# 2012 Federal Budget



## Cal

Is this being announced in March? Is there a firm date for this announcement yet or not? 

I have google searched but could not find a firm date for this announcement from Jim Flaherty.


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## HaroldCrump

I haven't heard of a firm date either.
Maybe instead we can talk about what you would like to see in the budget.
What changes, what initiatives, etc.
Esp. how you think the govt. should go about eliminating the deficit by 2015.
I heard recently that the govt. might be thinking more aggressively about the deficit i.e. to bring forward the date by a year or so.


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## Cal

What I would like to see and what will really be recommended are two different things.

I think there may be changes to CPP and OAS, which really won't be fair to people who have paid into it, expecting a certain amount at a certain age.

I have a feeling that the housing market will be addressed, whether that is the rumored changes of a 30 year amortization period to a 25year limit, who knows. I would like to see the end to these cash back loans where people get their 5% down in the form of a loan. 

A reintroduction of the home reno tax credit may be helpful to keep the RE related jobs industry busy at some point in the future.

Really at this point who knows, I would like to see the deficit aggressively addressed, as our economy is doing fair, all things considered. It is never a good time to be aggressive on something like this, however considering how many other countries are doing, this is as good a time as any.


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## stephenheath

HST + 2%, with that entire 2% going to the deficit until it's paid off, then mandatory it gets paid against the debt... bring back the age of surpluses reducing interest expenses reducing the next year's taxes in a virtuous circle, because I bet a government that is paying off it's debt and has low corporate taxes will eventually see some corporate growth at the expense of countries like the USA drowning in deficit/debt.


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## Koala

I would be surprised if they introduce HST, I think it would hurt the party too much.


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## Eder

stephenheath said:


> HST + 2%, with that entire 2% going to the deficit until it's paid off, then mandatory it gets paid against the debt... bring back the age of surpluses reducing interest expenses reducing the next year's taxes in a virtuous circle, because I bet a government that is paying off it's debt and has low corporate taxes will eventually see some corporate growth at the expense of countries like the USA drowning in deficit/debt.


Yes the solution to our deficit is taxing the **** out of people that can't afford it. 
I think some honest thought to why the deficit has increased is in order (like providing liquidity unlike the 1930's and Mackenzie King's struggle to balance the budget but also ruin Canada?)


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## DanFo

doubt much changes in cpp...new rules kick in this year as it will take a few years to see the results...OAS should be clawed back more aggressively and start at a lower rate say 45-50K (prob eliminate any benifits for myself) 
hopefully some cut backs in mp pensions but doubt this would effect any current mp's... make it more dependant on years of service as well....i wouldn't eliminate the pension altogether..... just restrict them to a more modest rate, only pm's should get something over 70K in pension benifits imo...they're paid nice enough with benifits for the job they do and it's not about money anyhow....Different goverment programs will need to accept the cuts (likely more reduced yearly increases in funding) to help balance the overall budget. If they can get us back to actually paying off debt instead of increasing it sooner I'm all for it...Just wish Ontario can find a way to reduce their deficits as well but alas we suffer....


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## HaroldCrump

Did I read this right? HST *+* 2%?
Or maybe you mean HST *-* 2%?

The last thing we need is for ordinary, hard working, middle class people to pay even more and more taxes to support the philandering and profligate govt. sector.
Where does this end?

To get back to Cal's points, yes some changes to CPP and OAS are required.
I am perhaps in the minority here that prefer increases in CPP contributions.

The 30 yr. amortization should also be reduced to 25 yrs. max, I agree with that one too.
And if we are making changes to RE, increase minimum downpayment requirements, even for first properties.

I actually don't want the home reno. tax credit back (even though I took advantage of it the first time in 2009).
It causes more revenue leak for the govt., creates more fractured, targeted tax credits rather than consistent, across the board, undifferentiating tax reductions.
It further fuels the real estate mania by creating specuvesting nuts who think they can buy their 5th condo for 0% down and 5% cash back, put in granite counter-tops, claim the tax credit and flip their condo for 20% profit in 6 months.

Regarding the deficit, I absolutely want to see more firm action by the govt.
The deficit is _a_ problem, but not the main problem.
Deficit is just the difference between the revenue (taxes) and the expenses.
I think we need to see both sides of the equation reduced.

I think corporate taxes are fine where they are - ours are already lower than the US and lower than many Eurozone nations (except the hopeless ones like Ireland).

Overall, I'd like to see these small, precision targeted tax credits and tax breaks such as the home reno credit, physical fitness credit, child fitness credit etc. merged into single, common, non-discriminating lower income taxes in general for everyone.

And can I ask that if/when the deficit is paid off, that we eliminate the GST?
All 5 percents of it.


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## the-royal-mail

Great post Harold. There are a few people who think they're being clever by suggesting tax increases, but I find these people are usually at the public trough in one form or another. They have a high level of contempt for the middle class and will consistently ignore the fact that the gov't has a _spending_ problem, not a revenue problem. 

The last thing this country needs is any more taxes, fees, fines, levies, surcharges and premiums.


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## Fain

HaroldCrump said:


> Did I read this right? HST *+* 2%?
> Or maybe you mean HST *-* 2%?
> 
> The last thing we need is for ordinary, hard working, middle class people to pay even more and more taxes to support the philandering and profligate govt. sector.
> Where does this end?
> 
> To get back to Cal's points, yes some changes to CPP and OAS are required.
> I am perhaps in the minority here that prefer increases in CPP contributions.
> 
> The 30 yr. amortization should also be reduced to 25 yrs. max, I agree with that one too.
> And if we are making changes to RE, increase minimum downpayment requirements, even for first properties.
> 
> QUOTE]
> 
> I would definetly hope the 30yr amortization doesn't get moved down. It'll put too many people out of the affordability range. It's bad enough they moved it from 35yrs to 30yrs. . . I prefer a system where i can make my own retirement savings decisions(cpp) and real estate ones.


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## stephenheath

As has been said, deficits are a problem that revenues are less than expenditures. This problem, if left unsolved, leads to where Greece or the US are (one with printing abilities, one without). I don't want us to go there, because getting to that point hurts everyone.

If you have some surpluses and some deficits, it's ok, but this government is making sure that in good times we don't have surpluses, and that is not sustainable unless you make sure in the bad times we don't have deficits.

In the future, interest rates will rise and that will increase the amount of our budget that goes to interest, reducing the money available for anything else... that will hurt the poor/middle class.

If you increase the revenues, as I suggested, you hurt the poor/middle class. If you reduce the expenditures, as others have pointed out, you hurt the poor/middle class. 

Correct me if I'm wrong, but I don't see any solution that doesn't hurt the poor/middle class in either the short term (raising taxes, cutting spending) or the long term (run deficits, increase debt, interest becomes higher portion of budget until market forces either raising taxes or cutting spending).

Bottom line, there's no such thing as a free lunch, and while I think there is a lot of waste still, I'm willing to tighten my belt a bit and contribute a little more with the one condition, as I said before, that that money is absolutely, 100% earmarked towards the deficit/debt, and that any future interest savings because of those payments result in lower taxes. In short, I want to see a tax increase that is an investment in our country's prosperity if done right, because I agree with you guys, a lot of taxes just turn into waste.

Oh, PS royal-mail... I've worked my whole life in the private sector, never public, and as I make a somewhat middle to high income, I've never qualified for squat. However, as an accountant I am a firm believer in not letting debt get out of hand, compounding is a harsh taskmaster.

Steve.


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## HaroldCrump

Fain said:


> I would definetly hope the 30yr amortization doesn't get moved down. It'll put too many people out of the affordability range. It's bad enough they moved it from 35yrs to 30yrs. . . I prefer a system where i can make my own retirement savings decisions(cpp) and real estate ones.


Sure, of course, I'm fine with 50 year amortization _as long as_ you don't expect the rest of the tax payers to subsidize your mortgage via CMHC insurance and other govt. guarantees.
Be prepared to pay the true interest rate required by the bank that lends you the mortgage.
I think you will be surprised that instead of 2.99%, now suddely the bank is asking for 8.99%.

Regarding the retirement aspect, same deal - you can agree to take charge of your retirement as long as you also agree not to claim OAS, GIS, etc. when your mutual funds/stocks are down 50%.


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## Guigz

- Put a cap on public sector defined benefits pensions. It could work the same way as CPP with a YMPE around 60-70,000$ and the rest of the income gives rise to a DC pension. Public sector employees would get a maximum of 70% of 70,000$ after 35 years + whatever DC they put in.

-Raise taxes on the high end. Last bracket should be around $150,000 and be raised to 51% MR. Rich people could not have gotten were they are without the social programs that are there to support less fortunate ones. Although they are not users of those programs, they need to support them nonetheless.

-Introduce direct taxes on estates. Could be structured in brackets similar to taxe rates. For example 0% < $200,000, 5% < $400,000 .... 40% >= $20,000,000. Money is akin to the monarchy of the past, the rich are born rich and get richer, the poor stay poor. This would mitigate the issue and allow to state to collect extra revenue.

Let's be clear, I do not expect any of these changes in the budget, but I think that "radical" ideas like this are needed in order for this unprecedented demographic and economic situation to be dealt with.


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## stephenheath

Guigz said:


> -Introduce direct taxes on estates. Could be structured in brackets similar to taxe rates. For example 0% < $200,000, 5% < $400,000 .... 40% >= $20,000,000. Money is akin to the monarchy of the past, the rich are born rich and get richer, the poor stay poor. This would mitigate the issue and allow to state to collect extra revenue.


I suspect that would make tons more money than required as long as you close the loophole that people can give their money/assets away before their death.


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## Cal

I think that the mortgage changes would probably have the reverse effect of what Fain is thinking. In that there would be less market pressure of rising RE pricing.

As per Harold's comments, I like where corp taxes are too.

However for personal taxes, I am sure most on here would have no problem if the gov't created a higher tax bracket for those with incomes over something like 500K or 1M.


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## Fain

HaroldCrump said:


> Sure, of course, I'm fine with 50 year amortization _as long as_ you don't expect the rest of the tax payers to subsidize your mortgage via CMHC insurance and other govt. guarantees.
> Be prepared to pay the true interest rate required by the bank that lends you the mortgage.
> I think you will be surprised that instead of 2.99%, now suddely the bank is asking for 8.99%.
> 
> Regarding the retirement aspect, same deal - you can agree to take charge of your retirement as long as you also agree not to claim OAS, GIS, etc. when your mutual funds/stocks are down 50%.


I don't expect anyone to subsidize my mortgage, I can get mortgages very cheap versus the majority of Canadians. and the increased amortization period would increase the monthly cashflow of the property making Real Estate a more attractive investment for speculation. Even a 20% downpayment avoiding the CMHC is 5X leverage which is more leverage than they give me in my margin account. 

I would prefer actually not to claim OAS, GIS and pay less in taxes myself but the government recognizes not everyone has the sense to save their money.


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## Fain

stephenheath said:


> I suspect that would make tons more money than required as long as you close the loophole that people can give their money/assets away before their death.


Even if they give it away it would still be deconcentrating the wealth. Also not too many people know when they'll die.


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## HaroldCrump

Fain said:


> I don't expect anyone to subsidize my mortgage, I can get mortgages very cheap versus the majority of Canadians. and the increased amortization period would increase the monthly cashflow of the property making Real Estate a more attractive investment for speculation. Even a 20% downpayment avoiding the CMHC is 5X leverage which is more leverage than they give me in my margin account.


The govt. is already doing many things to support the RE industry.
It is not directly related to this budget, of course, but we are not paying the true cost of mortgage loans because of the various forms of govt. guarantees.
For instance, the govt. will not let CMHC go under.
The govt. will also pillage the tax coffers to ensure a bailout of any of the 5 banks, if such scenario comes to pass.
The govt. is running various schemes and programs to "encourage" RE ownership such as the home-buyers plan.

You may believe you can get "cheaper" mortgages than most Canadians, however, let us not be ungrateful to the govt. for supporting the RE industry in the many ways it does.

All I am asking for is to not take it to even more insane levels.


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## Cal

March 29th.

http://www.theglobeandmail.com/news...ning-plans-in-march-29-budget/article2354311/


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## uptoolate

Guigz said:


> Money is akin to the monarchy of the past, the rich are born rich and get richer, the poor stay poor.


I may be wrong but I don't think that the statistics in Canada bear this out. Also, aside from the ultra wealthy, I don't think that this is true at all in most western societies.


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## Eclectic12

Guigz said:


> - Put a cap on public sector defined benefits pensions. It could work the same way as CPP with a YMPE around 60-70,000$ and the rest of the income gives rise to a DC pension. Public sector employees would get a maximum of 70% of 70,000$ after 35 years + whatever DC they put in.
> 
> [ ... ]
> 
> -Introduce direct taxes on estates. Could be structured in brackets similar to taxe rates. For example 0% < $200,000, 5% < $400,000 .... 40% >= $20,000,000. Money is akin to the monarchy of the past, the rich are born rich and get richer, the poor stay poor. This would mitigate the issue and allow to state to collect extra revenue.
> 
> [ ...]


I like the idea of cutting expenses.


For the taxes on estates - don't we already have that? 

My understanding is that when an individual dies, there are only limited options for transferring assets. Everything else is liquidated to become part
of the estate and taxed at much higher rate than an average year.



Cheers


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## uptoolate

We don't have estate taxes per se but all holdings are deemed to be sold in the year of death and then the appropriate taxes applied. For a principal residence this means no tax as it passes to the heirs. Other assets are taxed depending on the class that they are in. If you had all of your assets in cash in a non-registered account or in your mattress then there would be no tax owing and only probate would be paid. The major hit for Canadians comes when there are substantial funds in an RRSP. It doesn't matter what is held inside, stocks, fixed income, cash - it is all sold and treated as income in the year of death. This can lead to one significant tax bill for the estate to settle before money passes from the estate. In cases of large RRSPs, a large portion of the money would be taxed at the highest marginal rate.


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## donaldmc

I don't know either...Well, i'll look for it later. You did have a great discussion though.


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## Cal

Ontario budget is on the 27th. Not sure about other provinces. But I do expect some cost cutting measures. Everyone seems to be trying to ensure they are not the next Greece.


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## Saniokca

Guigz said:


> -Raise taxes on the high end. Last bracket should be around $150,000 and be raised to 51% MR. Rich people could not have gotten were they are without the social programs that are there to support less fortunate ones. Although they are not users of those programs, they need to support them nonetheless.
> 
> Let's be clear, I do not expect any of these changes in the budget, but I think that "radical" ideas like this are needed in order for this unprecedented demographic and economic situation to be dealt with.


Mr. Rich also worked their butt off to become Mr. Rich... The more crazy hours I work to get my income and wealth up, the more I resent social programs/credits of most kind... I am all for helping people who are disabled and such, but these fitness, home reno and other credits should not come out of my pocket...


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## Mall Guy

Guigz said:


> -Raise taxes on the high end. Last bracket should be around $150,000 and be raised to 51% MR. Rich people could not have gotten were they are without the social programs that are there to support less fortunate ones. Although they are not users of those programs, they need to support them nonetheless.


Holy crap, not sure how much more tax I can take! I believe I am actually paying the PMs salary (or at least the equivalent)! Highest tax bracket, plus a higher than average provincial rate, plus 15% HST, watched half my bonus go "to the people" i.e. the government), and recently saw that my house was re-assessed at a 9% increase over last year ( and in my little home town, it will takes 12-24 months to sell any house over $200,000). Agree with Saniokca, Mr Rich work his *** off! And the low end of the "1%" ain't big enough to solve the problem! (rant over, I need a smoke and a drink . . . but that's all tax too!!!).


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## Mall Guy

Forgot to add this link . . . http://www.debtclock.ca/


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## MoMoney

Guigz said:


> - Put a cap on public sector defined benefits pensions. It could work the same way as CPP with a YMPE around 60-70,000$ and the rest of the income gives rise to a DC pension. Public sector employees would get a maximum of 70% of 70,000$ after 35 years + whatever DC they put in.
> 
> -Raise taxes on the high end. Last bracket should be around $150,000 and be raised to 51% MR. Rich people could not have gotten were they are without the social programs that are there to support less fortunate ones. Although they are not users of those programs, they need to support them nonetheless.
> 
> -Introduce direct taxes on estates. Could be structured in brackets similar to taxe rates. For example 0% < $200,000, 5% < $400,000 .... 40% >= $20,000,000. Money is akin to the monarchy of the past, the rich are born rich and get richer, the poor stay poor. This would mitigate the issue and allow to state to collect extra revenue.
> 
> Let's be clear, I do not expect any of these changes in the budget, but I think that "radical" ideas like this are needed in order for this unprecedented demographic and economic situation to be dealt with.


These are the most productivity/efficiency killing suggestions in this thread.


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## Cal

I don't like the thought of a higher tax bracket, at least not at that level. I would feel sorry for all of the individuals who committed to higher education, and lost half of their pay to taxes. After all of the schooling that they have been through, honestly they have earned it. Really these people are the top end of the middle class. I would be in favour of a higher tax bracket for individuals who earned in excess of 1M (or something like that) per annum though. Although this really would be a small portion of the public.

A higher consumer tax wouldn't offend me. You spend more, you pay more in tax. You make less, you would probably spend less, you would pay less tax.

It also bothers me that some gov't based jobs earn up to 20% more than if the worker were to be employed for a company.


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## Zeeshan Hamid

Guigz said:


> -
> -Raise taxes on the high end. Last bracket should be around $150,000 and be raised to 51% MR. Rich people could not have gotten were they are without the social programs that are there to support less fortunate ones. Although they are not users of those programs, they need to support them nonetheless.


Someone pulling in $150k may or may not be rich. Either way, "income earners" aren't a problem. Problem in our taxcode is that the pain isn't distributed fairly (we're better than Americans, but not perfect). Income earners pay their share. But I know of many "small businesses" that legally receive many advantages I don't. One of my relatives earns more than I do but pays much less tax. Why? I am an employee and earn income, he is an independent contractor and as such, has "small business income" and "dividend" (and occasionally, capital gain). Even then his dividend isn't all his, half goes to the other "owner", his wife. And he draws some salary from the business, so does his wife. His leased car is used mostly to commute back and forth from work, so he writes that off. My car's used for work too, but I can't write it off. What ticks me off most is even though he drives a Merc E-class and Audi SUV and lives in a million $ home, he qualifies for government programs when I qualify for none. That's cuz his "income" is small, so he qualifies for many income-tested benefits (like child tax benefit) whereas I dont. He makes sure his salary is just under key thresholds. To make things worse, he also has a holding corporation and where he transfers some of his other corporations' income and makes investments through there. He has a solid accountant who keeps it all perfectly legal. 

We work in the same industry (software) and do very similar jobs. None of us have job security. In fact, ask any impartial person and there's virtually no difference between how we earn our income. Yet he pays substantially less than I do. 

It's shenanigans like these that make our tax code complicated. Instead of raising taxes even more on income earners, I'd rather see loopholes closed.


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## Zeeshan Hamid

Cal said:


> It also bothers me that some gov't based jobs earn up to 20% more than if the worker were to be employed for a company.


At the low end it's true, public employees receive better wages. But beyond mid-level, private sector pays a lot more. CAO of where I live earns ~$200k (his salary's public information) and directors earn ~$150k. Same job in private sector would earn a lot more.


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## GoldStone

Zeeshan Hamid said:


> At the low end it's true, public employees receive better wages. But beyond mid-level, private sector pays a lot more. CAO of where I live earns ~$200k (his salary's public information) and directors earn ~$150k. Same job in private sector would earn a lot more.


Yes, but, a lot more people are employed at the bottom and in the middle of the pyramid. Orders of magnitude more than at the top. Rich compensation at the bottom and in the middle trumps poor compensation at the top. If you look at the public service in aggregate, we (taxpayers) overpay big time.


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## Zeeshan Hamid

GoldStone said:


> Yes, but, a lot more people are employed at the bottom and in the middle of the pyramid. Orders of magnitude more than at the top. Rich compensation at the bottom and in the middle trumps poor compensation at the top. *If you look at the public service in aggregate, we (taxpayers) overpay big time*.


Can you back that claim up? I am not necessarily disagreeing, just asking if you have a source to prove the assertion.


