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Planned 32% increase in CPP premiums requires offsetting tax relief for manufacturers

Published by Bryant McNamara on July 04, 2016

Canadian Manufacturers & Exporters (CME) is calling on the federal and provincial governments to provide businesses with tax relief to offset the impact of higher CPP premiums.

The CPP expansion announced on June 20th is being framed as providing all Canadians with a more generous public pension, financed by a one-per cent increase in premiums paid by businesses and their employees.

The reality is much different. Once fully implemented, the CPP expansion will increase premiums by 32 per cent for any worker earning $82,700 in 2025. While employees will receive a tax deduction for a significant portion of their increased payments, no relief has been proposed for Canadian businesses.

“By the time the CPP enhancement is fully implemented, it will cost Canadian manufacturers nearly $1.9 billion in new taxes,” said Mike Holden, Chief Economist of Canadian Manufacturers & Exporters. “Payroll taxes like the CPP are among the most damaging to the Canadian economy. Unless measures are taken to offset the costs to businesses, this expansion will cost jobs, dampen wage growth and erode Canada’s attractiveness as an investment destination.”

In addition to providing tax relief, CME believes that governments must recognize the fact that many businesses already offer generous private pension plans to their workers. Faced with higher CPP premiums, there is a very real possibility that businesses will choose to scale back those pension plans or eliminate them altogether to compensate for their higher tax burden. Unless changes to the CPP also provide credit to those businesses, many Canadians could find themselves worse off as a result of this initiative. 

CME recognizes the importance of retirement security for Canadians. However, that security cannot come at the expense of Canada's long-term economic competitiveness. For this reason, CME is calling on the federal and provincial governments to reduce other corporate taxes to compensate manufacturers for the $1.9-billion payroll tax hike they are being asked to pay. 

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Found in: Taxes CPP

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