The impact of the latest ‘policy-induced labour cost’ could be more than four times greater than Ottawa expects
Small-business owners have been squeezed by numerous unfavourable policy proposals over the past few months. Between the announced changes to taxation of Canadian-controlled private corporations (CCPCs) to minimum wage hikes, entrepreneurs are watching their savings and profit margins get thinner — and they’re taking a stand as another cost increase approaches.
“Starting in 2019, CPP premiums will rise for five straight years, followed by another two years where the maximum amount of income CPP premiums are levied upon will increase,” said the Canadian Federation for Independent Business (CFIB) in a statement.
According to a CFIB impact study done through the University of Toronto's Policy and Economic Analysis Program, the hike will initially result in 64,000 fewer jobs — 4.5 times greater than Ottawa’s job-loss projections. The negative job impacts were predicted to persist into the late 2020s, after which they would turn into constrained wage growth and increased government deficits.
CFIB Chief Economist Ted Mallett said employers will react to increased labour costs by streamlining their labour needs, adding new technologies, or shifting recruitment toward high-skilled and away from lower-skilled workers — who are generally younger workers or new Canadians.
“The CPP debate focused too much on the false premise that employers don't pay enough for their employees' retirements, and not enough on finding the best savings model to meet Canadians' needs,” Mallet said.
The CPP hikes’ impacts were also projected to cause slower wage growth, with household disposable incomes declining by $700 (in current Canadian dollars) in 2025; a reduction of $400 was estimated as late as 2040. Assuming no changes in Canada’s fiscal policy, the CFIB also predicted that higher employment insurance payments and constrained incomes would eventually result in a $4-billion increase in federal deficits.
The CFIB asserted that the negative job impact could have been avoided had increases been applied only to the employee portion of the CPP — an approach that would increase wages by $400 per person on average by 2024.
“CFIB is calling on the federal government to recognize the upward creep of policy-induced labour costs across the country and provide payroll relief in next week's budget,” the group said. “Provincial governments should also focus their budgets on ways to offer payroll and other tax relief to small-business owners.”