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## Eclectic12

GoldStone said:


> Yes, but, a lot more people are employed at the bottom and in the middle of the pyramid. Orders of magnitude more than at the top. Rich compensation at the bottom and in the middle trumps poor compensation at the top. If you look at the public service in aggregate, we (taxpayers) overpay big time.


Maybe ... and maybe not.

Comparing the "CEO" of Canada at ~ $318K in compensation versus one of the bank CEOs like TD at $11.3 million - the difference at the top can pay for a *lot* of the bottom and middle types. Then too, there's all the VPs etc. to add in.

Without some data to work with and make comparisons, I'm not sure how this would balance out.


Cheers


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## Guigz

Cal said:


> I don't like the thought of a higher tax bracket, at least not at that level. I would feel sorry for all of the individuals who committed to higher education, and lost half of their pay to taxes. After all of the schooling that they have been through, honestly they have earned it. Really these people are the top end of the middle class. I would be in favour of a higher tax bracket for individuals who earned in excess of 1M (or something like that) per annum though. Although this really would be a small portion of the public.
> 
> A higher consumer tax wouldn't offend me. You spend more, you pay more in tax. You make less, you would probably spend less, you would pay less tax.
> 
> It also bothers me that some gov't based jobs earn up to 20% more than if the worker were to be employed for a company.


The problem with a consumption tax is that it is regressive. The people that can least afford it have to pay the highest portion (percentage wise) of the tax. Maybe if they could better delineate what is taxed and what isn't but that is pretty hard to do (i.e., people need clothes to live and be in society, yet clothes are taxed).

I don't subscribe to the idea that high earners are already taxed too much and that they "worked hard" to get there hence they should keep it all. Hard work is subjective anyway and those types of salaries would not be available without a stable society. 

I don't know enough about business tax rules to comment on that, but I am sure efficiencies could be found there as well. 

By the way, I also think that a hardcore review of some services and programs need to be done to identify programs whose spending should be funded by its users instead of subsidized by the rest of taxpayers.


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## Lephturn

Guigz said:


> By the way, I also think that a hardcore review of some services and programs need to be done to identify programs whose spending should be funded by its users instead of subsidized by the rest of taxpayers.


*cough* CBC *cough


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## andrewf

Concern about the regressiveness of consumption taxes are best addressed by refundable rebates for low-income individuals than for exemptions for certain kinds of goods, like food. Yes, poor people need to eat, but so do rich people, and rich people benefit much more from the food exemption. Jack Mintz recently published a very interesting study on this subject.


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## Zeeshan Hamid

andrewf said:


> Concern about the regressiveness of consumption taxes are best addressed by refundable rebates for low-income individuals than for exemptions for certain kinds of goods, like food. Yes, poor people need to eat, but so do rich people, and rich people benefit much more from the food exemption. Jack Mintz recently published a very interesting study on this subject.


One issue is that consumption taxes can only be that high before people start doing most things on cash and tax fraud becomes rampant. As it is, virtually every contractor I try to hire offers 13% off if I pay cash. I am sure they're not reporting that income and paying HST on it. Which means they're not paying income taxes on it either.

People have trouble with percentages (sadly), and I think that's why they're resistant to a simple tax system. Here's my version of a very simple tax system :-

15% combined HST + a flat %age income tax (for the sake of argument, lets say it's 25%). Everyone gets an HST rebate regardless of income (income tested rebates are stupid because it encourages people to play games). Everyone gets first $x of their taxes back (for the sake of argument, lets say the number is $5000). But the catch is that all income is income (I don't care if it's corporate income or small business or individual) and no deductions other than genuine business expenses (eg: buying a business machinery = acceptable. Buying Leafs season ticket = not acceptable). Signing up kids for soccer, no income tax break. Signing up kids for arts class, no income tax break. 

So in this example, if you make $25,000 / year, your tax owed should've been 25% of that, so $6250. But you get the first $5000 back, so you only pay $1250 or 5% tax. No need to pay HRBlock and file a tax return, since it's so simple you'll automatically get a return. 

IF you make $25,000, your effective tax rate is 5%.
IF you make $50,000, your effective tax rate is 15%. 
IF you make $100,000, your effective tax rate is 20%

Progressiveness is built-in and since there are no random deductions and no income-tested bribery from the government, people don't need to play games and there are no artificial winners and losers (I just happen to have three kids who are active in sports and arts, suddenly I get income tax breaks that others don't get. What's the economic value in that? I was going to sign up these kids anyway). 

For RRSP I'd just do a 25% (or whatever the tax rate is) credit regardless of what your "effective tax rate" is. That way "low income earners" automatically get "help". 

With a simple tax system like that, you'll eliminate a lot of legal fraud and simplify it where majority of Canadians wont even have to file their taxes. Since there are few deductions, CRA will be able to calculate our tax returns itself. Only people with deductions (and those will be rare under this system) and businesses will have to file.


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## Cal

Lephturn said:


> *cough* CBC *cough


Same for LCBO.

As per Zeeshan.....I would almost rather see a flat 20% tax on everyone's earned income. That way everyone's tax hit is at the same rate.


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## Mall Guy

Guigz said:


> I don't subscribe to the idea that high earners are already taxed too much and that they "worked hard" to get there hence they should keep it all. Hard work is subjective anyway and those types of salaries would not be available without a stable society.


sorry what ??? . . . keep it all ??? Again, half goes to taxes . . . more with all three levels of government involved!!!


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## arrow1963

Why do people (including Zeeshan) insist on a flat tax when attempting to simplify the tax code? The devil isn't in the marginal tax rates, which take 2 seconds to calculate, it's in the determination of what's income, and in the stipulation of 'genuine business expenses'.

I'm good with almost everything in your post, except the imposition of a flat tax.

Also, as I've always understood it, what you're calling 'effective tax rate', is really the 'average tax rate' paid by citizens. Economists commonly assume that citizens will make decisions 'at the margin' (the 25% rate), rather than on the average tax rate. I'd distinguish between:

the average tax rate
marginal tax rate (25% in your example)
effective tax rate (25% + any withdrawl of government supports with increasing income. You don't mention the GIS in your example, which is clawed back at 50% for many low income seniors. This can result in an effective tax rate >80%)


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## Saniokca

Guigz said:


> I don't subscribe to the idea that high earners are already taxed too much and that they "worked hard" to get there hence they should keep it all. Hard work is subjective anyway and those types of salaries would not be available without a stable society.


ok that makes no sense... 

I'd love to know how much you make...


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## Zeeshan Hamid

arrow1963 said:


> Why do people (including Zeeshan) insist on a flat tax when attempting to simplify the tax code?


First, not flat tax. Flat rate. Second, not just a flat tax rate, but a simple tax rate *with no deduction* or exceptions. That is the more important part. Because otherwise you end up with two problems. Truly affluent build loopholes to game the system. Once you add all form of taxation (income + property + sales), it's the middle class that gets squeezed. Second, in a country as diverse as Canada, how do you fairly set marginal rates? A $70,000 income in Toronto isn't same as a $70,000 income in Windsor, yet the taxcode treats them similarly. If you want to make it fair then you must also take cost of living into account. 



arrow1963 said:


> You don't mention the GIS in your example, which is clawed back at 50% for many low income seniors. This can result in an effective tax rate >80%)


Huh? GIS isn't earned income. It's an income supplement for low-income seniors. Once you're beyond the threshold, you don't receive it. That's not a tax! That said, I am against all income tested benefits because they encourage people to play games with their income. But then again, I am also against age-tested benefits (why does a wealthy 65 year old get to split pension but a poor 35 year old making little money doesn't get to split his income)?


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## arrow1963

1. Mea culpa. Flat tax rate, not flat tax. My point remains, this proposal (amongst many 'simplify the tax code' proposals) conflates 2 sets of changes to how we collectively fund government:

a) Simplification of the tax code relating to the definition of 'income'
b) The adoption of a single tax rate

Milton Friedman's Negative income tax / guaranteed minimum income (in Capitalism and Freedom) is pretty close to what you're describing. He also advocates for a single tax rate, so you're not in poor company. I've just never understood why people want to take something that's almost unambiguously good (rationalizing a tax code that is the product of historical compromises and influence) and add a value judgment that Canadians don't seem to have a stomach for (a single tax rate on all income levels).

Also, I'm not sure how you're squaring 'no deductions' with 'genuine business expenses', where GBE= machines and not leafs tickets.

2. Although I don't agree with what you're proposing, I do think that the 'fair' marginal tax rate is that which is set democratically, such that the government has sufficient revenues to pay for those programs the public deems to have benefits which outweigh their costs and the deadweight loss of taxation. That is, the desired level of spending implies a tax rate/personal deduction level. If that is considered to be 'infeasible', then spending must be cut, until the loss felt from cutting spending is greater than the benefit of lower taxes. That's what we appear to do every year (in a really clumsy and dirty way) in drafting federal/provincial budgets, although it appears these days that the only acceptable move for taxes is down.

3. Regarding the GIS, I don't think it's that important. It served only as an example of the difference in practice between 'effective marginal tax rates' and 'average tax rates', which you conflated in your example. You are correct in suggesting that high 'effective marginal tax rates' do have distortionary impacts on personal behavior and financial planning. The adoption of a negative income tax/guaranteed personal income could overcome inefficient implicit marginal tax rates in poorly designed tax codes, but likely at the cost of higher overall taxes on the middle class (or much lower levels of social supports) than seen today.

4. There are many reasons for advocating a flat tax rate, but I don't think geographic disparity in living expenses is a good one. In Canada (and as far as I'm aware, no where in the world) do we tax individuals on 'how happy' their work makes them. It doesn't matter whether you make 80K as a teacher, nurse, low-level professional athlete, or lumberjack, your tax rate is the same, even though (for the purposes of argument) one might find lumberjacking to be an objectively worse job: more dangerous, less pleasant work environment, less pleasant co-workers, poorer job security, etc...

If you don't like that example, substitute your own, where 1 job dominates another, being better in every metric you can think of other than income. We tax incomes, and thus the worker in the 'dominating' job might be seen to have an advantage. We don't care about how he makes his money, only about what amount of money he makes.

How does this relate to Toronto? The argument above is that $70K in Toronto is less valuable than $70K in Windsor. Given other utility-insensitive preferences in the tax code, I don't see why anyone should care. The second problem with this argument is that it's not clear that cost of living relates to utility or value. Why does it cost more to live in major cities or coastlines than in flat rural areas? I'd venture that any reasonable answer would include the terms 'work opportunities' and 'local quality of life'. Anybody living in the GTA or Toronto is free to move to low cost areas. If they're not willing to on account of a lack of cosmopolitan opportunities, they're voting with their feet. If they're not on account of salaries or job opportunities, they're suggesting that a 70K/70K comparison isn't valid. People like to live in big cities, and as a result they pay for the privilege, which they should.

(Possible exception: there appear to be historical/geopolitical motivations for encouraging continued settlement in the relatively high cost North. Promotion of settlement can be seen to be a mistake on the part of public policy, a reflection of the large positive externalities to Canadians of having Northern settlements, or the cost of public preferences/historical agreements)


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## Zeeshan Hamid

Huh? What does job satisfaction or moving has to do with marginal tax rates?

In a progressive tax system (as opposed to a flat tax system), the tax rate increases as taxable base amount increases. The assumption is that people making more money have a higher ability to pay. So the reason a person making $86,000 is paying 40cents of the last dollar he earns to the government (compared to the person making $78,000 handing 33c is because the assumption is that the person making $86k needs that dollar less than the person making $78k (that's why the government takes more of it away). But that assumption isn't necessarily true because in real life your "ability to pay" cannot be calculated by looking simply at your income and ignoring other real-life variables (such as cost of living etc).


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## arrow1963

It's not clear to me that marginal tax rates relate to 'ability to pay' more than 'marginal utility of income', and I don't know what 'ability to pay' means.

Am I 'unable to pay taxes' if I can't afford my million dollar mortgage? Does it matter if that mortgage is for a shack in Vancouver, or a mansion in Lethbridge? If I would rather live in a shack in vancouver than a mansion in lethbridge, why should the tax regime preference one decision over the other?

At a more basic level, you have a fundamental disconnect in arguing:

a) for a flat tax rate
b) for tax burden to reflect 'ability to pay'

'Ability to pay' might depend on:
-family size
-the local poverty line
-household income vs. personal income
(under some social values)
-education costs / educational loans
-medical costs

Our current, complicated, tax system attempts at varying degrees of success to account for some of these socially accepted impacts on the difference between ability to pay and income. A flat tax/ no deduction system does not. Are you still happy with the latter?


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## Guigz

This is a reply to the last post on page 4:

Although your marginal tax rate might be 50%, your average tax rate is likely much much lower. In order to have an average tax rate of 50% (i.e., half goes to taxes), you would need to have an *income *of more than 100,000,000$ (100 millions) per year and live in Nova Scotia (where they have the highest tax bracket at 50% and therefore the average rate converges asymptotically towards 50%).

Although I agree that some people take advantage of social programs, the complete absence of social programs would likely mean a society that is much less stable. I am pretty sure that the CEO of major companies would be unable to command the king of salaries they are getting if there was not a stable base underneath (e.g., would Apple still sell gazillions of Ipads if people had to fend for themselves to survive, I would think that promiscuous spending (i.e., ipads) would dry up). 

You can't extract blood from a rock, no matter how hard you squeeze it. It does not make sense to tax the poor to give to the poor.


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## Guigz

Saniokca said:


> ok that makes no sense...
> 
> I'd love to know how much you make...


Its in my money diary. Look it up. My MR tax rate is 38% FWIW.

I would not make the salary that I make if I lived in Rwanda or some other backwater country (no offense meant to people of Rwanda). I am happy to pay my taxes.

This does not mean that I agree with frivolous spending by the government.


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## Zeeshan Hamid

arrow1963 said:


> It's not clear to me that marginal tax rates relate to 'ability to pay' more than 'marginal utility of income', and I don't know what 'ability to pay' means.
> 
> Am I 'unable to pay taxes' if I can't afford my million dollar mortgage? Does it matter if that mortgage is for a shack in Vancouver, or a mansion in Lethbridge? If I would rather live in a shack in vancouver than a mansion in lethbridge, why should the tax regime preference one decision over the other?
> 
> At a more basic level, you have a fundamental disconnect in arguing:
> 
> a) for a flat tax rate
> b) for tax burden to reflect 'ability to pay'
> 
> 'Ability to pay' might depend on:
> -family size
> -the local poverty line
> -household income vs. personal income
> (under some social values)
> -education costs / educational loans
> -medical costs
> 
> Our current, complicated, tax system attempts at varying degrees of success to account for some of these socially accepted impacts on the difference between ability to pay and income. A flat tax/ no deduction system does not. Are you still happy with the latter?


There's no disconnect. I was arguing two things :-
1) Our tax code does a very poor job of calculating the marginal utility of income. Making $90,000 / yr in Toronto is not same as making $90,000 in Sudbury, but the tax code assumes that the last dollar has same marginal utility. That's absurd. it also doesn't take a whole lot of other situations into account including savings, family needs, age etc. I am saying that if you truly want to calculate the marginal utility of income then the taxcode needs to be a lot more complicated than it is.

2) A flat-tax rate has progressiveness built-in to it. Look at my example. I even broke down the average tax rate of different income. The problem isn't progressiveness (you make more, you pay more). The problem is complexity. Once you allow the system to get complicated, people making rules add loopholes that benefit themselves. 

Here's what I am saying. Take a middle-class income earner making $120,000 / year. Add all the taxes he pays (income + HST + property taxes). Now take a business owner pulling in $120 million. Add all the taxes he pays. You'll find that the middle class income earner pays a higher percentage of his income in taxes. THAT is the problem. 

Progressiveness is a facade, the game's rigged. I am not saying tax rates should be flattened in a vaccum, that wouldn't be fair. I am saying the entire taxcode needs to be cleaned up and loopholes and silly deductions need to be done away with.


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## HaroldCrump

Zeeshan Hamid said:


> Can you back that claim up? I am not necessarily disagreeing, just asking if you have a source to prove the assertion.


I have to agree with GoldStone.
Compensation as a whole involves more than just the base salary and benefits.
There is the itsy-bitsy issue of fully guaranteed and indexed public service pension, which is deferred compensation.
There also ought to be a monetary value attached to the job security, which you have alluded to as well.

Whether we "overpay" for a particular sector is subjective because there is no easy apples-to-apples comparison.
What would we compare against?
We could compare against another country such as the US or UK.
OECD produces comparative compensation data for various professions across its member countries.
I recall seeing the data for Canadian teachers late last year and we were in the top 3.

Whether we overpay or not can also be determined by outsourcing the same jobs to the private sector.
Recent instances have shown that it is indeed cheaper to do so.

Similar determination can also be made by countervailing negotiation by the various levels of govt. with the respective public sector worker unions.
And that is something our governments fail miserably on.

I cannot think of any reasons how we NOT overpay for public service.
To me the question is whether we are simply overpaying or outrageously overpaying.


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## sags

I expect the budget to be the same as past budgets...........lots of self congratulations, and a great foretelling of things to come a decade or two from now. Throw in some early retirements packages for highly paid senior public service friends, and perhaps retracting some of the mortgage rules they rolled out a few years ago, which created the house price bubble which threatens to collapse or economy as it did in the US.........and call it a historic budget.

Except for their quirky fears of rising hordes of criminals, these guys do a great Liberal impersonation.


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## arrow1963

Zeeshan Hamid said:


> 2) A flat-tax rate has progressiveness built-in to it. Look at my example. I even broke down the average tax rate of different income. The problem isn't progressiveness (you make more, you pay more). The problem is complexity. Once you allow the system to get complicated, people making rules add loopholes that benefit themselves.
> 
> Here's what I am saying. Take a middle-class income earner making $120,000 / year. Add all the taxes he pays (income + HST + property taxes). Now take a business owner pulling in $120 million. Add all the taxes he pays. You'll find that the middle class income earner pays a higher percentage of his income in taxes. THAT is the problem.


1. I don't see why this is a problem per se. The tax code provides incentives for small business creation, which politicians will argue is a driver of economic growth, and which entails more risk than working as an employee. This obviously won't be true in every case, but I've never seen a politician run against small business people, and I don't think there's a public appetite for it. If there's a free lunch in being a contractor, you should consider it.

2. Your tax system is trivially progressive, and it's really easy to imagine the exact same system (no deductions, dividends=income, etc...), but with tiered tax rates. If you are interested in a progressive system, why emphasize a single tax rate? As it is, the average tax rates will be:

15% at 50K
20% at 100K
22.5% at 200K
24.5% at 1M

That's 'progressive' on a yes/no basis, but it also doesn't account for the impact of HST, which could result in a regressive overall tax rate depending on spending/saving patterns. That will be fine for most CMF members, but won't be well received by the median voter, who is closer to 50K a year than your 'middle class' $120K (which has migrated up from $70K 2 posts ago).

If our 'middle class' 50K and 100K earners spend their whole income (of which they should save some), and our 'high earners at 200K and 1M save half their income' (which is a bit of a stretch), the resulting total tax burdens including the 15% GST are:

50K - 27.75%
100 - 32%
200- 28.3%
1M - 30.2%

You can make your own assumptions if you want, but that story is entirely in line with your 'middle class earners in high cost areas don't have a fair go' story, and that's not progressive. Why tie yourself down to 1 tax rate if you do have an interest in a progressive tax code?


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## Zeeshan Hamid

What you're saying isn't progressive. Most people pulling in $250,000+ a year aren't earning "income". You seem to be fixated on income earners only. You can introduce a new tax bracket at 60% for people earning more than $250,000 / year and you'll still only hit a small percentage of people actually pulling in $250,000 / year (since, like I said, most people beyond that point aren't on a salary and as far as the taxcode is concerned, their income isn't "income"). It's the arbitrariness of it that annoys me.


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## Zeeshan Hamid

HaroldCrump said:


> I have to agree with GoldStone.
> Compensation as a whole involves more than just the base salary and benefits.


Agreed. So compare it all. Someone must have studied it. 



HaroldCrump said:


> There is the itsy-bitsy issue of fully guaranteed and indexed public service pension, which is deferred compensation.


NO it's not. "Fully guarenteed" part ads a risk, that's true. But other than that, these are mostly self managed. It's sad that more people don't have access to pensions. But that's an argument for a different thread .



