

I understand. The response is always the same, Mr. Chairman. It's the previous government, the previous government. That's not an answer to Canadians in the last four years.

So I take issue with the minister on that, but I do want him to give me an answer on RRSPs and whether or not he will guarantee for the future...because every time we get a budget in this city there's some speculation that there will be a tax grab on RRSPs. Is he ready as Minister of Finance to guarantee today that future savings under the RRSPs and accrued revenue will be protected and his government will not make a grab for that money?

Mr. Paul Martin: As far as the RRSPs are concerned, we've made it clear on numerous occasions that what we would like to see is the RRSP system expanded and benefited. We're not going to restrain it. I will repeat that for the leader of the Conservative Party if he wants to hear it again.

As far as program spending, the program review, is concerned, again, what was said was that we are on target in program review and we are going to get our ultimate target. At present we're midway through. Some departments are a bit ahead, some departments are a bit behind, but overall we are on target.

Again, I have to say it's too bad to see the meeting beginning to deteriorate into a lot of empty talk. You talk about the unemployment. I talked about the improvement. Let me tell you, we've gone from 11.5% to 9%. It was 11.5% when we inherited it. I don't want to mention—

Mr. Jean Charest: Right in the middle of a recession.

Mr. Paul Martin: Well, let's talk about the recession in a second.

There are a million more Canadians working today than were working at the time we took office. You have identified who we took office from, but the fact is there are one million more people working today.

Mr. Jean Charest: Yes, because of free trade.

Mr. Paul Martin: Let's just talk about the recession. I understand why the leader of the Conservative Party does not want us to talk about the previous government, but we can talk about the policies of the previous government; and there is a reason. Yes, the leader of the Conservative Party says it was because they were in a recession. Well, why was Canada in 1989 to 1992 in the longest and the deepest recession we have had almost since the great recession of the 1930s—far deeper, far longer than that of the United States? I will tell you very clearly, it was because the government of which the leader of the Conservative Party is the representative had the worst mismatch of fiscal policy and monetary policy any government could come to put together. The fact is that the reason that recession was much worse was that the inadequate, in fact the totally inept, economic policies of the government of which he is the inheritor—

Mr. Jean Charest: Why did you adopt them all, then?

Mr. Paul Martin: Mr. Chairman, I can understand why he doesn't want to talk about this history, but I have to tell him, he's hanged with it.

Mr. Jean Charest: If they are that bad, why did you adopt them all?

• 2025

Mr. Paul Martin: We certainly didn't adopt the monetary policy. We certainly didn't adopt the fiscal policy. The deficit was $42 billion when we took over; the last time I looked it was $8.9 billion. The fact of the matter is that this government has put in place the kinds of policies that are creating jobs.

I don't want to get into this. I would much rather have a positive discussion.

Mr. Jean Charest: I can understand that.

Mr. Paul Martin: I don't know why you keep bringing up your—

The Chairman: Thank you, Minister. I just want to remind you that we're here to analyse Bill C-2.

We're going to move to Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman.

Minister, yesterday the treasurer of Alberta seemed to indicate that from the perspective of the Government of Alberta the deal is becoming a little unstuck. He was quoted in the Edmonton Journal as saying:

If it takes a little longer to improve this then we'll take the time to help the feds get it right.

He went on to say:

We've indicated all along we bought in to keep the thing from becoming insolvent. If alternatives are identified by everybody concerned that should be looked at, then we won't hesitate to bring that forward. It can't be rushed.

I wonder if you can tell us if there is a deal with Alberta. In which direction are they going: in, out, or sideways?

Mr. Paul Martin: I talked to the treasurer of Alberta today. They are 100% in. They are honouring their original undertaking. In fact, as I mentioned in the House today, they played a very constructive role in the original discussions with all of the provinces and the federal government towards coming to the solution we have come to. All the provinces and the federal government have things they would like to see dealt with in track two. They obviously have things they want to see dealt with, and they will be dealt with around the table and discussed. We'll see what the solutions will be in track two.

Let me tell you unequivocably that Alberta is in.

Mr. Roger Gallaway: Minister Day seemed to indicate that he had a problem with the deadline of January 1. Is that out the window again?

Mr. Paul Martin: No. Mr. Day understands full well, as we all do, that the deadline of January 1 is an essential date. It's very important.

Mr. Roger Gallaway: Thank you.

The Chairman: Thank you, Mr. Gallaway.

Minister, if I may, I've heard a lot of rebuttals here, back and forth, but for those individuals viewing these hearings across the country there is a fundamental question—and I speak on behalf of my generation—as to whether there will be CPP there for our generation.

Do these changes to the Canada Pension Plan make it more affordable, more sustainable, and fairer for Canadians?

