By how much would other industries and Canadian employees benefit?

A 6% GDP increase means much more profit

If a $170 billion CPP surplus distribution were legislated, after tax, roughly $130 billion would go directly to 17 million Canadians. It would not all be spent. Some would be put into savings or invested. However, because of the multiplier effect, the remainder might be spent twice or more in one year. Presuming these two factors offset each other, this analysis will presume an increase in the GDP of $130 billion.

A GDP increase is sorely needed for Canada. Canada was recently ranked last of 39 countries by the OECD in terms of forecasted GDP increase. With Canada’s 2022 GDP forecast at $2.142 trillion, a $130 billion increase is 6%.

Consider a sample company with $100 million in annual sales, a 30% gross margin and 434 employees. It is possible that a 6% GDP increase would increase sales by roughly 6%, $6 million. If the gross margin is 30%, then profit would increase by $1.8 million.

A likely ongoing 11% return instead of the required 6% return means contributions can be reduced

A contribution amount reduction is possible, for two reasons. Firstly, an $87 billion surplus would remain after the suggested $170 billion surplus distribution. Secondly, CPP Investments, because of several investment advantages over the average investor, will likely continue to invest at an 11% return when the Chief Actuary only needs a 6% return for fund stability.  

Presuming an average annual pay per employee of $40,000, legislation could reduce the contribution amount from the current 6% of gross pay to 5% of gross pay. The savings per employee would be $400 per year. Moreover, this reduction, combined with a $6,000, on average, surplus distribution to every employee, would reduce the need for employee raises.

Because the employer must match CPP contributions, the employer’s savings will be $400 per year per employee. With 434 employees, this amounts to a $174,000 cost reduction per year.

A surplus distribution of $170 billion today and more annually, could eliminate future tax increases

A $170 billion surplus distribution would decrease our skyrocketing deficit and debt by roughly $50 billion. This is because the distribution would be subject to income tax and, when spent, subject to HST. Also, the costs of social assistance programs would decrease.

This deficit reduction could be ongoing. For example, in 2021, CPP Investments had an investment return that is $51 billion more than required for fund stability. If this possible $50 billion annual surplus were distributed to all CPP members, the deficit might be reduced by an additional $10 billion per year.

Tax increases will soon be necessary. COVID has meant our federal debt has increased by roughly 50%. And with rising interest rates, the cost of servicing this increased debt is possibly tripling. Provincial and municipal debt has increased similarly, meaning they will need to soon increase taxes also if there is no CPP surplus distribution. With a large ongoing deficit reduction of $50 billion accompanying this $170 billion surplus distribution, tax increases will not be as necessary.

If our sample employer with $100 million in annual sales has $10 million in net profit before taxes, his tax rate may be, for example, 1% more than with a CPP surplus distribution. This might reduce his future annual tax expense by $100,000. Individual Canadians should similarly experience lower future taxes.

Contributions to other pension plans will be less necessary

With the CPP able to give, for example, a 25-year-old a $100,000 CPP pension, in 2022 dollars, the need for contributions to any other pension plan will decline (much to the chagrin of the actuarial industry).

In the private sector, 3.2 million Canadians are members of a Registered Pension Plan (RPP). Contribution amounts by the employee and the matching employer can decrease. For example, a $1,000 decrease per year will save each employee $1,000 per year and the sample employer $434,000 per year.   

The public sector in Canada has 4.2 million employees. Employees will possibly save $1,000 per year in contribution amounts because the CPP can eventually give them half their pension, not the estimated 20% of their pension.  Canada’s government, because of matching, would save $4.2 billion per year in pension contributions. This would further reduce the deficit and decrease the need for tax increases.

The following table summarizes the benefits of revised CPP legislation.  

Impact of revised CPP legislation on a company with $100 million in sales and 434 employees