HaroldCrump said:


> Whether we "overpay" for a particular sector is subjective because there is no easy apples-to-apples comparison.


Sure there is. Compare a public job to similar private jobs with similar responsibilities, experience requirement and challenges.



HaroldCrump said:


> We could compare against another country such as the US or UK.
> OECD produces comparative compensation data for various professions across its member countries.
> I recall seeing the data for Canadian teachers late last year and we were in the top 3.


Can't compare to other countries. What Americans pay their teacher is pathetic. IT's no surprise that their students often rank at the bottom of developed countries. Americans have awesome universities but profs are compensated well. 



HaroldCrump said:


> Whether we overpay or not can also be determined by outsourcing the same jobs to the private sector.
> Recent instances have shown that it is indeed cheaper to do so.


Prove it then. I can say recent instances have shown that outsourcing isn't always cheaper and sometimes cost more. 



HaroldCrump said:


> I cannot think of any reasons how we NOT overpay for public service.


And yet you can't think of any data to back it up. Look, I am actually not saying you're wrong. I suspect you're right, I honestly do. Especially at low level. But as you move up the ladder, public sector lags the private sector by huge margins. 

IF I were to do move my day job to the public sector I would likely need to take a 50% cut in my pay, that's including all the benefits you mentioned. Same goes for talented lawyers, upper management, executives etc. 

When you look at everyone from CEO to the bottom, is there proof that overall the public sector overpays? May be the private sector underpays most "workers", leaving outsized rewards only for executives and public sector chooses to spread it out more evenly. Again, I don't know if that's true and we wont know it without data. So does anyone have an actual study or research to share? Someone must have studied it.


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## arrow1963

That's your tax system. I assumed that you wanted to treat capital gains and dividend income as 'income', so it's not clear how the $250K+ crowd will avoid taxation. Regardless of the dividend or cap. gains adjustment to taxes, adjusting off a higher base will result in higher taxes (50% of 60% = 30%).


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## HaroldCrump

Zeeshan Hamid said:


> NO it's not. "Fully guarenteed" part ads a risk, that's true. But other than that, these are mostly self managed.


It is true that the pooled pension is managed by independent investment boards, but the various levels of govt. guarantee the solvency and fully-funded status of the plans.
Do you think the govt. will let a plan like OMERS or OTPP go under?
Unlike private sector plans, many of which are in disarray these days.
The guarantee has a huge metric value.



> Sure there is. Compare a public job to similar private jobs with similar responsibilities, experience requirement and challenges.


Right, and by the same token, you need to compare the full compensation package inclusive of all job security guarantees, the pension values, and the various flavors of benefits such as bridge benefits, voluntary contributions, above-average guaranteed pay increases, full indexation, etc.
Majority of such benefits are missing in the private sectors, esp. in non unionized, small-to-medium scale sectors.



> IF I were to do move my day job to the public sector I would likely need to take a 50% cut in my pay, that's including all the benefits you mentioned.


You won't, trust me on this.
I doubt the very premise that you would take a pay cut - you likely won't (esp. if you are competent at your job) 
Regardless, what you would gain in benefits would far, far outweigh any nominal pay cut you may have to take.

Sure, there is the proverbial 1% of the private sector (the CEOs, high-flying consultants, professionals, etc.) for which there is no match in the public sector.
The CEOs and VPs with millions in bonuses and stock options, etc.
But leaving that minority aside, for the vast majority of low to mid rung workers, the guarantees and benefits in the public sector far outweigh any marginal base salary differential.

You said upthread that you have lived through the recessions of dotcom, post-9/11, and 2008.
Surely, then, you realize the plight of workers in the private sector, esp. the small to mid scale businesses (and even large corporations, for that matter).
What do you think happened to job security, bonuses, annual raises, etc. ?

And how do you think the job security, pay, and benefits of the public sector fared in 2008 and since then?
Yep, they have pretty much doubled.

As you say in your last statement above, the spreads in the private sector are greater between the 1% and the 99%.
But if you leave aside that top 1% (which is a very, very small number in the grand scheme of things), you will appreciate that the overall compensation package in the public sector is significantly superior to the vast majority of private sector compensation packages.

And thus, as a tax payer, I believe we seriously over-pay.


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## GoldStone

Zeeshan, some numbers for you to chew on.



> Today, the government pays about $42 billion a year in total compensation for all federal workers, from the public service to the military, RCMP and ministers' exempt staff. That total was $23 billion only a decade ago.
> 
> *The average public servant costs about $92,000 a year when pensions and benefits are rolled in.* Salaries have outpaced private sector wage indicators and increased more than 52 per cent over the past decade, hitting an average of $64,400 a year.


What is the total cost of the average private employee? I have not found any data (yet), but surely it's much less than $92,000.

BTW, the annual cost of pension and benefits for the average federal employee: $92,000 - $64,400 = $27,600.

Source:

Ottawa Citizen article about a study on public sector compensation


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## Zeeshan Hamid

HaroldCrump said:


> I doubt the very premise that you would take a pay cut - you likely won't (esp. if you are competent at your job)
> Regardless, what you would gain in benefits would far, far outweigh any nominal pay cut you may have to take.


I am very good at what I do, if I may say so myself . Here's the deal: find me something in the public sector where the total package (based on your analysis) comes as close to 90% of what I have now and I'll give you $10,000 in headhunter fee. Deal? 

I am a true believer that everyone should have access to a pension plan (instead of managing my own investments and t hen buying annuity, buy into a plan where I pay $x / month in return for some defined benefit decades down the road). 



GoldStone said:


> Zeeshan, some numbers for you to chew on.
> 
> What is the total cost of the average private employee? I have not found any data (yet), but surely it's much less than $92,000.


Again, without data it's just guesses. Average annual compensation in the subsection of my industry (when total cost is taken into account) is much higher than that. That said, federal public employees enjoy a much better compensation than municipal public employees (save a few large cities). 

Without data you also can't identify areas where public sector overpays (and should pay less) and areas where private sector underpays (this is just as common). You and I wont get this level of detail by googling, unless someone researched it. Teachers are paid reasonably well (IMO of course, I don't want to go cheap when it comes to education of children), cops and fire fighters are paid very well (IMO again … I'd like to see a difference between "detectives / crime fighters" and "traffic ticket givers" ), other than that it's all over the place. 

I wasn't being argumentative, I've put an honest effort in looking for this information but other than political talking points, I haven't found any real data on this. I am sure people have studied and researched this in detail, I just can't get that data anywhere. And it frustrates me.


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## Zeeshan Hamid

I should add: I am new here and I am extremely impressed at how civil and respectful this discussion has been. Thanks guys, I enjoyed the debate. Typically it doesn't take long for controversial or emotional topics to go south real fast in online forums.


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## andrewf

I think the federal government should ban defined benefit pension plans for its employees, including MPs.

There is way too much moral hazard with DB pensions, as politicians can grant them today and hide the expense for decades (off balance sheet liabilities). DC plans are paid in the year they are earned. It also makes true total compensation for civil servants clearer.


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## HaroldCrump

Zeeshan Hamid said:


> I am very good at what I do, if I may say so myself . Here's the deal: find me something in the public sector where the total package (based on your analysis) comes as close to 90% of what I have now and I'll give you $10,000 in headhunter fee. Deal?


I will gladly accept that deal.
I think the odds are heavily in my favour...unless, you are in a highly specialized or niche profession that it would be hard to find an equivalent public sector position.
Or, you are among the truly highly compensated private sector workers in senior or executive management, esp. with bonuses and stock options, etc.

Barring that specific situation, I think you will find base salaries in the public sector (esp. federal and provincial, perhaps not municipal) to be quite competitive with your average ho-hum small/mid scale private sector compensations.
Once you add in the job security, guaranteed pensions, collective bargaining agreements, etc. you are significantly better off.

The one issue you probably will face is barriers to entry.
Many public sector jobs are not advertised, and are either filled internally or via referrals.
There are several other layers of red tape and bureaucracy that prevent a smooth closing of a job position from application to offer.
But that makes sense - due to the terrific compensation profile, such jobs are premier and in high demand, and it is natural that there will be overt and covert barriers to entry.



> I am a true believer that everyone should have access to a pension plan (instead of managing my own investments and t hen buying annuity, buy into a plan where I pay $x / month in return for some defined benefit decades down the road).


I will drink to that, mon ami.
So you start to see why such a guaranteed defined benefit retirement plan is worth its weight in gold as a component of the compensation package.
A marginal salary cut you may take today is pennies compared to the PV of that future, guaranteed, indexed, income stream.
And as I said above, I doubt there is a pay cut required to begin with.

That may have been the case decades ago when it was understood that you worked for the govt. if you valued job security and guaranteed retirement income higher than nominal salary.
However, over the years, that gap has not only closed, it is now aggressively moving in the other direction.
Private sector compensation has been taking kicks in the gut for nearly two decades now, what with the dot-com bust, the post 9/11 recession and the current 4 years long recession (and counting).
On the other hand, public sector employment and compensation has been growing by leaps and bounds - both in numbers as well as generousity of packages.
Given the sustained (and projected) low interest rate environment for years to come, those guaranteed, fully indexed, pension plans have astronomical present values.

Going back to your deal, I don't think you stand a chance, my friend.
Please prepare to send the check in the mail.
What's more, I'll even give you a 5% discount for cash


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## HaroldCrump

andrewf said:


> I think the federal government should ban defined benefit pension plans for its employees, including MPs.
> 
> There is way too much moral hazard with DB pensions, as politicians can grant them today and hide the expense for decades (off balance sheet liabilities). DC plans are paid in the year they are earned. It also makes true total compensation for civil servants clearer.


That is actually a very good idea.
Our budget deficit (both nominal as well as off balance sheet liabilities) will be wiped out with one stroke.

If you run for office with that mandate, let me assure you of my vote.

In extension to that, I also suggest that CPP be expanded to allow voluntary contributions upto the RRSP limit.
With the deficit gone for the forseable future, maybe we can finally get rid of the GST as well


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## Guigz

Harold, how exactly would you propose this ban of DB pension take place?

Government: "Thanks for working for us for the last 35 years. Since it is so expensive, we have decided not to pay your defined benefit pension as agreed in your work conditions. We thank you and hope you enjoy eating cat food!"

DBs are not the problems, the actuarial calculations behind DBs are the problem. Adjust the factors (employee contributions, employer contributions, benefits accrued per year, minimum age for penalty less benefits, ...etc) so that DBs are adequately funded by the users and you don't have a problem any longer.


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## HaroldCrump

Guigz said:


> Government: "Thanks for working for us for the last 35 years. Since it is so expensive, we have decided not to pay your defined benefit pension as agreed in your work conditions. We thank you and hope you enjoy eating cat food!"


The existing agreements cannot be scrapped, but moving forward all employees will be part of a DCP only.
I don't think anyone is suggesting existing agreements be scrapped.
Maybe andrewf is, but I didn't think so by reading his message.



> DBs are not the problems, the actuarial calculations behind DBs are the problem. Adjust the factors (employee contributions, employer contributions, benefits accrued per year, minimum age for penalty less benefits, ...etc) so that DBs are adequately funded by the users and you don't have a problem any longer.


Sure, of course, we all know that guns are not the problem - it is the gun users that are the problem 

What you are suggesting makes sense, however, there is no indication or confidence that there is any willingness to do any of that.
Take the calculation of benefits for example - why is that set at 70% of _highest 5 years average_ instead of lifetime average, like CPP is?
Take bridge benefits as another example - why on earth should other (private sector) tax payers be on the hook for someone's early retirement at 55, when the rest are working till at least 65, and often much longer?

MP and senator pensions are an entirely different can of worms altogether...


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## Eclectic12

HaroldCrump said:


> [ ... ]
> 
> Whether we overpay or not can also be determined by outsourcing the same jobs to the private sector.
> Recent instances have shown that it is indeed cheaper to do so.
> 
> [ ... ]
> 
> I cannot think of any reasons how we NOT overpay for public service.
> To me the question is whether we are simply overpaying or outrageously overpaying.


Generally true ... but then again, outsourcing based "savings" may or may not end up as expected. 

My last three private employers used this criteria and concluded they were "over-paying" based on the outsourcing quotes. They switched over to outsourcing and are currently paying again as they re-hire internally to bring the outsourced services back in-house.


Note that I'm not saying outsourcing can't work or won't save money.

What I am saying is looking at raw numbers is misleading.



Trivia Sidebar: 
For the first employer who tried to outsource, I was amused as history was repeating itself. Previous outsourcing attempts had cost a ton. Unfortunately, those suggesting ways to confirm value of the outsourced service were perceived as "anti-outsourcing" and ignored.


Cheers


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## Eclectic12

Zeeshan Hamid said:


> What you're saying isn't progressive. Most people pulling in $250,000+ a year aren't earning "income". You seem to be fixated on income earners only.
> 
> You can introduce a new tax bracket at 60% for people earning more than $250,000 / year and you'll still only hit a small percentage of people actually pulling in $250,000 / year (since, like I said, most people beyond that point aren't on a salary and as far as the taxcode is concerned, their income isn't "income"). It's the arbitrariness of it that annoys me.


Say what?? People over $250K aren't reporting income?!?

I'll have to check the rest of the comments for what I'm missing - but the last tax return I filled out, CG and Dividends were included in "income". Sure - it's not at the same rate as say salary or interest but it is "income".


Cheers


----------



## Zeeshan Hamid

HaroldCrump said:


> That is actually a very good idea.
> Our budget deficit (both nominal as well as off balance sheet liabilities) will be wiped out with one stroke.
> 
> If you run for office with that mandate, let me assure you of my vote.
> 
> In extension to that, I also suggest that CPP be expanded to allow voluntary contributions upto the RRSP limit.
> With the deficit gone for the forseable future, maybe we can finally get rid of the GST as well


That's a horrible idea. I can see them removing guarantees in case plan's assets fall short, but other than that it'd be nothing short of theft (I have no pension, so I am not biased). 

Take teachers, they put in close to 10% of their salary (if not a little more) in their plan that their employer matches. Beyond that it's the teachers' fund. You're suggesting the government raids the billion in teachers' funds? That's not your or my money, it's their money. 

I haven't been able to figure out if the anger against DB is jealousy or ignorance. DB is a great thing. If more people had it, less seniors would be dependent on us taxpayers. I'd rather get rid of OAS and GIS completely and increase CPP contributions ( and payouts) so people are forced to save bare minimum themselves instead of relying on taxpayers. In fact, having a Ponzi scheme where future taxpayers are going to pay for a benefit you're promised (OAS and GIS) is part of the problem. At least in my short circle, I see people delaying retirement saving for gratification today all the time because they expect future taxpayers to provide for a part of their income.


----------



## Zeeshan Hamid

HaroldCrump said:


> I will gladly accept that deal.
> I think the odds are heavily in my favour...unless, you are in a highly specialized or niche profession that it would be hard to find an equivalent public sector position.
> Or, you are among the truly highly compensated private sector workers in senior or executive management, esp. with bonuses and stock options, etc.
> 
> Barring that specific situation, I think you will find base salaries in the public sector (esp. federal and provincial, perhaps not municipal) to be quite competitive with your average ho-hum small/mid scale private sector compensations.
> Once you add in the job security, guaranteed pensions, collective bargaining agreements, etc. you are significantly better off.
> 
> The one issue you probably will face is barriers to entry.
> Many public sector jobs are not advertised, and are either filled internally or via referrals.
> There are several other layers of red tape and bureaucracy that prevent a smooth closing of a job position from application to offer.
> But that makes sense - due to the terrific compensation profile, such jobs are premier and in high demand, and it is natural that there will be overt and covert barriers to entry.


I agree with you that federal public employees are probably "overpaid" compared to the market, but I'd say provincial ones at least in Ontario are paid "fairly" (you can say they're paid "well", but I don't think they're "overpaid"). Other than some large cities, municipal employees aren't "overpaid" at all! BTW, it's just my "guess", I don't know this for a fact. Which is why I am looking for some data or research on this. 

That said, joining the private sector's race to the bottom isn't the right approach either IMO. Private sector salaries in most areas have stagnated and it's not just because "corporations are broke". Executive compensation is near all-time high, US corporations are sitting over $2 trillion and profitability is also near all-time high. There needs to be a balance rather than a race to the bottom.

As for finding me a job, trust me … I looked when I moved back to Canada. There was no way public sector was going to come even remotely close, that's including benefits (and I value defined benefit VERY HIGHLY... much more than an economist would rationally value it).


----------



## HaroldCrump

Zeeshan Hamid said:


> That's a horrible idea. I can see them removing guarantees in case plan's assets fall short, but other than that it'd be nothing short of theft (I have no pension, so I am not biased).
> 
> Take teachers, they put in close to 10% of their salary (if not a little more) in their plan that their employer matches. Beyond that it's the teachers' fund. You're suggesting the government raids the billion in teachers' funds? That's not your or my money, it's their money.


No one is suggesting that we pillage existing pension funds or renege existing employment agreements.
Where did you get that impression from?
The proposal was (at least the way I read it), is to switch all new hires to a DCP plan instead of a DBP plan, _moving forward_.

Many, many private sector corporations are doing this - have been doing this for several years now, and the pace has accelerated since the 2008 financial crisis.
The two most recent ones that I can recall are Manulife and RBC (the latter was as late as last year).
These are not your itsy-bitsy, fly-by-night corner grocery stores.

And There is good reason for it.

The only reason the public sector does not (probably will not) do that is because of the absolute tax payer backstops for the pension plans.
And the govt's committment to sustain high levels of public sector employment, thereby ensuring a steady and predictable level of contributions and increases.



> I'd rather get rid of OAS and GIS completely and increase CPP contributions ( and payouts) so people are forced to save bare minimum themselves instead of relying on taxpayers. In fact, having a Ponzi scheme where future taxpayers are going to pay for a benefit you're promised (OAS and GIS) is part of the problem.


Then we are in full agreement.
That has been my position on this matter all the 100 million times that we have discussed this issue here.
Except, perhaps, for the part about GIS.
I believe we will always need that net to catch the bottom-most rung of seniors.
But getting rid of rich senior welfare (that is what OAS is), and increasing CPP contributions (ideally both mandatory as well as voluntary) is the idea that I personally lean towards.

I did not advocate for the dismantling of public sector DBPs because DBPs are a bad thing, but because I believe it needs to be accessible for all working Canadians (esp. since they are the ones paying for it 100% to begin with - both employee and employer contributions).
The way to do that would be via CPP only.

And don't you dare bring up the PRPPs


----------



## Guigz

HaroldCrump said:


> Sure, of course, we all know that guns are not the problem - it is the gun users that are the problem
> 
> What you are suggesting makes sense, however, there is no indication or confidence that there is any willingness to do any of that.
> Take the calculation of benefits for example - why is that set at 70% of _highest 5 years average_ instead of lifetime average, like CPP is?
> Take bridge benefits as another example - why on earth should other (private sector) tax payers be on the hook for someone's early retirement at 55, when the rest are working till at least 65, and often much longer?
> 
> MP and senator pensions are an entirely different can of worms altogether...


I agree with what you are saying, and I think that it is sad for the future generation of workers.

Like Zeeshan, I think that DBs that provide a *safety net* (i.e., anything above 50,000/year is pushing it) are a great idea to mitigate against taxpayers having to support poor seniors that run out of money due to various reasons.


----------



## HaroldCrump

Guigz said:


> Like Zeeshan, I think that DBs that provide a *safety net* (i.e., anything above 50,000/year is pushing it) are a great idea to mitigate against taxpayers having to support poor seniors that run out of money due to various reasons.


And for precisely that reason, it needs to be accessible and available to all working Canadians.
Currently, there is no better medium for it other than the CPP.

My issue is not with the DBP model or with public sector pension plans - it is with the exclusivity of those plans.
The system we have is a have vs. have-not system.
The public sector plans are outrageously generous, esp. when compared to the CPP.
And we are no longer able to afford this outrageousness, given our budget deficits at every level (federal, provincial and municipal).