My third question is, if the CPP was wound down—this is a very important issue to reflect upon—what would it cost to make good on the commitments we have made already? We have made commitments to many seniors and future seniors.

With fuller funding, what happens to the CPP unfunded liability?

Lastly, if we were to go to the marketplace for a similar plan that would include death benefits, survivor benefits, disability, and the retirement package, is there a plan that is available at the price we're paying for it?

Mr. Pierre Pettigrew: Your first question is very important. I belong to the same generation, so...I'm trying.

The Chairman: We'll exchange birth certificates.

Mr. Pierre Pettigrew: The whole purpose of the exercise we are embarking on is precisely to make sure there will be a public pension plan in Canada in future generations. This whole exercise is to make sure it will be there, as it was there for the previous generation. It is being threatened right now because we are not sure there will be....

• 2030

This is why so many young Canadians have started to have big doubts. And they are right, because when they look at what is happening, it just does not make sense. It needs to be fixed in a serious way, and that is what we are doing, precisely to make sure that a public pension plan will be there for future generations.

They also will have access to their private savings and private plans as well, and we encourage them to do it too through the RRSPs and all that. That is very good.

Indeed, it will be more sustainable because we will begin to pay now. People of the generation now will begin to pay a higher share of what they will cost the system. By starting earlier, we will not have to increase it to the 14% that we would have had to increase it by if we waited down the line. So it is sustainable by going up on the premium now. Also, we are making the paid people begin to pay sooner in the game, so that means it is a lot fairer than letting these people pay for it only later would be.

For the cost you are talking about, the Minister of Finance talked about $600 billion. That is the liability that is there, for the people who are already on the Canada Pension Plan and the people who are about to embark on it. This is why we need to take drastic action, not only for the future generation but also for the commitment of people who have chosen to retire or who have come to retirement and who have made their decision on the basis of an income on which they count. We owe it to them to do it in that way.

Mr. Paul Martin: On your last question, to the best of my knowledge there is not a plan available exactly, but certainly calculations would be that it would cost at least 1% more, simply because the administration cost of dealing with a series of individual plans versus a comprehensive plan in which the risks are spread across all Canadians would, at a minimum, hike the cost by at least 1%.

The Chairman: Mr. Iftody has the final question.

Mr. David Iftody (Provencher, Lib.): Thank you very much for the presentations.

A lot has been said, Mr. Minister, about the unfunded liability. In fact, with this committee travelling across the country, we heard expression of those concerns from a number of Canadians, and, indeed, some of the more reputable business groups in the country. The Reform Party will probably want to hear this, and did hear this, because the comments were directed to them by the Business Council on National Issues, about what we are going to do with this $600 billion.

My first question goes perhaps a little bit further than that. With this current debt and growing liabilities within that over the next 15 years, are the changes that are made right now, the increases, sufficient to deal with some of the growth, even in that $600 billion?

The second one deals with mutual funds and RRSPs. There exist today mutual funds that earn a return, Mr. Minister, that mimic the foreign exchange, Standard & Poor's 500 or the New York Stock Exchange, yet these are fully eligible as RRSPs. In fact, they circumvent the 20% ownership rule, because the mutual fund issues a derivative to generate the return. My question is, for this new group, this round-table group that will be looking at these investments, would the CPP contributions be eligible for those same kinds of rules?

Finally, on the January 1 deadline date with respect to these changes, Canadians have been asking why this deadline date is so important. What is it with the agreement with the the eight provinces that currently are on board and the Government of Canada? Why are we pushed and bottlenecked to this January 1 date?

Mr. Paul Martin: As far as the first question is concerned, what we will be doing is essentially going to fuller funding. At the present time there is about two years' funding. We will be going to five years' funding, which is what is going to build it up.

That will decrease the liability substantially for the first 20 years, and then it will roughly flatten out. So that is roughly the way the numbers are going to work.

• 2035

On the 20% rule, Mr. Iftody, you're absolutely right. Through the use of derivatives or through the use of various other things one can conceivably get up to as high as 36% foreign content.

Whether or not the fund will be investing in derivatives and a number of these things will really be a decision that will have to be made down the road. Initially they will have a very prudent form of investment, although, as you know full well, people say derivatives properly used are also a prudent form of investment. But that will really be a decision that will have to be made down the road.

On the last question, yes, the January 1 date is very important. One of the reasons we're able to hold the rate at 9.9% is that we're getting at it. The more you push off the reforms the higher that rate will have to be, simply because of the time value of money and the failure to get the money in earlier.

The Chairman: Thank you, Minister and Mr. Iftody.

I would like to thank the minister for his opening remarks and answers to the questions. They certainly will help us as we study Bill C-2.

I would also like to thank the members for their questions. You have raised some interesting points, ones worth pursuing.

This concludes this meeting. I call the meeting adjourned.