----------



## Zeeshan Hamid

HaroldCrump said:


> And for precisely that reason, it needs to be accessible and available to all working Canadians.
> Currently, there is no better medium for it other than the CPP.
> 
> My issue is not with the DBP model or with public sector pension plans - it is with the exclusivity of those plans.
> The system we have is a have vs. have-not system.
> The public sector plans are outrageously generous, esp. when compared to the CPP.
> And we are no longer able to afford this outrageousness, given our budget deficits at every level (federal, provincial and municipal).


On one hand you say this and on the other, you say "that's why public sector shouldn't provide DBP either". Private sector can't provide it because it's silly to expect companies to manage their employees' retirements and other than some very large employers, you can't really expect them to hire investment managers. Pooled pension plans can solve that problem. There was a lot of talk about it a couple of years ago and then it all just died out. 

You seem to be saying "if I cant have it, they shouldn't have it either" and that doesn't sound right .


----------



## the-royal-mail

Actually the reason most seniors will end up poor and needing taxpayer support these days has to do with how expensive housing has become. How the heck can anyone save for emergency, have family, kids, cars, house with picket fence AND save for retirement at these inflated prices. If seniors are retiring poor I think it's because they're having to spend their lives "paying off" various forms of debt including inflated RE. Just wait until interest rates go up. Won't be pretty.


----------



## Zeeshan Hamid

the-royal-mail said:


> Actually the reason most seniors will end up poor and needing taxpayer support these days has to do with how expensive housing has become. How the heck can anyone save for emergency, have family, kids, cars, house with picket fence AND save for retirement at these inflated prices. If seniors are retiring poor I think it's because they're having to spend their lives "paying off" various forms of debt including inflated RE. Just wait until interest rates go up. Won't be pretty.


That hurts us, it doesn't hurt today's seniors who bought homes for a quarter (or less) of what they're now worth .


----------



## Eclectic12

HaroldCrump said:


> That is actually a very good idea.
> Our budget deficit (both nominal as well as off balance sheet liabilities) will be wiped out with one stroke.
> 
> If you run for office with that mandate, let me assure you of my vote.
> 
> In extension to that, I also suggest that CPP be expanded to allow voluntary contributions upto the RRSP limit.
> 
> With the deficit gone for the forseable future, maybe we can finally get rid of the GST as well



Ha!

I must be more cynical than you! Who'd have thought? 

Somehow I think there's a ton more "off balance sheet liabilities" than just benefits.


Cheers


----------



## andrewf

There are other off-balance sheet liabilities, like promises for health care provision., OAS, GIS, etc. By some calculations, these run into the trillions.

My problem with DBPs for civil servants is that there is some moral hazard around making the promises. The same phenomenon exists in the private sector, but that is constrained by the fact that firms can be driven to insolvency. Since the federal government can tax or print Canadian dollars as needed, there is no such risk to constrain demands by civil servants. Politicians have an incentive to buy labour peace by making promises that are not properly accounted for until many years later. Actuarial calculations can be gamed by fiddling with discount rates. It also seems to me to be very challenging to make accurate actuarial predictions when DBPs feature % of maximum career earnings (which could effectively make pay in the last few years of a civil servants career worth hundreds of thousands of dollars or millions when you factor in pension costs). DC plans make this transparent.

With Teachers Pension Plan, the Ontario government is still liable for any shortfalls in the plan. If the liability did not extend beyond the year the benefit is earned (ie, cash payment into a designated pension fund), it would be a DC plan.


----------



## Eclectic12

andrewf said:


> There are other off-balance sheet liabilities, like promises for health care provision., OAS, GIS, etc. By some calculations, these run into the trillions.
> 
> My problem with DBPs for civil servants is that there is some moral hazard around making the promises. The same phenomenon exists in the private sector, but that is constrained by the fact that firms can be driven to insolvency. Since the federal government can tax or print Canadian dollars as needed, there is no such risk to constrain demands by civil servants. [ ... ]
> 
> With Teachers Pension Plan, the Ontario government is still liable for any shortfalls in the plan. If the liability did not extend beyond the year the benefit is earned (ie, cash payment into a designated pension fund), it would be a DC plan.


True ... but then again, the provincial gov't has played games in the past.

I can remember when Davis was premier, my dad kept getting notices that the teachers pension was in dire straits, was limping along and if approval was given to merge the main fund with the indexing fund, "maybe" it could survive another twelve years.

When the teachers finally had a representative that saw the actual figures, the "shortfall" was the IOU from the province for Suncor shares. Without the IOU, there was a surplus.


IAC, now that Dad's passed on, I am not current on the status. Though I did hear that contribution rates were being increased and index benefits were being cut, as part of the latest adjustments.


Cheers


----------



## HaroldCrump

Zeeshan Hamid said:


> On one hand you say this and on the other, you say "that's why public sector shouldn't provide DBP either". Private sector can't provide it because it's silly to expect companies to manage their employees' retirements and other than some very large employers, you can't really expect them to hire investment managers. Pooled pension plans can solve that problem. There was a lot of talk about it a couple of years ago and then it all just died out.
> 
> You seem to be saying "if I cant have it, they shouldn't have it either" and that doesn't sound right


I said neither of the above.
At least, didn't mean to - sorry, if it interprets that way.

All I am asking for is a level playing field between private sector and public sector workers.
What we have now is a guaranteed DBP haves vs. have-nots situation.
It is particularly bad because the have-nots are funding it for the haves.
Surely you have noticed how this issue is gradually coming to the fore-front these days, esp. in the aftermath of the financial crisis of 2008.
Mainstream media is finally starting to surface this issue, as more and more private sector tax-paying workers are waking up and starting to ask questions about exactly what the heck is going on.

The disparity between what a regular private sector worker is entitled to via the CPP and what a regular public sector worker is entitled to is huge, and getting worse by the day.
The core benefits aside, many of the bells and whistles, such as bridge benefits, anchoring to highest drawn salary averages, etc. are simply outrageous.

We don't need yet another pooled pension management system for all working Canadians - we already have one of the best in the world - the CPP.
What we need is to expand its scope to provide a true retirement basis, which is consistent across the entire spectrum of working Canadians.
The public sector pension system that we have now is unfair to the tax payers, who are not only contributing 100% into it, but also backstopping it fully.
It is also heavily rigged because of political and vote grabbing reasons.


----------



## Zeeshan Hamid

HaroldCrump said:


> The public sector pension system that we have now is unfair to the tax payers, who are not only contributing 100% into it, but also backstopping it fully.


You're incorrect there. Taxpayers are not contributing "100% into it". For instance, teachers put a little over 10% of their salary into their pension. Their public sector employer matches it. I put money in my RRSP and my private sector employer matches it. There's no difference at the "contribution" end. The difference is that teacher's pension plan fund then manages the fund whereas my employer lets me fend for myself. Teachers are funding their own pension just like I am funding my own RRSP. 

The solution isn't to rob teachers of a cool benefit they have. The solution is to make it easy for other private sector employers to provide this benefit to their employees. 

CPP is a good solution up until the poverty line (reasonable income in retirement), but it's not a solution for extensive pension plan. May be CPP should have something where people can put extra money in to "increase" their pensions, but that's similar to the "pooled pension" I suggested.


----------



## Cal

In a perfect world that would be ideal. However many employers do not want to carry that risk, as it could eventually mean insolvency.

In the case of the teachers, in the event of insolvency, we all collectively would fund their pensions.

I don't mind funding my own 'pension', however, many individuals don't save/invest or realize that they have already spent their retirement money, and enjoyed their retirement too soon, and will retire poor.


----------



## Dmoney

Zeeshan:

Teachers, along with every other public sector worker, do not fund their own pension plan. They put 10% of their salary in (which the taxpayer pays), which is then matched by their employer (the taxpayer). This whole notion of "we pay taxes too" and "we fund our own retirement" is just offensive coming from public sector employees. 

If my mom gives me $10,000 and I decide to save $5,000 for retirement, I am not funding my retirement, my mom is. 
If I get an allowance of $1,000 a month and have to pay rent of $500 a month, I'm not contributing to the household. 

The public sector is a net recipient of tax dollars. Revenue generateds < expenses generated.

I have no problem with public sector employees being paid well, and having great benefits, but when their total compensation is as out of whack as it is now, and they constantly want more, it becomes an issue. Upthread someone mentioned $92,000 cost per public sector employee. Even if salary is only $65,000 of this amount on average, that is still far more than any reasonable average of private employees would get you.

To balance the budget, public sector wages need to be frozen until they are aligned with private equivalents, then tied to economic growth going forward. One side of the equation can't grow faster than the other side indefinitely.


----------



## HaroldCrump

Zeeshan Hamid said:


> You're incorrect there. Taxpayers are not contributing "100% into it". For instance, teachers put a little over 10% of their salary into their pension.


Sorry I have to clarify.
I meant for fully tax payer funded services in the public sector (vs. partially funded crown corps. like CBC or BDC), the tax payer is paying for both the employee and the employer portions ultimately.
Regardless, there are provisions in both the teacher's pension as well as other fully public sector service pensions like OMERS and HOOPP that are outrageous, such as the bridge benefits, anchoring to highest drawn salaries, etc.

As a tax payer on the hook for guaranteeing and topping up such benefits while running huge provincial (and federal) deficits, I don't think we can afford such welfare schemes any longer.
We have so far been able to cover such glorious benefits for our poor, striking, public sector workers by increasing taxes, fees, premiers and other levies for the last two decades, but I am afraid we are at the end of our tether now.
Our shamwow is now full, with no more capacity to absorb.

Show me a way to carry and sustain these outrageous benefits within a balanced budget and without increasing taxes, fees and premiems and I might agree with that.
But until then, I am fundamentally opposed to these programs.

As a private sector tax payer, if you are ok with paying ever increasing taxes into this fund, please feel free to send a certified cheque to C/O the Ministry of Finance, but please excuse the rest of us from that obligation.



> The solution isn't to rob teachers of a cool benefit they have. The solution is to make it easy for other private sector employers to provide this benefit to their employees.


Uh oh.
I have to disagree with that - how do you suppose the govt. should "make it easy" for private sector corporations to provide pension plans with the same pedigree as the public sector ones, without providing the same guarantees and backstops?
I have no problem with a fully for-profit corporation providing whatever type of pension it wants for its employees, as long as it doesn't come begging to the tax payers with cap in hand every 10 years (you know who I am talking about).
But I don't think there is any appetite whatsoever among the tax payers to sign up for public guarantees and backstops for even more DB pension plans for the private sector, in addition to the public sector ones.

What you are suggesting : _make it easy for other private sector employers to provide this benefit to their employees_ can be accomplished within the scope of the CPP.
We already have all the infrastructure in place.
Why look elsewhere?



> CPP is a good solution up until the poverty line (reasonable income in retirement), but it's not a solution for extensive pension plan. May be CPP should have something where people can put extra money in to "increase" their pensions, but that's similar to the "pooled pension" I suggested.


So you are basically talking about voluntary contributions into CPP.
I'm ok with that.
The trouble is - there is no indication or willingness on the part of governments (past and present) to even consider that option.


----------



## HaroldCrump

Aha, I see that Dmoney also made the same point about the employee contribution vs. employer contribution - thank you.
Glad to see I am not the only one from Neptune.


----------



## Zeeshan Hamid

Dmoney said:


> Zeeshan:
> 
> Teachers, along with every other public sector worker, do not fund their own pension plan. They put 10% of their salary in (which the taxpayer pays), which is then matched by their employer (the taxpayer). This whole notion of "we pay taxes too" and "we fund our own retirement" is just offensive coming from public sector employees.


We, as taxpayers, hire teachers to provide a service at an agreed upon price (their salary + benefits). Once they provide this service, they money given to them is THEIR MONEY, not taxpayers money. They earned it, just like you earn your salary (once that money is given to you by your employer for the service rendered, it's YOUR money. Your employer isn't buying your house, your car and funding your retirement, YOU are. 

Whether you're paying more than you should is a separate issue, but whatever their salary is, it's their money after that point, not yours.



Dmoney said:


> If my mom gives me $10,000 and I decide to save $5,000 for retirement, I am not funding my retirement, my mom is.
> If I get an allowance of $1,000 a month and have to pay rent of $500 a month, I'm not contributing to the household.


That is correct. That's why OAS claw back and losing GIS is not "tax" as someone indicated upstream.

However, if you build your mom's basement and she pays you for it then it's your money, not your mom's. Understand the difference between money given for nothing and price paid for a service rendered.




Dmoney said:


> The public sector is a net recipient of tax dollars. Revenue generateds < expenses generated.



That's how it should be in a capitalist economy. When a business model exists, government should stay out of it and let private enterprises handle it. Governments should never generate revenue, they're only there to provide core services for which there are no viable business models. Now people disagree on what those "core services" are, and that's fine. But governments shouldn't be in businesses. Tax dollars are raised specifically to pay for the public sector for services we need (again, what those "services" are is up for discussion but beyond that, governments shouldn't run businesses).


----------



## Eclectic12

Dmoney said:


> Zeeshan:
> 
> Teachers, along with every other public sector worker, do not fund their own pension plan. They put 10% of their salary in (which the taxpayer pays), which is then matched by their employer (the taxpayer). This whole notion of "we pay taxes too" and "we fund our own retirement" is just offensive coming from public sector employees.
> 
> If my mom gives me $10,000 and I decide to save $5,000 for retirement, I am not funding my retirement, my mom is.
> 
> If I get an allowance of $1,000 a month and have to pay rent of $500 a month, I'm not contributing to the household.
> 
> [ ... ]


This is misleading and overlooks a lot of factors. 

Where an employee puts in *any* percentage of their salary into the company pension, they *are funding* their pension. Perhaps what you meant was "fund 100%" of their pension?

Or are you suggesting a volunteer gov't is the wave of the future? 


Also - IMO, using "gives" and "allowance" in your analogy is an offensive strawman and is useless.

Let's substitute "private Mom" for "public Mom".

Private Mom gives the private employee a different amount *for work* and they decide to save a different retirement amount. So I guess the private employee isn't funding their retirement either and it's all a "gift" from Private Mom, eh? 

As well, in the analogy there is a choice to save for retirement. Public or private DB pension members generally are *forced* to save for retirement and don't have that choice. The only option they have is to quit the job.

As for the "allowance" bit - if one is paying rent, one is contributing, regardless of where the dollars came from. The alternative is to hire the teenager from up the block for say $800, who won't pay any rent, resulting in household being out $200.


Cheers


----------



## Eclectic12

Zeeshan Hamid said:


> [ ... ]
> 
> Private sector can't provide it because it's silly to expect companies to manage their employees' retirements and other than some very large employers, you can't really expect them to hire investment managers.
> 
> Pooled pension plans can solve that problem. There was a lot of talk about it a couple of years ago and then it all just died out.
> 
> [ ... ]


"can't provide it because it's silly"?? Only "large employers"??

Strange ideas - most DB plans that are in trouble I've read about are having problems because of the downturn in the stock market and/or bad management (ex. investments, the plan, timing of topup money).

As for large employers, I've worked for two companies with 340 or so employees that offered DB pensions.



Cheers


----------



## andrewf

I think it is inappropriate for most employers to offer DB pensions. It is essentially a life insurance business, and most companies are not in the life insurance market. By definition, it is not their core competency, and DB plans get a lot of businesses in trouble.

The only reasonable way to discount a DB plan is to use long term government bond yields. Most DB plans are way under priced/overrisked by using discount rates based on assumed stock market returns (like 8%). If they were discounted correctly at the 2-3% long term government bond yield, it quickly becomes clear how absurdly expensive those guarantees are.


----------



## Eclectic12

Zeeshan Hamid said:


> We, as taxpayers, hire teachers to provide a service at an agreed upon price (their salary + benefits). Once they provide this service, they money given to them is THEIR MONEY, not taxpayers money. They earned it, just like you earn your salary (once that money is given to you by your employer for the service rendered, it's YOUR money. Your employer isn't buying your house, your car and funding your retirement, YOU are.
> 
> [ ... ]
> 
> However, if you build your mom's basement and she pays you for it then it's your money, not your mom's. Understand the difference between money given for nothing and price paid for a service rendered.
> 
> [ ... ]


+1 ... a good, clear explanation of what I was thinking.


Cheers


----------



## HaroldCrump

andrewf said:


> Most DB plans are way under priced/overrisked by using discount rates based on assumed stock market returns (like 8%). If they were discounted correctly at the 2-3% long term government bond yield, it quickly becomes clear how absurdly expensive those guarantees are.


^ Correct.
And therefore, it becomes apparent how outrageous the gold plated, bells and whistles features of public sector pension plans (such as bridge benefits, anchoring to career highest salaries, etc.) are.
Esp. when the guaranteed salary increases in these sectors are far above inflation rates and govt. bond yields.
It's a losing race (for the tax payers, particularly).

Hitherto, this game has continued because governments have been able to increase taxes, levy other fees, premiems etc. to extract more and more tax revenue.
This insanity has to stop.


----------



## Eclectic12

andrewf said:


> I think it is inappropriate for most employers to offer DB pensions. It is essentially a life insurance business, and most companies are not in the life insurance market. By definition, it is not their core competency, and DB plans get a lot of businesses in trouble.
> 
> [ ... ]


True ... but then again, from a society perspective - if the DB pension "market" is cut back to a much lower level, a lot of changes are needed in terms of financial education.

As I've mentioned previously, while in a a DB plan co-workers were focused on the PA and were blindly going to jump into the new DC plan, based solely on "more RRSP room". It took a lot of conversations and suggestions before one co-worker ran the numbers to discover that really good returns in the DC plan it would run dry after just under seven years of retirement.


... and that was someone with a reasonable understanding of finances.


Cheers


----------



## Zeeshan Hamid

Eclectic12 said:


> True ... but then again, from a society perspective - if the DB pension "market" is cut back to a much lower level, a lot of changes are needed in terms of financial education.
> 
> As I've mentioned previously, while in a a DB plan co-workers were focused on the PA and were blindly going to jump into the new DC plan, based solely on "more RRSP room". It took a lot of conversations and suggestions before one co-worker ran the numbers to discover that really good returns in the DC plan it would run dry after just under seven years of retirement.
> 
> 
> ... and that was someone with a reasonable understanding of finances.
> 
> 
> Cheers


Everyone needs to have access to DB. Everyone. It's not practical to expect people to become investment experts and fend for themselves. It's not a surprise that many seniors end up poor despite having a lifetime of opportunity. It's expected actually. The problem is that employers don't have the core competency either. If I am a retail store with 20 employees, why would I want to commit to providing for their retirement? That's not my business. So there's a disconnect here.


----------



## HaroldCrump

Zeeshan Hamid said:


> Everyone needs to have access to DB. Everyone. It's not practical to expect people to become investment experts and fend for themselves. It's not a surprise that many seniors end up poor despite having a lifetime of opportunity. It's expected actually. The problem is that employers don't have the core competency either. If I am a retail store with 20 employees, why would I want to commit to providing for their retirement? That's not my business. So there's a disconnect here.


There *is* a solution.
Actually, several - and a couple of them are rather obvious, IMO.
The problem is that there are competing political interests and a lack of willingness that are preventing the govt. from making DBP accessible to all working Canadians.


----------



## Eclectic12

HaroldCrump said:


> There *is* a solution.
> 
> Actually, several - and a couple of them are rather obvious, IMO.
> 
> The problem is that there are competing political interests and a lack of willingness that are preventing the govt. from making DBP accessible to all working Canadians.


Then too ... there's the cash cow that a lot of financial institutions make from "helping" the small companies provide a DC pension and/or Group RRSP for retirement purposes.

I've posted several times about the "wonderful" DC plan I was offered that had only four MFs, where the equity MFs offered were North American only.

Then too, at my current employer whose Group RRSP offers a broader range and a more reasonable MER, there's still issues. I ticked the wrong box and sent some overtime to the Group RRSP. Now it's going to cost me $100 to move it over to my own RRSP. 
*sheesh*



Cheers


----------



## Eclectic12

Zeeshan Hamid said:


> Everyone needs to have access to DB. Everyone.
> 
> It's not practical to expect people to become investment experts and fend for themselves. It's not a surprise that many seniors end up poor despite having a lifetime of opportunity. It's expected actually.
> 
> The problem is that employers don't have the core competency either.
> 
> If I am a retail store with 20 employees, why would I want to commit to providing for their retirement? That's not my business.
> 
> So there's a disconnect here.


If everyone needs one, then the list of potential suppliers is the employer and the gov't.

If an employee can supply it themselves, they probably aren't work for someone else. 

A third-party financial institution will be happy to "help" where they can make money but in no way, shape or form - will they take on responsibility for top-ups of the DB pension when there is a shortfall.

That leaves the gov't - which at the end of the day, means the tax payers.


As for "expecting seniors to end up poor despite a lifetime of opportunities", that IMO has to change. 


Cheers


----------



## HaroldCrump

Eclectic12 said:


> Then too ... there's the cash cow that a lot of financial institutions make from "helping" the small companies provide a DC pension and/or Group RRSP for retirement purposes.


I was thinking of providing this via CPP.
To me, that is the most obvious choice because all the infrastructure and regulations are already in place.
The "cash cow" option is the PRPP one, which is sadly what the govt. seems committed to.

If we go the CPP route, the question is whether to increase mandatory contributions (both employer and employee) or make it entirely voluntary.
Ideally, I'd like to see both i.e. mandatory increases, with additional voluntary employee-only contributions possible (similar to how many/most public sector pension plans already have in place).


----------



## arrow1963

andrewf said:


> I think it is inappropriate for most employers to offer DB pensions. It is essentially a life insurance business, and most companies are not in the life insurance market. By definition, it is not their core competency, and DB plans get a lot of businesses in trouble.



Annuties, like health insurance, are expected to be have a high likelihood of market failure due to adverse selection by individuals, which may lead to an 'insurance death spiral' (link), where no plan is available privately, or where the available plan is based on the worst assumptions one can make about consumers.

Providing insurance publicly enforces group pricing, and while certain workplaces will have different risk characteristics, it's not likely that someone will change jobs in order to get a better rate on their annuity due to employee differences that are unobservable for insurance companies. There are obviously problems with employer based DB schemes, including underfunding and the potential of bankruptcy, but there are some theoretical motivations within the economics literature to support them.

If that doesn't seem plausible, consider the 'annuity puzzle'. Economists tend to think that most people would be better off with at least part of their retirement savings coming from a simple indexed annuity, but few Canadians or North Americans purchase an annuity for themselves. Possible explanations include mental loss aversion (I will blame myself if this doesn't work out), suspicion of the profit levels inherent in the annuity contracts, and potentially, fear that annuity prices are set based on a self-selected group of healthy customers, such that if the average individual enrols, he or she will be getting a bad deal.


----------



## Zeeshan Hamid

HaroldCrump said:


> I was thinking of providing this via CPP.
> To me, that is the most obvious choice because all the infrastructure and regulations are already in place.
> The "cash cow" option is the PRPP one, which is sadly what the govt. seems committed to.
> 
> If we go the CPP route, the question is whether to increase mandatory contributions (both employer and employee) or make it entirely voluntary.
> Ideally, I'd like to see both i.e. mandatory increases, with additional voluntary employee-only contributions possible (similar to how many/most public sector pension plans already have in place).


+1. I can get behind this. But I'd be okay with PRPP too, if it was true "pension" and not just a fancy name for DC type plan, which is what the government seems committed to.


----------



## HaroldCrump

Zeeshan Hamid said:


> But I'd be okay with PRPP too, if it was true "pension" and not just a fancy name for DC type plan, which is what the government seems committed to.


PRPP is utterly useless.
In fact, the group RRSP model is far superior to the PRPPs in my opinion.
You get more flexibility and options with that.
It is not locked in, you can make self directed choices, you can transfer out (in many cases) etc.

And since PRPP is not mandatory, it is no different than you walking into any bank and opening a mutual fund RRSP account.
Except, perhaps, for the slightly less management fees in the best case scenario.
Meh.


----------



## Dmoney

It won't let me use the quote feature, so my response won't be as clear as I'd like it to be in reference to the different points risen above. 

There is a HUGE disconnect between those paying the public sector (taxpayers) and those deciding on their salaries (politicians who are heavily influenced by powerful unions). 

For example, Private mom pays son $1,000 for chores, Public mom (taxpaying public) thinks son should only get $1,000 for chores, but big bad Union Dad says to Public mom, you have to pay son $1,500 for chores or we'll strike/work to rule etc. Public mom has no choice. It's her money, yet she has no say in how it's spent, and has to actually pay whatever is thrust upon her.

In the private market, employees work directly for those who pay their salaries, and are thus accountable. If the taxpayer truly decided DIRECTLY what teachers, police officers, firefighters, transit fare collectors etc. should earn, they would be getting far less. This is where the whole system breaks down. There is no accountability, because the public sector is paid from "other people's money". Because public sector unions have so much clout with the political process. 

I agree the government should not be in the business of making money, but as long as there is a deficit and a public debt, they should be in the business of reducing spending while increasing revenues. Why not have a solvent government?

Also, my employer IS funding everything I pay for. Sure, it's my choice what I buy, but without their funds it wouldn't be possible. It becomes my money once I earn it, but they are still funding me. The difference is, they decide how much I receive. If I don't like it, I change jobs or get a second job. If I as a taxpayer don't like what my money is going to fund, I have absolutely no recourse. Short of tax evasion. Or joining and milking the system. 

We can argue til the cows come home about what we think is a fair salary for a teacher, policeman, nurse etc. All are an integral part of our society. But their salaries CANNOT continue to outpace the growth in the overall economy. They have to suffer alongside everyone else when times are tough. 

Basic economics, when supply>demand, prices fall until supply=demand. Yet teachers, firefighters and police are in such oversupply that it often takes years to decades for new applicants to get in. Nurses, less so. Logically, wages would be increased for nurses, and slashed for the rest. Not so in a world of powerful unions and weak political will.

If you're premier of Ontario and your wife's a teacher. Conflict of interest maybe?


----------



## HaroldCrump

Dmoney said:


> If the taxpayer truly decided DIRECTLY what teachers, police officers, firefighters, transit fare collectors etc. should earn, they would be getting far less. This is where the whole system breaks down. There is no accountability, because the public sector is paid from "other people's money".


Thank you, Dmoney, for expressing my thoughts as well so lucidly.

As I said above, as tax payers, our shamwow is now full.
There is no more capacity to absorb any more of these outrageous and frankly obnoxious public sector spending on compensation and pension packages any more.

Anyone who feels a compelling desire to keep funding these glorious benefits packages is free to send a cheque C/O the Ministry of Finance.


----------



## Eclectic12

Dmoney said:


> It won't let me use the quote feature, so my response won't be as clear as I'd like it to be in reference to the different points risen above.
> 
> There is a HUGE disconnect between those paying the public sector (taxpayers) and those deciding on their salaries (politicians who are heavily influenced by powerful unions).
> 
> [ ... ]
> 
> In the private market, employees work directly for those who pay their salaries, and are thus accountable. If the taxpayer truly decided DIRECTLY what teachers, police officers, firefighters, transit fare collectors etc. should earn, they would be getting far less. This is where the whole system breaks down. There is no accountability, because the public sector is paid from "other people's money". Because public sector unions have so much clout with the political process.
> 
> I agree the government should not be in the business of making money, but as long as there is a deficit and a public debt, they should be in the business of reducing spending while increasing revenues. Why not have a solvent government?
> 
> [ ... ]
> 
> If I as a taxpayer don't like what my money is going to fund, I have absolutely no recourse. Short of tax evasion. Or joining and milking the system.
> 
> [ ... ]


You limited view of recourse (i.e. only two options are tax evasion or join/milk the system) explains why the system won't change. As long as most tax payers have this sort of view and are apathetic, the status quo will remain _because the tax payer is not demanding change_.

As long as one is sure that it can't change, no effort is made and it all becomes a self-fulfilling prophecy. 

Cheers


----------



## Eclectic12

HaroldCrump said:


> I was thinking of providing this via CPP.
> 
> To me, that is the most obvious choice because all the infrastructure and regulations are already in place.
> The "cash cow" option is the PRPP one, which is sadly what the govt. seems committed to.
> 
> [ ...]


The more time I've had to think about the players involved, the more I'm agreeing that CPP is the only way it's going to happen. The challenge will be overcoming the view that "the gov't can't run anything well" and making sure some future gov't does not decide to dip into any CPP surpluses for other purposes.


Cheers


----------



## K-133

> making sure some future gov't does not decide to dip into any CPP surpluses for other purposes.


Bingo!


----------



## Eclectic12

Dmoney said:


> [ ... ]
> 
> If you're premier of Ontario and your wife's a teacher. Conflict of interest maybe?


Maybe ... and maybe not.

What proposed or passed legislation shows the conflict of interest?

If you mean salary and benefit negotiations, what local board negotiation did the premier interfere with?


If anything, these articles seems to suggest the opposite:
http://www.owensoundsuntimes.com/ArticleDisplay.aspx?e=3489920
http://www.simcoereformer.ca/2012/03/02/teachers-about-to-get-schooled-2

I'm also interested in the local benefits mentioned in the articles, specifically the sick leave gratuity. I can recall my dad mentioning long before retirement that the school board he worked for eliminated the sick leave gratuity. 


Cheers


----------



## arrow1963

Dmoney said:


> It won't let me use the quote feature, so my response won't be as clear as I'd like it to be in reference to the different points risen above.
> 
> There is a HUGE disconnect between those paying the public sector (taxpayers) and those deciding on their salaries (politicians who are heavily influenced by powerful unions).
> 
> For example, Private mom pays son $1,000 for chores, Public mom (taxpaying public) thinks son should only get $1,000 for chores, but big bad Union Dad says to Public mom, you have to pay son $1,500 for chores or we'll strike/work to rule etc. Public mom has no choice. It's her money, yet she has no say in how it's spent, and has to actually pay whatever is thrust upon her.
> 
> In the private market, employees work directly for those who pay their salaries, and are thus accountable. If the taxpayer truly decided DIRECTLY what teachers, police officers, firefighters, transit fare collectors etc. should earn, they would be getting far less. This is where the whole system breaks down. There is no accountability, because the public sector is paid from "other people's money". Because public sector unions have so much clout with the political process.



As a generalized point, this is entirely not true. The same principal-agent relationships that exist in public bureaucracies exist in large private companies. Let politicians = corporate management, and taxpayers = shareholders. 

Growing executive pay rates = politicians choosing their own salaries (where management 'chooses' a friendly board of directors, who sets their salaries).

Also, why are you comfortable assuming that politicians are in league with public unions? There's always been a large constituency of voters in favor of cutting government waste, regardless of the place or time, and I don't think that Canadians have ever turned down a tax cut. However, when waste campaigners get into office, such as former Reform MP's now government, or Ralph Klein's government that came into Alberta in the early 90's, we don't see many of the 'free lunch' efficiencies that are mentioned on the campaign trail, and budget cuts are achieved by real cuts in services. Either generations of politicians are owned by public unions, or politicians who campaign on 'reducing government waste' can never actually explicitly state what 'waste' is, because a) it isn't there, or b) you need to be deeply embedded in the system to identify inefficient points.

Obviously unionization leads to similar impacts in the public and private sectors, and in many of the functional areas that the government acts in it's not clear that businesses would be allowed to fail (hospitals, national defense, providing rural education, building bridges).

In short, it's a fallacy to compare the business of government to small business, with direct equity control and oversight. In order to be remotely intellectually honest, you need to compare government to other large, bureaucratic businesses, where you may find that your easy conclusions are not justified. While it seems to be natural to rail against bureaucracy, or 'the bureaucracy', there are systems of checks and balances, and layers of administration necessary for coordinating the actions of millions of people. Exxon Mobil is a bureaucracy, the catholic church is a bureaucracy, and Canadian governments are bureaucracies.


----------



## Robillard

*Canadian federal budget - March 29*

This year's budget for the Canadian federal government will be released on March 29. What policy changes would you like to see in the budget? More funding for social programs? Program cuts? Lower taxes? Flatter taxes? Or dare I say, higher taxes? Have your say!

Oops! Someone already posted on this topic. How do I delete this?


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## HaroldCrump

I am not as concerned about the federal budget as the Ontario one being published tomorrow, but I realize that doesn't affect you.
I am bracing for huge increases in taxes - both direct as well as indirect (fees, premiems, etc.)


----------



## doctrine

I would like to see a lower deficit more than anything. The government should hold spending and taxes, and as tax revenue rises with inflation, allow the budget to go into surplus, and start paying down the damn debt.


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## andrewf

I don't see how you should expect that, Harold. I expect McGuinty just to continue to muddle through. Major tax increases are not a hallmark of minority government.


----------



## slacker

The user fees are terrible in that it's a regressive form of taxation on the poor. It's quite backwards. I'd rather they come out and tax me where I can see them.


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## Eclectic12

slacker said:


> The user fees are terrible in that it's a regressive form of taxation on the poor. It's quite backwards. I'd rather they come out and tax me where I can see them.


Does not this depend on how the user fee is implemented and more importantly how much of the service is paid for?

For example, where one uses public transit while drivers pay for their car registration plus driver's license on a user basis, isn't the overall tax paid less? 

I'd use the example of toll roads but unfortunately, Ontario sold theirs off at either a profit or loss, depending on whether one believes the seller or buyer.


Cheers


----------



## andrewf

User fees are not always regressive. University tuition increases are generally not, especially when coupled with increases in loans and bursaries. A hypothetical user fee for yacht cleaning would not be regressive, either.


----------



## HaroldCrump

andrewf said:


> I don't see how you should expect that, Harold. I expect McGuinty just to continue to muddle through. Major tax increases are not a hallmark of minority government.


I am more concerned with the surreptitious "tax" increases, such as fees, premiums, etc.
Like the health premium.
Oh wait...that's not a tax 

For example, parking at GO stations (which they have said they won't increase, for now).
I hear that driving license fees or car registration tag fees might go up.

We have been seeing several such increases for last 2 - 3 years, including the HST, eco fee, etc.
Late last year, we had an indirect tax increase via the post secondary tuition credit for rich families.


----------



## andrewf

You can't simultaneously rail against taxation and then complain when services are operated on a cost-recovery basis. GO requires an operating subsidy (albeit a small one). So that gets paid through taxes or by the user. I think operating subsidies should, if anything, apply to the transit service. I don't want to subsidize parking at GO stations.


----------



## HaroldCrump

andrewf said:


> You can't simultaneously rail against taxation and then complain when services are operated on a cost-recovery basis.


Are driving license and registration tag renewal being operated on cost recovery basis (two fees that are likely to go up this afternoon)?
If there already were, then why is it being raised?
If not, then why was it being subsidized thus far?

And which cost? The cost of labor and materials involved in issuing licenses and tags?
Or the cost of driving (i.e. environmental and infrastructure costs)?

Regardless, the biggest "cost" in the provincial budget is compensation cost.
Until that aspect is addressed with decisive action, chipping away at the margin raising $50 here, $25 there, is not going to have any impact.
Compensation costs are the iceberg for the Ontario Titanic.
That is the lion's share of the so-called "cost of services".
Everything else at this point is what the Americans call "all gravy".


----------



## andrewf

Looks like things turned out better than you expected, Harold. No new taxes, not much in the way of new user fees (some clawbacks of certain benefits). Wage freezes and job cuts throughout the civil service.

I think this is a decent budget. I'm worried about the deferral of infrastructure investment. The PCs have already promised to vote against (which is silly, IMO), while the NDP mull their options. I don't think Hudak could or would be much more aggressive. In the interests of starting to deal with the issue rather than delaying while we go through an election, I think he should allow the budget to pass.


----------



## HaroldCrump

andrewf said:


> Looks like things turned out better than you expected, Harold. No new taxes, not much in the way of new user fees (some clawbacks of certain benefits). Wage freezes and job cuts throughout the civil service.


Hm, yes, it is certainly better than what I was expecting from these guys.
Assuming, of course, that they can actually stick to their guns during the bargaining sessions with the various public sector unions.
In 2011, McGuinty publicly said no wage increases for many of the provincial departments but in fact made a private, secret deal with them later for a 4% increase.
This only came to light as a result of an audit.
The budget is also light on specific details around the pension changes.

All said and done, the actual reduction in deficit is merely 0.65% ($15.2B from $15.3B).
I don't see how the 0.65% annual reduction will eliminate the entire deficit in 5 years, even assuming a 2% growth rate.

The infrastructure cuts are bad, in my opinion too.
Throwing the baby out with the bath water, etc.



> The PCs have already promised to vote against (which is silly, IMO), while the NDP mull their options. I don't think Hudak could or would be much more aggressive. In the interests of starting to deal with the issue rather than delaying while we go through an election, I think he should allow the budget to pass.


PC support is immaterial.
They need only 2 votes and I'm sure they can get that through the NDP.
Hudak's statement that the budget doesn't contain job creation measures is contradictory, unless he is talking about further corporate tax cuts.
Isn't this whole deficit drama because the govt. has been in the business of job and wealth creation.
The govt. has to get out of that business and let the private sector play that role.
Stimulus job creation via a budget is exactly what we don't need.

Overall this looks ok on paper but the execution will be important, esp. how strong the govt. is at the bargaining table and can push through the wage and benefit freezes.


----------



## Brenner

I agree with Harold, its easy to say public sector wage freezes its another to actually accomplish it. 

I am not sure how the pension reform is going to work itself out. It seemed to say they were going to force the pensions to be 50/50, which would be great but again not sure if it can be executed. Most plans are setup at 50/50 but the institutions have been forking over millions extra to fund the deficits, which is essentially eating away at funds available for operating and causing deteriorating services. With each round of bargaining the government has been succeeding at getting the employee contributions up but the unions view this as a concession. 

Again, its easy to say we are going freeze wages, increase employee contributions, and decrease benefits. It's another story getting an union to agree to it.


----------



## andrewf

Hudak refusing support, or actively opposing the budget, forces the Libs to make a deal with the NDP, which will be friendlier with labour. PC opposition results in a worse budget, from their perspective. Their opposition is based on posturing, rather than furthering their policy goals. PCs could have offered support in exchange for stronger line against public sector unions, which makes them look good, and gives the Liberals more cover for their negotiations.


----------



## Argonaut

*So you wanna be finance minister? See how you do balancing Ottawa's books*

http://www.theglobeandmail.com/news...ou-do-balancing-ottawas-books/article2371543/

I ended up with a 9.2 billion dollar deficit.


----------



## Eclectic12

HaroldCrump said:


> Are driving license and registration tag renewal being operated on cost recovery basis (two fees that are likely to go up this afternoon)?
> If there already were, then why is it being raised?
> If not, then why was it being subsidized thus far?
> 
> And which cost? The cost of labor and materials involved in issuing licenses and tags?
> Or the cost of driving (i.e. environmental and infrastructure costs)?
> 
> [ ... ]


Some of what makes it difficult to figure out is that there are about 206 private Service Ontario centres and about 100 public ones.
http://www.ontario.ca/en/services_for_residents/PINOPPORTUNITIES.html

It's not like the old days were everything was public and 100% of fees goes into the provincial budget.


Then too what's the trade off in savings via private company bids and whatever slice of the business takes.


Cheers


----------



## Eclectic12

Brenner said:


> I agree with Harold, its easy to say public sector wage freezes its another to actually accomplish it.
> 
> I am not sure how the pension reform is going to work itself out. It seemed to say they were going to force the pensions to be 50/50, which would be great but again not sure if it can be executed. Most plans are setup at 50/50 but the institutions have been forking over millions extra to fund the deficits, [ ... ]


Hmmm ... if you mean contributions, then I can see that change being made. If you mean the employee is on the hook for half of any deficits that I can seen being extremely difficult, public or private.


Cheers


----------



## HaroldCrump

andrewf said:


> Hudak refusing support, or actively opposing the budget, forces the Libs to make a deal with the NDP, which will be friendlier with labour. PC opposition results in a worse budget, from their perspective. Their opposition is based on posturing, rather than furthering their policy goals. PCs could have offered support in exchange for stronger line against public sector unions, which makes them look good, and gives the Liberals more cover for their negotiations.


I can't believe Hudak and gang are being so short sighted.
This is a bad, bad decision - both politically as well as economically.

Obviously, the NDP wants to negotiate. They want to negotiate away the exact clause that mandates 0% raises (i.e. the wage freezes) via legislation.
They want to add so much verbiage and exclusions in the budget that these proposals become even more meaningless than they already are.

In any case, the documented deficit gain is a mere $0.1B.
In reality, it will turn out to be less than half that, at best.

By the time this political dog and pony show is done, it will be business as usual.


----------



## andrewf

I think the difference in the deficit will be greater than that over time. For instance, the planned wage freezes will yield $6 billion is savings over 3 years.


----------



## andrewf

Argonaut said:


> *So you wanna be finance minister? See how you do balancing Ottawa's books*
> 
> http://www.theglobeandmail.com/news...ou-do-balancing-ottawas-books/article2371543/
> 
> I ended up with a 9.2 billion dollar deficit.


I got the same exact result. I extended GST to food (with increased rebates) and returned GST to 7%. No other major changes except some selective spending cuts. And actually, a $9.2 billion deficit is probably sustainable at this point, as it is not a structural deficit (deficit over the business cycle). I would not increase personal or corporate taxes, and I would probably consider some other cuts not on the list along with increased infrastructure spending.


----------



## HaroldCrump

I picked the following:

- Across the board 10% cut
- Picked all the _Selected tax credits and deductions_
- Picked all the options under _Transportation_, _Foreign Aid _and _Arts and Culture_

Left with $13B deficit.

I did not find the option that says _freeze public sector compensation_ or the one that says _switch all public sector pensions to DCP_.
Where is that?

Like the Ontario budget, all these small, marginal tax credits, deductions, etc. are chump change.
Let's deal with the real issue:


----------



## Brenner

Eclectic12 said:


> Hmmm ... if you mean contributions, then I can see that change being made. If you mean the employee is on the hook for half of any deficits that I can seen being extremely difficult, public or private.
> 
> 
> Cheers


Yes, meant to say the contributions are generally setup to be 50/50, but deficits are currently 100% responsibility of the government, so the real pension costs are not actually 50/50. 

Reasonably could cap the employer side at whatever % it currently is supposed to be, and make the employees be 100% responsible for any deficits and let the union manage the plan. Essentially making it a defined contribution from the employer side. It would then be interesting to see what the unions would do to make the plans feasible and sustainable.


----------



## Argonaut

andrewf said:


> I got the same exact result. I extended GST to food (with increased rebates) and returned GST to 7%. No other major changes except some selective spending cuts. And actually, a $9.2 billion deficit is probably sustainable at this point, as it is not a structural deficit (deficit over the business cycle). I would not increase personal or corporate taxes, and I would probably consider some other cuts not on the list along with increased infrastructure spending.


Funny we got the same number with different choices. I didn't raise any taxes, but cut spending, ended some tax loopholes, and raised the retirement age on the poor old seniors.


----------



## MoneyGal

Brenner said:


> *Essentially making it a defined contribution from the employer side*. It would then be interesting to see what the unions would do to make the plans feasible and sustainable.


As long as it pays a guaranteed lifetime income, by definition it cannot be a DC plan. The reality with DB plans is some will "overpay" relative to the benefits they receive (people who die only a few years into, or even before retirement) while others live a long time. This longevity risk is shared by everybody who participates in the plan, including the employer. 

So the participants are responsible for making their contributions, and they transfer their longevity risk (risk of living a long time, in this case) over to the plan. 

The employer is responsible for providing the guarantee, and negotiating a contribution rate from employees (as part of the overall compensation package) which matches the future obligations.

In the current prolonged low-interest environment, the present value of these future contributions is enormous. When plan investment managers could assume rates of investment return in excess of today's rates, funding the future obligations was not problematic. But changes in how plan obligations are calculated, coupled with very low (effectively zero) interest rates mean many plans have gone into deficit.


----------



## andrewf

In that way, CPP is actually a defined contribution plan. Deficits in CPP will be borne by retirees in the form of lower benefits, and workers in the form of higher contribution rates. Governments will not be making up for any shortfalls. This is not really possible with private DC pensions, but because every wage-earner in Canada is automatically enrolled in CPP.


----------



## Eclectic12

Brenner said:


> Yes, meant to say the contributions are generally setup to be 50/50, but deficits are currently 100% responsibility of the government, so the real pension costs are not actually 50/50.
> 
> Reasonably could cap the employer side at whatever % it currently is supposed to be, and make the employees be 100% responsible for any deficits and let the union manage the plan. Essentially making it a defined contribution from the employer side. It would then be interesting to see what the unions would do to make the plans feasible and sustainable.


 ... and I was highlighting that the employer having to deal with deficits is a function of a DB pension, public or private makes no difference. My private DB plan is in the same boat, where the employer is having to top up. 

Bear in mind that in good investment years, there is no top up and the plan is funded by contributions. In bad, especially prolonged periods - then yes, contributions won't cut it and *then* the employer pays more. The "real cost" is not a simple thing.


Making the employees responsible for DB pension deficits is reasonable? 

With so many living pay cheque to pay cheque - it would seem more of a recipe for a rash of personal bankruptcies. Far more reasonable, IMO would be to cap membershiop the DB plan and have new employees have a DC plan only.


Cheers


----------



## MoneyGal

Well, with CPP, we (the collective "we" not just CMF members) seem to agree that benefits paid out are funded by payroll taxes and that the plan must be "sustainable" -- and hence if the plan is not sustainable, then increases in contribution rates / decreases in payments are required. 

At the same time, CPP payout rates are adjusted for actuarial reasons. That's why the most recent changes were implemented - due to population-level increases in longevity, the old rates were no longer (what is called) "actuarially fair." 

However, when the plan is part of a total compensation package (salary plus benefits), as opposed to funded via a payroll tax, then somehow overall considerations of "sustainability" seem to go out the window. If somehow all teachers (to pick one overworked example) suddenly got a magic pill that could increase their average lifespan from the current age of about 83 to 120 (and no one else got the magic pill), would teachers (again, one handy example) argue that paying all teachers to an average age of 120 was what was agreed-to and negotiated as part of their current overall compensation package?


----------



## Causalien

Mine 4.7 billion profit. 
http://www.theglobeandmail.com/news/politics/budget-balancer/article2371543/?sel=abhklmqrtuvwyzBCDE


----------



## MoneyGal

I'd love to see the relative impact of your proposed changes (in generating that surplus) - I'd also love to get rid of all these RIDICULOUS targeted tax credits. (I always recall an old Air Farce skit about a deduction...for dental care for pets.)


----------



## Argonaut

If I scaled down RRSP's like Causalien, I would end up with a small surplus. The problem with a lot of these options, while logical to an extent, is that they would be huge political faux pas and lose a lot of votes.


----------



## Causalien

Yep. Exactly. It is done with the utilitarian philosophy.
For example, one of the reasoning I did for raising the retirement age is as follows:
In retirement, people have three sources of income (house, government and investments) and it doesn't matter the time frame it is doled out as long as it is doled out. 70% have only 2 sources which consists of house and government. So delaying the pension will just mean the seniors withdraw from the house first instead of the government first.

It's logical, but complete political self immolation. I am pretty sure if I am retiring, I'd feel revolted.


----------



## Causalien

I feel that RRSP is unnecessary once TFSA is in place. Also as income tax increases, the relative benefit of RRSP is not as great. Most of the time, if a person can amass a big amount of RRSP to matter in retirement, the person will have a bigger investment portfolio. Because to rich a materially significant RRSP, you either have a huge income, or you are super good at investing.


----------



## Causalien

Abolishing the senate and cutting house of commons is just my way of saying: "Hey, you guys fail at your job, so here's a pay cut."


----------



## HaroldCrump

Well, yeah, if we eliminate the RRSP, the TFSA and all the tax credits _of course_ we will have a budget surplus, no prizes for figuring that out.
Instead, how about we fire all the MPs and dissolve the govt.
That will generate a surplus, too.


----------



## MoneyGal

Was it this thread, or another one, in which Milton Freidman was mentioned? (Side note: I once went to the Pennsic War, the medieval recreation event started by his son.)


----------



## andrewf

MoneyGal said:


> However, when the plan is part of a total compensation package (salary plus benefits), as opposed to funded via a payroll tax, then somehow overall considerations of "sustainability" seem to go out the window. If somehow all teachers (to pick one overworked example) suddenly got a magic pill that could increase their average lifespan from the current age of about 83 to 120 (and no one else got the magic pill), would teachers (again, one handy example) argue that paying all teachers to an average age of 120 was what was agreed-to and negotiated as part of their current overall compensation package?


Teachers would argue whatever resulted in more money in their pocket. Hard to blame them, except when you are the one getting shaken down to pay for it.


----------



## doctrine

I played this budget game. Increasing the GST back by 2%, raising OAS to 67, combined with a 10% cut across all government taxes, and elimination of the nonsense tax credits (professional, firefighter, fitness, transit, arts), gives a surplus. Done and done. No raised taxes, and no cuts to registered plans.


----------



## andrewf

Raising GST by 2% doesn't count as a tax rise?


----------



## Eclectic12

andrewf said:


> Teachers would argue whatever resulted in more money in their pocket. Hard to blame them, except when you are the one getting shaken down to pay for it.


Hmmm ... so what's the $200 million to help out the Nortel pensioners?
http://www.nationalpost.com/news/canada/politics/story.html?id=2537307


Cheers


----------



## GoldStone

$192-million surplus
http://www.theglobeandmail.com/news/politics/budget-balancer/article2371543/?sel=cejtuvwyzABCDE

- Extend GST to food
- Restore 7% GST
- 10% cut to all government departments
- Eliminate all tax credits and deductions
- Stop funding VIA Rail
- Cut foreign aid by 10%
- No film funding
- Cut CBC funding by 10%


----------



## andrewf

Eclectic12 said:


> Hmmm ... so what's the $200 million to help out the Nortel pensioners?
> http://www.nationalpost.com/news/canada/politics/story.html?id=2537307
> 
> 
> Cheers


A mistake. 


No offense, carver.


----------



## sags

They aren't bailing out the Nortel pensioners........they are honoring their commitment to the Ontario Pension Guarantee Fund.

Although it won't hurt their re-election hopes in that particular riding.......given that the government collected insurance premiums for many years to create the fund, they are legally obligated to pay the benefits due.

They went through this with GM already.........and when lawyers advised the government that they would have to pay or declare bankruptcy..............they gave the money to GM rather than to the fund...........and then have workers receive benefits from the fund.

It was all about public appearances.


----------



## Eclectic12

sags said:


> They aren't bailing out the Nortel pensioners........they are honoring their commitment to the Ontario Pension Guarantee Fund.
> 
> [ ... ]


So in other words, the "if it's a private DB pension, the tax payer is not involved" is not 100% true.

Interesting ...


Cheers


----------



## Eclectic12

andrewf said:


> Raising GST by 2% doesn't count as a tax rise?


 ... of course not, it's cancelling the temporary discount! 


Cheers


----------



## HaroldCrump

Eclectic12 said:


> ... of course not, it's cancelling the temporary discount!


Quite the contrary - the GST is a "discount" that tax payers give to the govt. so that they can continue their spending without having to borrow more money.
It should be abolished as soon as the budget is balanced (2016 or whenever).
Wasn't that the original promise by Mulroney?

In the meantime, it should be cut by 1% each year, starting now.
by 2016, it'll be all gone.
Perfect timing.


----------



## the-royal-mail

It's astonishing how many people continue to argue for increasing taxes in a country that has taxed its middle class to death. The GST was brought in by a Prime Minister who was summarily decimated in the election that followed. It was and is a hated tax. The passage of time has not changed that. We've been paying this bloody tax for over 20 years and we still haven't even begun to pay back and debt and the deficits are back. There is nothing "clever" or intelligent about raising the tax any higher. It's too high as it is. The gov't has a spending and money management problem, not a revenue problem. We've discussed that concept and the vast majority agree.


----------



## Guigz

11% of the budget goes to servicing ( paying *interest* on) the national debt.

The faster we are out of this abyss, the better we will be. I don't think we can achieve that just by slashing into services or government spending.

In my opinion, both revenue increases and spending reductions are needed to eliminate this debt ASAP.

I would love to get all the same benefits as now but pay 11% less in taxes....


----------



## andrewf

GST haters are being irrational. GST is not evil, or any more evil than other taxes. There's a reason why most well-functioning market economies use significant VATs to fund their governments. They raise a lot of revenue, and do less damage to the economy than taxes on personal or corporate income. I can think of two jurisdictions without a VAT: the USA and Alberta. The latter has a vast endowment of natural resources. They have a luxury that most of the world generally does not, and they've decided to blow it all as fast as they can get their hands on it. The former is a fiscal basket case with an exploding debt:GDP.

I will point out to TRM that we repaid tens of billions of dollars in debt under the Liberals. The Conservatives cut the GST and borrowed back every dollar we repaid earlier. That was not progress, in my book.


We can (and should) all argue about what we want the government to spend money on. How it raises the revenue to fund those spending commitments should be much less controversial. We have a pretty good understanding of what works, and what doesn't when it comes to taxation.


----------



## HaroldCrump

Guigz said:


> In my opinion, both revenue increases and spending reductions are needed to eliminate this debt ASAP.


But that is not how this game works.
You see, revenue increases are the easiest part - very easy for the govt. to do.
A dash of the pen, a flicker of the nib, and it's done.

The other side of the balance sheet - what you call a spending reduction - never happens.

Promises are made that every "revenue increase" is temporary, and will go away soon.
Never happens.

It is one of the fundamental laws of the universe : _Government spending will automatically expand to use up all possible revenue_.

It is time we stopped volunteering more and more taxes to fund this drunken addiction.
Our shamwow is now full and we cannot absorb any more tax increases.

However, if you disagree, please feel free to send a personal cheque C/O The Ministry of Finance.
Your contribution is humbly appreciated.
Thank you.


----------



## Zoombie

Guigz said:


> 11% of the budget goes to servicing ( paying *interest* on) the national debt.
> 
> The faster we are out of this abyss, the better we will be. I don't think we can achieve that just by slashing into services or government spending.
> 
> In my opinion, both revenue increases and spending reductions are needed to eliminate this debt ASAP.
> 
> I would love to get all the same benefits as now but pay 11% less in taxes....


+1. 

Raising taxes (like +2% to GST) to fight a temporary defecit is no help in the long run. The government will have no problem spending the extra money, and we will be back to defecit in no time. We need to manage spending better, and decrease our outstanding debt.


----------



## Eclectic12

HaroldCrump said:


> Quite the contrary - the GST is a "discount" that tax payers give to the govt. so that they can continue their spending without having to borrow more money.
> It should be abolished as soon as the budget is balanced (2016 or whenever).
> Wasn't that the original promise by Mulroney?
> 
> In the meantime, it should be cut by 1% each year, starting now.
> by 2016, it'll be all gone.
> Perfect timing.


 < ... pulling tongue out of cheek ... > 

I call it a tax no matter what it is used for, where raising it is a tax increase.


Moving on - I recall it being promoted as aimed at paying off the debt. I was skeptical at the time, fearing what you are calling a "discount". Wiki and other sources claim it was to replace the hidden MST that allegedly hurt manufacturing sector exports.

I'd rather keep it, redirect it to the debt and abolish after the debt is gone. Without strong tax payer intervention keeping the MPs honest, I'm sure that's a pipe dream though.



Cheers


----------



## CanadianCapitalist

Looks like the Budget has already been leaked to The Globe:

Conservatives' budget to reset retirement at age 67

Highlights:

- Increase OAS age to 67.
- Cuts to the public service.


----------



## Four Pillars

CanadianCapitalist said:


> - Increase OAS age to 67.


I really don't understand the logic of this. There are retired couples that get some or all of their OAS even though they make a 6 figure retirement income.

In my opinion, you lower the income clawback levels, until you save the money you need to save.


----------



## HaroldCrump

Four Pillars said:


> I really don't understand the logic of this. There are retired couples that get some or all of their OAS even though they make a 6 figure retirement income.


How so?
Or perhaps you are referring to their net worth?
It is entirely possible (and quite common, actually, among wealthy seniors) to have high 6 figure or low 7 figure net worth (paid off properties, boats, expensive cars, etc.) and yet collect full OAS.
In such cases, OAS is a transfer of wealth from the working poor to the retired rich.

Perhaps the criteria for OAS and GIS eligibility should be assets and not income.

I would be in favor of re-defining the eligibility criteria to exclude wealthy seniors, rather than increase the eligibility age.


----------



## HaroldCrump

andrewf said:


> We can (and should) all argue about what we want the government to spend money on.


Ah, but _that_ is the $20B question.
IMO, there are 2 issues to be argued/discussed - _what_ to spend the money on and _how much_ to spend on it.

I agree that how to raise the revenue for those comes later and *should* be less controversial.

But going back to the 2 issues, even if we arrive at a mutually agreed list of _what_ to spend on, _how much_ to spend for those programs and services is equally important.
Esp. given that such a huge % of the spending for govt. is labor costs, and not materials.

Our national spending is high not only because we are spending on too many programs and services, but perhaps more so because of how much we are spending for those services via labor costs.


----------



## andrewf

Harold, the 'how much' question is a part of the 'what do we spend money on' discussion. Arguing about taxes is silly. No one wants to pay them in a vacuum. We are willing to pay them because they are the price we pay for the things government spends money on. So, we need to talk about the ways (and the amounts) we spend, and use intelligent taxation to get us there with the least negative side effects.


----------



## andrewf

Don't forget that a large % of the federal budget is cutting cheques to individuals (OAS, GIS, EI, etc.) and to governments (provinces through various transfer schemes, municipalities through gas tax revenue). We could fire every federal government employee and that would only reduce federal spending by about a quarter or a third.


----------



## HaroldCrump

andrewf said:


> Harold, the 'how much' question is a part of the 'what do we spend money on' discussion.


I don't quite see how the "how much" is the same as "what".

"What" is the building of a new highway between Town 1 and Town 2.
"How much" is the cost that the govt. (tax payers) will pay for the building materials, and survey, environmental assessment, labor costs, etc.

Let's agree that this highway is required and must be built.
However, the how much can vary a lot depending on what the govt. chooses to pay for its services.

So unless you are saying that our govt. wil already providing services at the lowest possible cost, I don't see the what and the how much being equal.
Over the years, we are experiencing large increases in the cost at which govt. is providing us services, while at the same time, the services themselves are reducing both in quantity and quality.
The "what" is staying static or even falling, while the how much is going up and up.


----------



## Four Pillars

HaroldCrump said:


> How so?
> Or perhaps you are referring to their net worth?
> It is entirely possible (and quite common, actually, among wealthy seniors) to have high 6 figure or low 7 figure net worth (paid off properties, boats, expensive cars, etc.) and yet collect full OAS.
> In such cases, OAS is a transfer of wealth from the working poor to the retired rich.
> 
> Perhaps the criteria for OAS and GIS eligibility should be assets and not income.
> 
> I would be in favor of re-defining the eligibility criteria to exclude wealthy seniors, rather than increase the eligibility age.


No, I'm talking about income.


----------



## HaroldCrump

Four Pillars said:


> No, I'm talking about income.


OK, so are you saying that we increase the OAS clawbacks (both the thresholds and the amount), or are you saying that it is legally possible for a senior to have a 6 figure income and still receive all of their OAS i.e. work around the clawback rules?


----------



## mrPPincer

HaroldCrump said:


> Perhaps the criteria for OAS and GIS eligibility should be assets and not income.


I don't think that would be fair to those who sacrificed their entire working lives to scrape together enough for a reasonably healthy retirement, ony to be penalized in favour of the majority who just lived from paycheck to paycheck.



HaroldCrump said:


> I would be in favor of re-defining the eligibility criteria to exclude wealthy seniors, rather than increase the eligibility age.


Totally agree, but I think clawback on income is the way to go.


----------



## Four Pillars

HaroldCrump said:


> OK, so are you saying that we increase the OAS clawbacks (both the thresholds and the amount), or are you saying that it is legally possible for a senior to have a 6 figure income and still receive all of their OAS i.e. work around the clawback rules?


I wasn't clear in my post - I referenced "retired couples", meaning their combined income. Thanks to pension splitting (which is a good thing) - higher income couples can keep more OAS.

A couple can make about $140k combined before they start having ANY clawback applied to OAS. They have to hit about $210,000? before they lose all their OAS to clawbacks.

A couple making $175k still gets half of the total OAS amount.

That's crazy. Why does the government need to give money to these people?

So yes - I say increase the clawbacks.

In fact, what I'd really like is to 
1) Eliminate OAS.
2) Increase the maximum GIS amount by the maximum amount of OAS (which is now gone). This way, the lowest earners won't lose any money.


----------



## skiwest

andrewf said:


> GST haters are being irrational. GST is not evil, or any more evil than other taxes. There's a reason why most well-functioning market economies use significant VATs to fund their governments. They raise a lot of revenue, and do less damage to the economy than taxes on personal or corporate income. .


 people also forget it replaced the FST which was hidden which as 13% but on the wholesale price not the retail.


----------



## HaroldCrump

Four Pillars said:


> In fact, what I'd really like is to
> 1) Eliminate OAS.
> 2) Increase the maximum GIS amount by the maximum amount of OAS (which is now gone). This way, the lowest earners won't lose any money.


Yes, to me, that is the ideal outcome.
As you pointed out, it is crazy to give more money to a senior couples with a combined income of nearly $210K.
OAS is a welfare scheme for rich seniors, funded by the working poor.

We need one, and only one, program for seniors to sustain a certain standard of living, and the GIS program can be expanded for that.


----------



## HaroldCrump

skiwest said:


> people also forget it replaced the FST which was hidden which as 13% but on the wholesale price not the retail.


All these GST, HST, FST, MST are all the same garbage.
It's 13%, right?
So let's cut all govt. spending across the board by 13% and eliminate the G/HST.
Starting with a 13% cut to MP and Senator pay, pensions and benefits.


----------



## HaroldCrump

mrPPincer said:


> I don't think that would be fair to those who sacrificed their entire working lives to scrape together enough for a reasonably healthy retirement, ony to be penalized in favour of the majority who just lived from paycheck to paycheck.


The issue is that an OAS clawback should not be seen as a penalty.
Any OAS benefit should be seen as a welfare.
A difference of perception.
If all working Canadians save enough to replace a certain % of their working standard of living after retirement, then we wouldn't need OAS to begin with.

Let's say (for the sake of argument) that the magic % is 50%.
Let's provide that 50% income replacement by expanding the CPP.
For those that did not work, could not work, became disabled, etc., an expansion of the GIS can provide a certain standard of living.

Any savings that people accumulate during their working years, via RRSP, TFSA, etc. is theirs for keeping.
That can fund cruises, European vacations, whatever.


----------



## mrPPincer

Agreed, I think the idea of folding OAS into GIS is a great idea.

Doubt cruises etc will fit into my retirement plan though, as my latest years have been very low income and most of my employers in the majority of my working years did not pay into CPP because they saw me as a private contractor under the farm labour act. 
I don't think I'm alone in that either, except that most of the people that fell between the cracks probably did not have any kind of a financial plan in effect.


----------



## Barwelle

A few thoughts about the budget after reading a G&M article on it. 

- Where's the teeth on OAS? "most of Canada’s baby boomers will be collecting OAS by the time eligibility age for the retirement benefit is raised to 67." Program will be phased in between 2023 and 2029. 1) what a great help that is for the budget from now till then, 2) The start date is pretty far away from now. Do they really expect this plan to be in place in 11 years? A lot can happen between now and then. I'm with the fold-OAS-into-GIS camp. Seems it would be more helpful to those who actually need it. 

- On a more personal level, I was disappointed to read that they are cutting all funding to Katimavik (a youth volunteer program.) I am an alumni of this program and I had an amazing experience. It was more than just a fun time. I learned so much about our country, the environment, and came out with a better outlook on life. The communities also benefited from our presence. All of us volunteered at non-profits during the day, and some of our time outside of the placements was spent volunteering, cleaning up parks, helping out at local events, etc as well. Katimavik has been floundering for a few years, and (unless they can secure enough private funding) will cease to exist soon, while most boomers will get their OAS payout starting at 65 (which the youth will be paying for.)

- I like that they are stopping production of the penny. But if I understand it correctly, they aren't removing them from circulation, just stopping production? Why not just collect them all, melt them down and sell for scrap metal?

- I'm disappointed to see that he didn't address housing: subprime mortgages, potential bubble, record debt ratios likely due to mortgages.

- "The budget also includes good news for cross-border shoppers, increasing the dollar-amount of goods Canadian travelers can bring back into the country from overnight trips to the United States before paying duties." Huh? Aren't we supposed to be trying to get rid of a deficit here? But they make it easier for people to go and buy stuff from another country, so Canada loses 1) duty revenue, and 2) economic activity. I'm sure it's not a huge loss... but does that make any sense?

- Cutting CBC's budget by 10%: I do happen to enjoy some CBC programming (in particular, Radio2) but, if commercial radio can make a go of it without a billion dollar payout, the CBC can stand to lose some of its funding.

- Finally, one thing that really bugged me. What's with the media hype over Flaherty buying new shoes? Who gives a poop? We got to watch him try on shoes, joke around that he wanted the green street shoes, grin from all the attention and bask in the spotlight as if he thought he was a rock star. Go ahead, media. Inflate his ego.


----------



## CanadianCapitalist

I did skim through the Budget 2012 document. One interesting initiative around OAS is the ability to defer benefits up to 5 years in return for higher income. Here's an example provided in the budget:



> Rita will be turning 65 in December 2013. She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70. When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).​


http://www.budget.gc.ca/2012/plan/pdf/Plan2012-eng.pdf


----------



## mrPPincer

That's cool, would make sense if they implemented something for those that would retire early too though


----------



## GoldStone

Andrew Coyne summed up perfectly how I feel about this budget:

You fiscal conservatives who hung on all this time, while the Harper Conservatives ran up spending to levels no previous government had ever dreamt of — you who stood by the party through the years of minority government while it discarded every principle it had ever held and every commitment it had ever made — you who swallowed all of this in the belief that, one day, the Conservatives would win their long-sought majority, and all your compromises would prove to have been worthwhile: *you, ladies and gentlemen, have been had*.

If this so called austerity budget is the best we can get from a Conservative majority... why vote for them?? Might as well vote Liberal and not feel ashamed about social conservative loonies.

(fiscally conservative voter, feel betrayed by the Cons)


----------



## MoneyGal

C.D. Howe Institute *just* made the case for this earlier this month: http://www.cdhowe.org/pdf/e-brief_131.pdf


----------



## mrPPincer

Barwelle said:


> I was disappointed to read that they are cutting all funding to Katimavik


Really dissapointing to hear that. I guess the PC gvt needs the coin for all their shiny new prisons



Barwelle said:


> Where's the teeth on OAS?


Agreed.


----------



## Eclectic12

Barwelle said:


> A few thoughts about the budget after reading a G&M
> 
> [ ... ]
> 
> - Finally, one thing that really bugged me. What's with the media hype over Flaherty buying new shoes? Who gives a poop? We got to watch him try on shoes, joke around that he wanted the green street shoes, grin from all the attention and bask in the spotlight as if he thought he was a rock star. Go ahead, media. Inflate his ego.


It's tradition ... Flaherty just happens to be the minister of the day and playing along.

http://en.wikipedia.org/wiki/New_shoes_on_budget_day


Cheers


----------



## HaroldCrump

I am quite disappointed on the cuts.
Although I understand the political motivations behind it and all the politically-correct speak of "balance", we need bigger cuts to public sector in all aspects, but most importantly compensation.

The govt. should not be in the business of job creation.
The govt. should not be running a nanny state.
The govt. should not be running a parallel economy.
The govt. has no right to play God by re-distributing income.
The govt. has no right to create and maintain a social structure of haves and have-nots.

The soul of the dearly departed robber barron has possessed the govt. sector of present times.

If that's what we wanted, it was easier to have been born in 1950 and move to the U.S.S.R.


----------



## sags

Nothing in the budget that controls CMHC limits, or risky mortgages that are insured by the taxpayers. Only some references to future oversight legislation.

One bit of information discussed on BNN was the future interest projections, Flaherty used in the budget.

Bond interest forecast to double from where it is today. That would mean people with 3% mortgages may be looking at doubling their payments when they renew.

A new poll found that 43% of Canadians would have trouble paying their mortgages if interest goes up at all. 

If interest rates double, a lot of people simply couldn't make the payments.


----------



## HaroldCrump

sags said:


> Nothing in the budget that controls CMHC limits, or risky mortgages that are insured by the taxpayers.


The govt. is fully culpable in creating this RE bubble.
And now they are doing the best they can to keep the bubble going.

The govt. will _not _tighten mortgage lending rules.
The govt _will _influence the BOC enough not to raise rates anytime soon.
The govt. _will _bankrupt the country to maintain the RE bubble.



> That would mean people with 3% mortgages may be looking at doubling their payments when they renew.
> A new poll found that 43% of Canadians would have trouble paying their mortgages if interest goes up at all.
> If interest rates double, a lot of people simply couldn't make the payments.


Too bad, so sad.
Cry me a river....people who can't do grade 6 math and have zero fiscal sense and zero money management skills.

Govt. creates bubble with stupid fiscal and monetary policy, greedy people overleverage themselves to pile in...where have we heard that before?


----------



## Cal

HaroldCrump said:


> I am quite disappointed on the cuts.
> Although I understand the political motivations behind it and all the politically-correct speak of "balance", we need bigger cuts to public sector in all aspects, but most importantly compensation.
> 
> The govt. should not be in the business of job creation.
> The govt. should not be running a nanny state.
> The govt. should not be running a parallel economy.
> The govt. has no right to play God by re-distributing income.
> The govt. has no right to create and maintain a social structure of haves and have-nots.
> QUOTE]
> 
> I completely agree with these comments. However I expected a little more from this budget too, seeing as they are in year 1 of a majority 4 year term....I figured this year would have the harsher cuts, and by year 4 they would try to remind us what good guys they all are.
> 
> The only points I do disagree a little with are the last 2. I do think some income should be redistributed. I am just not sure at what level....by taxing individuals who earn over a certain amount (and I mean beyond a million a year) or companies/corporations that earn over a certain amount. I mean any bank or oil company that makes over 1 billion in a Q can cough up some more tax money.


----------



## ghostryder

sags said:


> .
> 
> A new poll found that 43% of Canadians would have trouble paying their mortgages if interest goes up at all.
> 
> If interest rates double, a lot of people simply couldn't make the payments.



That's not really what the poll said.

20% of people thought that a 2% rise in rates might "hamper their ability to afford their home", and another 23% thought "were unsure if a 2% rise would affect them". The rest said they would still be able to afford their homes.


----------



## Spudd

I was happy to see the creation of a central IT services department. I can't believe they haven't had one before. In the long run that should save a lot of money.


----------



## Spidey

Given the muted praise or criticism in the media by proponents and opponents, the budget has probably struck the right balance. The global economy is still very fragile and according to some esteemed economists, more severe cuts at this time would endanger the recovery. Regarding OAS, I don't have a personal stake because it will only affect me by 6 months but I'm still not sure about the age-extension. Given demographics it was probably necessary but I think there is a valid point that not all blue-collar workers have the luxury to work until 67. And yes, I realize that they should be saving for retirement but some people just don't have the financial capacity or financial savvy to do that. 

I think the most promising aspect of the budget is speeding up environmental assessments to under 2 years. I'm of the opinion that these assessments are often being used more as a tool by opponents to stall progress rather than as a means to ensure minimal environmental impact. For example, in Ottawa, environmentally-friendly rapid-transit developments have been stalled for years due in part to environmental assessments.


----------



## CanadianCapitalist

MoneyGal said:


> C.D. Howe Institute *just* made the case for this earlier this month.


Thanks for the link MoneyGal, I had missed that report.

I personally think that changes to PS pensions are substantial. Bumping up the contribution rate to 50% is a good compromise. I don't think the job cuts in the PS are going to be substantial. Something doesn't add up because 11,000 people either retire or leave the PS every year. The budget says 19,200 jobs will be eliminated over 3 years. That doesn't sound like there will be many actual job losses.

I wish the Budget had done something about MP pension plans. It is not enough to simply talk about shared sacrifice. It is important to walk the talk as well. Granted, the amounts spend on MP pensions in the context of total spending is minuscule but the optics of requiring PS workers to contribute more but leaving MP pensions untouched is not very good.


----------



## Eclectic12

CanadianCapitalist said:


> [ ... ]
> 
> I wish the Budget had done something about MP pension plans. It is not enough to simply talk about shared sacrifice. It is important to walk the talk as well. Granted, the amounts spend on MP pensions in the context of total spending is minuscule but the optics of requiring PS workers to contribute more but leaving MP pensions untouched is not very good.


Funny you should mention this ....
http://ca.news.yahoo.com/mps-gold-plated-pensions-untouched-budget-no-change-200611666.html

I particularly am interested in the part ...


> MPs enjoy pension benefits worth up to 75 per cent of their salary — and indexed to inflation — while ordinary Canadians *are restricted by law* to tax-sheltered pensions worth less than one-fifth of their annual pre-retirement income.



Cheers


----------



## MoneyGal

Eclectic12 said:


> Funny you should mention this ....
> http://ca.news.yahoo.com/mps-gold-plated-pensions-untouched-budget-no-change-200611666.html
> 
> I particularly am interested in the part ...Cheers


Hmmm. I'm not sure the quote feature is working here. At any rate, what I'm popping in to say is that the "ordinary Canadians are restricted..." quote is misleading. Presumably the author of the quote means that ordinary Canadians *earning what MPs earn, for the length of time that MPs earn it in order to qualify for a minimum parliamentary salary" - or something of the kind. Certainly there is nothing in the ITA that prohibits an employee from earning a pension equivalent to more than 20% of their pre-retirement income. Indeed, PS pensions - also a focus of this budget - allow for just that.


----------



## Eclectic12

MoneyGal said:


> Hmmm. I'm not sure the quote feature is working here.
> 
> At any rate, what I'm popping in to say is that the "ordinary Canadians are restricted..." quote is misleading. Presumably the author of the quote means that ordinary Canadians *earning what MPs earn, for the length of time that MPs earn it in order to qualify for a minimum parliamentary salary" - or something of the kind. Certainly there is nothing in the ITA that prohibits an employee from earning a pension equivalent to more than 20% of their pre-retirement income. Indeed, PS pensions - also a focus of this budget - allow for just that.


Interesting ... any idea what the legislated maximums are?


Also, I found this interesting blog while trying to find the DB pension maximums. It claims that MPs put in $1 where $5.80 is put in by the tax payer. Then too, it mentions a UK study that found that higher costs to administer DC plans produced lower pension incomes for similar contribution rates.
http://pensionpulse.blogspot.ca/


Enjoy,


----------



## MoneyGal

In 2011, the DC contribution limit was $22,970 and the RRSP limit was $22,450 (the DC limit for 2010). The DB pension limit ($2,552) is 1/9th of the 2011 DC contribution limit. These limits apply to a worker earning $127,611 or more in 2011 and are reduced by the 18 percent limit for workers earning less.

For much much more detail: http://www.cdhowe.org/pdf/commentary_336.pdf


----------



## Eclectic12

Thanks MoneyGal for the link. 

I'll take a close look next week when I get more time. One of the "let's compare the DC versus DB pensions" presentations an employer put on had a mention that DB pensions had a legislated maximum but that was a long time time.


Cheers


----------



## kcowan

I am surprised that no one mentioned the elimination of SRED. Now the bureaucrats get to dole out $400 million to their favourite pork barrel projects. Shades of the Labour-sponsored Venture funds.


----------



## MoneyGal

Eclectic12 said:


> One of the "let's compare the DC versus DB pensions" presentations an employer put on had a mention that DB pensions had a legislated maximum but that was a long time time.


DC plans have contribution maximums, too. Your employer was suggesting that while DB pensions can only *pay out* a legislated maximum, a DC plan could (in theory) grow much larger than a DB plan funded with the same amount of employee contributions -- thereby paying out much more in retirement (and with no "legislated maximum"). 

This isn't the problem facing most people with DB and DC pensions.


----------



## Charlie

kcowan said:


> I am surprised that no one mentioned the elimination of SRED..


Here's the summary I read: http://www.marketwire.com/press-release/federal-budget-2012-and-sr-ed-highlights-1638180.htm (written by a SRED contingency fee firm).

Didn't seem too extreme. I like the pre-approval bit. And it would be nice to somehow manage the contingent fee pilfering.


----------



## Eclectic12

MoneyGal said:


> DC plans have contribution maximums, too. Your employer was suggesting that while DB pensions can only *pay out* a legislated maximum, a DC plan could (in theory) grow much larger than a DB plan funded with the same amount of employee contributions -- thereby paying out much more in retirement (and with no "legislated maximum").
> 
> This isn't the problem facing most people with DB and DC pensions.


As I recall, the context was that a partner brought up the issue of the PA reducing his RRSP room. The comments around the legislated maximums were more around:


> ... Poor high earning partners who are making over $300K, has the PA decimate their RRSP room and can *only* get a paltry limited DB benefit ...


 

If not for his question, which lead to the presenter pointing to the slide with the footnote about maximum benefits are legislated - I'm not sure if anyone would have noticed.


The pension comparison was much more balanced than I thought it would be. I only had two concerns. 

The first was that where the DB and DC plans were shown to have basically identical benefits - the DC plan contributions needed to be enhanced by the employee (i.e. the DC plan had lower employee + employer contribution rates).

The second was that based on the job positions, a good portion of the people in the room were invited to decide DC versus DB but in reality, were deciding between no pension versus a grandfathered DB one. I'm not sure what proportion were wasting their time as they were recent employees, with no pension.


Cheers


----------



## MoneyGal

There are workarounds for many high income earners in the form of individual pension plans and other retirement compensation arrangements. Don't worry too much about them.


----------



## MrMatt

Cal said:


> However I expected a little more from this budget too, seeing as they are in year 1 of a majority 4 year term....I figured this year would have the harsher cuts, and by year 4 they would try to remind us what good guys they all are.


Or after several years as a minority based on fear of Conservatives, maybe they're just going to go with a full 4 years of moderate and responsible government to try and effectively neutralize the "conservatives" are evil.

Also by building in better sustainable policies, ie free trade, while not infuriating the electorate they're really doing what is best for Canada.


----------



## Cal

CC did a great recap today.

http://www.canadiancapitalist.com/


----------



## HaroldCrump

More pension fun:

*Ontario Teachers’ began 2012 with $9.6-billion funding shortfall*

http://www.theglobeandmail.com/glob...-96-billion-funding-shortfall/article2390503/

_The funding gap is symbolic of struggles across the pension sector, as plans grapple with low interest rates and lacklustre markets at the same time as the baby boomers hit retirement.
...
The Ontario Municipal Employees Retirement System, for example, earned 3.17 per cent on its investments, which also pushed its assets to an all-time high (of $55.1-billion). It too saw its funding deficit climb, to $7.3-billion last year from $4.5-billion a year earlier._

The reason I posted this under the budget thread is because of the following:

_Teachers’ announcement comes a week after Ontario Finance Minister Dwight Duncan made it clear that the province’s appetite for helping pensions climb out from under their shortfalls has decreased. He signalled that gaps will increasingly have to be addressed by contribution cuts as opposed to any aid from taxpayers._

My concern is how far the provincial govt. will stick to the above statements and not simply cave in during negotiations or make a secret, under-the-table deal, as they have done several times in the past.


----------



## the-royal-mail

Good question Harold.

It would seem this shortfall is due to poor market performance?

Anyway, it's time to pay the piper as MCG and DD have poorly mismanaged the finances while they padded their vote banks and lobbyist friends. MCG's actually worse than Rae.

Makes you wonder where all their revenue (increased revenue from health care tax and HST as two examples) has gone.

Good job making ONT a have-not province.


----------



## Guigz

the-royal-mail said:


> Good question Harold.
> 
> It would seem this shortfall is due to poor market performance?
> 
> Anyway, it's time to pay the piper as MCG and DD *have poorly mismanaged *the finances while they padded their vote banks and lobbyist friends. MCG's actually worse than Rae.
> 
> Makes you wonder where all their revenue (increased revenue from health care tax and HST as two examples) has gone.
> 
> Good job making ONT a have-not province.


Actually, I think they did a GREAT job of mismanaging the finances.

And, yes, I had to quote the entire post.


----------



## HaroldCrump

the-royal-mail said:


> It would seem this shortfall is due to poor market performance?


No, quite the contrary.
OTPP had an awesome year with returns of 11%.
Check the link I posted above.
They got one of the best returns among the large pension funds in Ontario, better than the 3.5% of OMERS.

I suspect their troubles have more to do with early retirement of the members, inadequate contributions by the members, and the increasing longevity of the members.
The first two issues can be solved easily, but not the latter ;o)



> Makes you wonder where all their revenue (increased revenue from health care tax and HST as two examples) has gone.


23% pay increase for all the politicians, 9% pay raises for the teachers, 4% annual raises for the provincial public sector, and so on.


----------



## MoneyGal

The latter problem can be solved beautifully with the Euthanasia Rollercoaster. (I spoke at a conference last week and included a slide on this as an alternative to annuities, just for a laugh.)


----------



## Four Pillars

MoneyGal said:


> The latter problem can be solved beautifully with the Euthanasia Rollercoaster. (I spoke at a conference last week and included a slide on this as an alternative to annuities, just for a laugh.)


That's hilarious (and bizarre).

I should send this thread to my parents (both retired Ontario teachers), but I don't think I will.


----------



## andrewf

The issue with pensions is falling interest (and thus discount) rates. Their liabilities have exploded as a result.


----------



## HaroldCrump

andrewf said:


> The issue with pensions is falling interest (and thus discount) rates. Their liabilities have exploded as a result.


But that been known for at least 3 years now.
And has been a conscious policy by the central bank and the fed. govt.
They ought to have adjusted the contribution rates and/or reduced benefits by now.

They did not show the same tardiness in increasing the OAS qualification age and increasing the CPP penalties.


----------



## andrewf

I think you overestimate how quickly pension funds adjust. Also, 3 years ago, everyone was sure that interest rates would bounce and start heading higher, and long term rates (the important ones for pension liabilities) have fallen steadily since then, further than most people expected. We are falling into the same deflationary pattern as Japan. If we recover and rates head higher, that would certainly help the pension funds (and lifecos).


----------



## Daniel A.

With a return of 11% interest rates for OTPP is not the issue.
The plan is far to generous for the members, the last I read they were paying out more than what is coming in.
Being able to retire with a full pension early service plus age = makes one wonder how they expect things to continue.


----------



## HaroldCrump

Daniel A. said:


> With a return of 11% interest rates for OTPP is not the issue.


Projections are based on expected returns, not past returns (i.e. the 11%).
I think the bond yields are _a_ problem, but not _the_ problem.



> The plan is far to generous for the members, the last I read they were paying out more than what is coming in.
> Being able to retire with a full pension early service plus age = makes one wonder how they expect things to continue.


They expect things to continue because of their political clout.
As simple as that.

And yes, this plan is overly, outrageously, generous.
It's got to be one of the best plans in the world, let alone in Canada.


----------



## 0xCC

The article states that around half of last year's shortfall actually came from the 2008 market downturn which because of some accounting rules the losses from that year are allowed to be spread over 5 years.

I understand that the OTPP is an easy target and it is pretty easy to get fired up about. As the spouse of an Ontario teacher I understand that I am not an impartial observer but I really think that people gloss over some of the facts. Yes, the OTPP is generous but the contributions are also pretty steep. Average contribution rates are around 11% (contribution rates vary based on income with the higest contribution being around 12% or so right now I think). Also contributions since 2009 are not going to result in fully indexed benefits, currently they are only 60% indexed and that is likely to go down even further as this shortfall is brought under control. There is also talk of changing the eligibility factor from the "85 factor" to something like the 87 or 90 factor.

Anyway, flame away, I'll I'm saying is that although the plan is nice and it makes our retirement planning that much easier the path there isn't all sunshine and roses.


----------



## Daniel A.

I don't think anyone is flaming it just looking at the facts.

If a teacher earns say 80,000.00 per year that makes for 8800.00 a year in contributions, look at the benefit.


----------



## 0xCC

What is the benefit? I'm asking honestly as I'm not sure how it is caclulated and I think the only information we can get right now is what the benefit would be if contributions were to stop today and payouts started at 65. Right now my spouse isn't even half-way to a full pension so I expect that number is very inaccurate.


----------



## andrewf

2008 should have been an event OTPP could handle without incurring a huge deficit. Many pensions are assuming overly rosy returns (many assume 8% combined portfolio performance, including on the fixed income), which in turn under-prices the pension benefit in terms of current contributions. And 85 does indeed seem low for pension eligibility. A teacher hired at 25 need only work to 55, and can then enjoy pension benefits for anther 30 years (probable life expectancy at that age, conservatively). It would cost a high savings rate for someone without a DB pension to be able to fund 30 years of retirement with 30 years of work.

CPPIB only assumes 6.4% ROR for its sustainability calculations.


----------



## HaroldCrump

andrewf said:


> 2008 should have been an event OTPP could handle without incurring a huge deficit. Many pensions are assuming overly rosy returns (many assume 8% combined portfolio performance, including on the fixed income), which in turn under-prices the pension benefit in terms of current contributions. And 85 does indeed seem low for pension eligibility. A teacher hired at 25 need only work to 55, and can then enjoy pension benefits for anther 30 years (probable life expectancy at that age, conservatively). It would cost a high savings rate for someone without a DB pension to be able to fund 30 years of retirement with 30 years of work.
> 
> CPPIB only assumes 6.4% ROR for its sustainability calculations.


It is not just the assumed rate of return that is a problem.
The entire benefits model is a problem.
For instancce, "able to fund 30 years of retirement" doesn't explain _at what income level_.
You can fund 30 years of cat food.
But 30 years of steak and French wine is different.

Many of these plans base the retirement benefit on 70% of best 5 year average salary.
For many plans, over time hours are also included in calculations (which, in some professions, is very generous, like OPP).
CPP, in comparison, is based on capped average earnings.

It is not the interest rate and market rate of return assumptions that are wrong - the entire benefit model is broken.


----------



## Daniel A.

The pension plan has 180,000 active members, but the number of pensioners is now 120,000. The retirees are living longer, with their retired years now exceeding years worked.

In 1970, the ratio of working-to-retired teachers was 10 to 1. That narrowed to 4 to 1 in 1990. But in 2011, it was 1.5 to 1.

Your pension will keep pace with 100% of the increase in the cost of living, as measured by the Consumer Price Index (CPI). The CPI, calculated by Statistics Canada, is the most widely used measure of inflation in Canada. It measures the percentage change, over time, of a weighted basket of goods and services purchased by a typical consumer. The all-index CPI we use measures 600 items, including food, shelter, housing, transportation, health and personal care, clothing, recreation, and alcohol and tobacco.

Your age plus your qualifying years equal your qualifying factor. Your factor is used to determine when you’re eligible for an unreduced pension and to calculate your early retirement reduction. You can begin to receive an unreduced pension when your age plus qualifying years add up to 85. 

$42,400
Average unreduced pension
57 years
Average retirement age
29 years
Expected years on pension
$750,000
Average value of pension+
*As of Dec. 31, 2005
+At retirement, 85 factor

Without indexation, a teacher who retired in 1973 with an annual pension of
$11,000 would be making the same $11,000 today. However, because our
plan currently has this benefit, that same teacher is actually receiving $52,000.

I worked in private industry for a profitable company and am on a DC pension early retirement, before age 60 met a reduction of 4% per year.
The factor for my pension was 1.7 teachers have a factor of 2.0% .

I've spent a great deal of time looking at different pensions over the years and can say I've yet to see a private sector pension that can come close.
Most would think my pension is good I think it is.
Teachers are in for a shock they need to change much in the years ahead as the public will not continue funding a pension that is far superior to even the average working wage.


----------



## 0xCC

The cost of living provision has changed:
Change in cost-of-living provision
The Ontario Teachers' Federation (OTF) and Ontario government, which jointly sponsor the
pension plan, invoked conditional inflation protection to help address the 2011 funding shortfall,
along with other measures.
Beginning with the 2012 inflation adjustment, pensioners who retired after 2009 will receive
60% of the annual cost-of-living increase on the portion of their pension credit earned after 2009.
Increases for the portion of pension credit earned before 2010 will continue to match 100% of
the annual change in the cost of living.
Pensioners who retired after 2009 will receive slightly smaller cost-of-living increases until
2014, when the next funding valuation is due with the provincial pension regulator. At that time,
the conditional inflation provision will be reviewed.

From the pdf available here:http://www.otpp.com/wps/wcm/connect/otpp_en/home/member+info/the+basics# 

Also on that page is the pension calculation formula which is 2% x credit years x average of 5 best year's salary. So in andrewf's example of a 25 year old teacher retiring at 55 that would mean a 60% of the average of the 5 best years of salary. That person would have to work to 60 to get the 70% Harold has mentioned.


----------



## GoldStone

0xCC said:


> Yes, the OTPP is generous but the contributions are also pretty steep. Average contribution rates are around 11% (contribution rates vary based on income with the higest contribution being around 12% or so right now I think).


One third of Ontarians don't have a pension of any kind (Dwight Duncan's numbers). They have to rely on their RRSP savings. Maximum RRSP contribution rate: 18%. The entire amount comes out of person's pocket.

Teachers' contribution of 11% is matched by the province. To call 11% "steep" just shows how detached you are from reality.


----------



## HaroldCrump

0xCC said:


> Also on that page is the pension calculation formula which is 2% x credit years x average of 5 best year's salary. So in andrewf's example of a 25 year old teacher retiring at 55 that would mean a 60% of the average of the 5 best years of salary. That person would have to work to 60 to get the 70% Harold has mentioned.


Oh, the horror!
But no worries, most govt. pension plans have bridge benefits.
There is no need to worry about working till 60, let alone 65.
Retire at 55 and let the tax payer pay for the next 10 years.

At a time when many private sector workers are compelled to work till 65, and even later, this is outrageous.
And as late as last week, the official retirement age (for qualification of OAS) was raised to 67 from 65.
The CPP penalties for retiring at 60 have gone up recently, and will no doubt keep going up.

And going back to andrewf's example, working for 30 years and getting 60% of the 5 _highest_ years of salary lifelong (with survivor benefits) is extremely generous.
I don't see any reason to justify anchoring this calculation to 5 highest earning years, rather than a lifetime average.


----------



## 0xCC

How many people that don't have a pension contribute 11% of their pre-tax income to their RSP? Granted, most don't get a matching contribution from their employer. The pension contribution also reduces RSP contribution room so there isn't much room left for an RSP (not that there needs to be).

It would also be good if we could stick to apples to apples comparisons in this discussion and not make comparisons to the compensation level of the average Ontario worker and compare to post-secondary educated workers.

Most school boards that I am aware of have a pay scale grid. One axis of the grid is related to qualifications, the other to teaching experience. It generally takes 10 years to get to the highest experience level.

Maybe steve41 will stop by here and could provide an analysis of a non-teacher that starts working at 25 at $45k that increases linearly to $80k over 10 years and then keeps up with inflation for 20 years. After that 30 year career the worker plans to retire for 30 years and die broke. What would their retirement income look like relative to the average of the last 5 years salary?


----------



## MoneyGal

Your apples-to-apples investor can only invest in GICs, because she can't take on any investment risk. So you're looking at how much of savings / what size nest egg is needed to produce 30 years of indexed income in retirement.


----------



## 0xCC

Good point. I wasn't considering that. The apples to apples comment was more to fend off the "worker with a low enough income that coming up with 11% pre-tax income for an RSP contribution would be a problem" argument.


----------



## MoneyGal

Well, hang on. Let me amend what I said. You're looking for what is the amount (the actuarial present value, to be technical) that will produce a lifetime indexed income of a given amount. If the indexed amount is $65,000 (let's say) at age 60 (let's say) for a woman (let's say) then you are looking at something north of a million (more like $1.3 - $1.4 million) - an amount that goes up as interest rates go down. These are annuity prices on the open market, because that's the only instrument that produces a guaranteed lifetime income.

Edit (it's been a really, really long day): The amount your mythical worker has to save is something like $1.3M and she can only save it in GICs. That's what you need to figure out.


----------



## 0xCC

And if the amount were 48,000 (60% of 80k) but the age was 55?


----------



## MoneyGal

Here - take a look at the table on the second page of this article. These figures are not for indexed annuities, which will add a significant premium to the cost: 

http://www.advisorone.com/2012/02/24/is-a-pension-annuity-worth-it

Bonus Haley's Comet story included.


----------



## Eclectic12

GoldStone said:


> One third of Ontarians don't have a pension of any kind (Dwight Duncan's numbers). They have to rely on their RRSP savings. Maximum RRSP contribution rate: 18%. The entire amount comes out of person's pocket.
> 
> Teachers' contribution of 11% is matched by the province. To call 11% "steep" just shows how detached you are from reality.


 ... and I can just as easily say you are detached from DB pension reality. 

If one uses more of an apples to apples comparison - my private DB pensions through my working life and OTPP (another DB pension), the situation changes. I've contributed between 4% and 6% - so yes, 11% *is* a steep contribution rate and should pay for more benefits. With the employers contributions added in, that's 8% for investing and 12% compared to 22%. Note that I'm saying more - not all.


As for the one third of Ontarians, with 18% max RRSPs with the entire amount coming out of their own pocket - the number who are doing this is extremely small. You have noticed the constant complaints in the media about how few people are contributing to an RRSP and how much unused RRSP contribution room there is, right? 


Are not most people planning on depending on the gov't as well? Certainly few people I know are putting much into an RRSP, whether they can afford it or not.


Cheers


----------



## 0xCC

Thanks for the link MoneyGal, it looks like for $48k at 55 a non-indexed annuity would cost roughly $1 million using a 2% interest rate. And running the numbers I outlined earlier assuming a 5% return (which I will concede is not a risk free rate of return) and 3% inflation once the salary got to $80k the 11% of pre-tax salary would result in a nest egg of $590k. Including the employer's matching contribution gets the nest egg to $1.16 million, more than required to buy that annuity but maybe the extra $160k buys indexing.

So the OTPP seems to be moderately generous. I suppose it is good to be married to an Ontario teacher.

And thanks for the comments Eclectic12, that helps me to put a little perspective on other DB pensions.


----------



## Eclectic12

0xCC said:


> How many people that don't have a pension contribute 11% of their pre-tax income to their RSP?
> 
> [ ... ]
> 
> It would also be good if we could stick to apples to apples comparisons in this discussion and not make comparisons to the compensation level of the average Ontario worker and compare to post-secondary educated workers.
> 
> Maybe steve41 will stop by here and could provide an analysis of a non-teacher that starts working at 25 at $45k ...


+1 on how many people use that much of their RRSP contribution room. If more than a few did - would there be as much hand wringing going on about retirement? 


While I agree that an apples to apples comparison of DB contribution rates is more appropriate. However, what is happening out in the marketplace for others is a factor and IMO, should be considered. If most people don't have a pension then changes to an expensive DB pension seem so strange. If most people have DB pensions with better benefits and lower contribution rates, then there would be a lot more questions.


Cheers


----------



## MoneyGal

0xCC said:


> Thanks for the link MoneyGal, it looks like for $48k at 55 a non-indexed annuity would cost roughly $1 million using a 2% interest rate. And running the numbers I outlined earlier assuming a 5% return (which I will concede is not a risk free rate of return) and 3% inflation once the salary got to $80k the 11% of pre-tax salary would result in a nest egg of $590k. Including the employer's matching contribution gets the nest egg to $1.16 million, more than required to buy that annuity but maybe the extra $160k buys indexing.


The indexing cost is a huge wild card. $160 won't do it, but I don't know what would - in Canada the private market for indexed annuities is essentially nonexistent and the overall market is thin. Those numbers (from the article I posted) are generic and theoretical. They're also unisex - a woman will pay more for the same lifetime income (and you can't buy a unisex annuity).


----------



## Eclectic12

0xCC said:


> [ ... ]
> 
> So the OTPP seems to be moderately generous. I suppose it is good to be married to an Ontario teacher.
> 
> And thanks for the comments Eclectic12, that helps me to put a little perspective on other DB pensions.


I'd say more than moderately but yes, it is generous.

Thanks for the feedback ... at times it can appear that a point or two can be focused on to advance an agenda instead of a discussion.


Cheers


----------



## Eclectic12

andrewf said:


> I think you overestimate how quickly pension funds adjust.
> 
> Also, 3 years ago, everyone was sure that interest rates would bounce and start heading higher, and long term rates (the important ones for pension liabilities) have fallen steadily since then, further than most people expected. We are falling into the same deflationary pattern as Japan. If we recover and rates head higher, that would certainly help the pension funds (and lifecos).


+1 ... my understanding is the numbers only have to be looked at every three years. I know at my work, they took a pessimistic view and it still took almost two years of discussions to get a top-up in place. They are also monitoring the situation more closely than required by legislation - likely because when they are sure the markets have turned around, they want to have put in as small a top-up as is practical. 


Cheers


----------



## Eclectic12

Daniel A. said:


> With a return of 11% interest rates for OTPP is not the issue.
> The plan is far to generous for the members, the last I read they were paying out more than what is coming in.
> 
> Being able to retire with a full pension early service plus age = makes one wonder how they expect things to continue.


True ... but then again, my understanding is that the full pension, early service came in as a compromise that allowed the provincial gov't to avoid re-paying their IOU to the pension plan. The IOU was for the Suncor shares that William Davis' gov't dipped into the pension money to buy (and lost money on). Mike Harris' agreed to the compromise.

What I need to follow-up on is whether once the option was granted, it was made permanent instead of a temporary measure.


Cheers


----------



## GoldStone

Eclectic12 said:


> As for the one third of Ontarians, with 18% max RRSPs with the entire amount coming out of their own pocket - the number who are doing this is extremely small.


Yes, the number is extremely small, but that's irrelevant to our discussion here.

The PV of the indexed, guaranteed teachers' pension is north of a million. More like $1.3 - $1.4 million, as MoneyGal pointed out. The exact number depends on assumptions, of course.

Can a pension-less worker in the private sector accumulate north of a million in an RRSP?

18% contribution rate might get you there, if markets cooperate (and that's a big IF). If we take *this* as a reference point, 11% contribution rate to OTPP is not steep at all.



Eclectic12 said:


> You have noticed the constant complaints in the media about how few people are contributing to an RRSP and how much unused RRSP contribution room there is, right?


Again, that's a separate issue. Nothing to do with excessive generosity of OTPP.


----------



## Daniel A.

Ontario with its massive public sector will have no choice going forward, changes are needed indexing would be a good place to start.


----------



## 0xCC

Indexing has already been modified for the OTPP. For contributions after 2009 benefits are indexed at 60% instead of 100%.


----------



## steve41

0xCC said:


> Maybe steve41 will stop by here and could provide an analysis of a non-teacher that starts working at 25 at $45k that increases linearly to $80k over 10 years and then keeps up with inflation for 20 years. After that 30 year career the worker plans to retire for 30 years and die broke. What would their retirement income look like relative to the average of the last 5 years salary?


OK.... I had to get creative with the ATI in the early years because of the steep salary trajectory. I forced the ATI to 30K for several years before solving for the die-broke at 85 calc. Also, I made assumptions about the pension (2%, integrated with CPP) and dropped her into BC. Let me know what to change.

Teacher's plan


----------



## Daniel A.

0xCC said:


> Indexing has already been modified for the OTPP. For contributions after 2009 benefits are indexed at 60% instead of 100%.



This is a start, my own view being retired is that folks really need to look at sustainability of their plans. Mine is fairly straight forward not much in the way of bells & whistles but it is fully funded and not many are. It could be the lack of all those extras that makes mine manageable but a bird in the hand as the saying goes. 
I know many retired teachers and a few that are close to it and I don't begrudge them they have great plans.
In the future sustainability will be an issue and the sooner people understand this the better.
We have watched over the last 10-15 years promises lost leaving folks worse off at a time when they can least afford it.
I'd rather have less and know the plan is solid.


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## pwm

Does anyone know if the income tax age credit will stay at 65 when OAS payments are changed to start at 67? 

If it stays at 65, then there is much less of an effect, because the age credit is almost as valuable as the money that comes in. In fact, it is roughly the amount of OAS, so most people now get their OAS tax free. So if you're not getting the OAS payment, but still getting the age credit between ages 65 to 67, then you will still be getting a significant benefit after turning 65. I've read the budget document and scanned this thread, and I can't see this mentioned anywhere.


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