These Four Appendices were originally included in the final draft of Politically Detained, but all were eventually excluded as being redundant. This was because they are essentially recaps (and potential solutions) to the four topics dealt with in the book, which the author feels are badly flawed items of federal policy. They have never been presented in the book in a concise, summarized form, however; a form in which these perceived wrongs could be read and absorbed as a single article. As such, the four appendices that follow are how one of the main characters, Willis, (would have) presented them to his friend Jim McGregor, the minister of finance. They respectively deal with the following topics:
Appendix I Corporate income tax rates: a critique of the rate of income tax paid by both large and small corporations, particularly the small business incentive (combined) tax rate of 14% on the first half million dollars of taxable income, each and every year. Particular attention is paid to the fact that while this rate is intended to provide more funds for reinvestment in small business, there is absolutely no requirement that it be so used. As such, everyone from your dentist to your local hardware dealer is able to direct their companies to use profits taxed at this phenomenally low rate to purchase investments such as rental buildings, stocks, foreign holdings etc. (High income Canadians would have the vast majority of that amount taxed at around 40%).
Appendix II The guaranteed income supplement (GIS) is a much needed add-on to the basic old age pension , and is intended for the needy. For each couple, this can amount to over $14,000 per year, depending on province of residence. Entitlement is based solely on a pensioner’s prior year’s income tax return. As such, people with net worth of over a million dollars; people who might have non taxable cash flow of $50,000 or more; and those who transfer hundreds of thousands of dollars to the kids, are claiming this welfare cheque.
Appendix III This is a critical review of parliamentary and public service pensions; their huge underfunding; the outrageous richness and favourable (negligible) employee contribution requirements compared to the private sector; suggestions for halting this rising debt; and also how the private sector might create a general employee pension scheme for the 75% of the private sector who don’t even have a pension plan.
Appendix IV This one’s a snap. It’s how the novel’s main characters would kick start the present federal parliamentary system, senate included, so that the following would be eliminated: career politicians, patronage appointments, dictatorial PMs and PMOs, partisan public spending, election oriented policies, ineffectiveness in the senate, and fielding inept candidates to lead the country, just to mention a few. As that famous handyman once said, “It’s just that easy!”
The Fourteen Percent Small Business Income Tax
SMCC Conclusions for Minister of Finance James A. McGregor
As discussed earlier, you’ll find notes attached on the actual table talk that took place at Mew’s Roadhouse, which as far as I can remember (and as best anyone else can, either), is how the conversation went when we first mulled over this issue. As you will see, the guys who’ve been in business knew pretty much all about this low tax program and didn’t broadcast it; the others, particularly the ex-government workers, were quite frankly appalled when they learned the details (ironic, considering their pensions). I think this opinion is no different than how it would stand with the general population--if they only knew.
The general consensus of the coffee shop crowd was not unanimous as to what should be done, but it was darned close. There’s no need to mention who the holdout was. Unanimity was found in one area, however. Eliminate the enormous loophole that permits, annually, up to half a million dollars of very low taxed (14%) income to be channelled into investments other than for where it was intended, i.e. on direct re-investment in a small business. To allow our business and professional corporations to use such funds to purchase foreign investments, stocks and bonds, apartment blocks, farms for rental purpose, and dozens and dozens of other valuable investment assets for the shareholders, provides them with an unwarranted (up to 25%) advantage over every other individual Canadian investor. This difference is so huge that it is not only grossly unfair, it amounts to blatant discrimination based simply on self employment. Worst of all, offering this enormous incentive without any legislation that these huge savings be spent as intended, amounts to nothing short of gross negligence--and it creates nothing but abuse.
At the same time, with a single exception (guess who), everyone agreed that the small business rate of tax should revert from 14% to around 25%, (when combined with provincial tax). Everyone considered the 14% to be not only unjust (even Vern felt uncomfortable, but not enough to give it up), but unreasonable considering its overall position in the rates of taxation being levied across Canada. The most telling comment was: a 14% rate on taxable income is in many instances only one percent higher than the sales taxes imposed upon gross sales to the public in many of our provinces; a tax that must be paid by the average consumer on top of the income tax he or she has already paid! For example, the average taxpayer would pay 32% percent on his taxable dollars earned, leaving him sixty-eight dollars out of a hundred. If he purchases something with that sixty-eight dollars that is subject to sales taxes, he loses another eight bucks. As such, when spending his taxable dollar of earnings, nearly half his purchase--forty percent--has gone directly to the provincial and federal governments.
However, the primary reason for raising the rate back to 25% was that the recent drop of ten percent over the last decade or so is not economically justifiable. This ten percent drop is essentially a cash rebate on up to $500,000 profits per business or professional, which works out to $50,000 annually. Any presumed economic stimulus provided by such a blanket policy simply does not balance off against the billions in lost revenue. (Henry bitched that it was actually a Conservative vote-getter). I suggest that those making such decisions have never gone beyond Economics 101, because the manner in which this “gift” is being sidetracked into non-business investments by canny entrepreneurs and even cannier professionals displays an appalling ignorance of human nature. (Namely: all government gifts will be milked dry when offered.) Billy, not surprisingly, suggested the billions in lost corporate taxes would have been a far greater stimulus if given to Canadian consumers to spend on Canadian-produced goods. Hmm! While that remark sounds just as silly, it just might contain more logic than the current corporate tax incentive.
As to the tax on larger, public corporations, that’s an ongoing problem that the coffee drinkers didn’t feel sure about--but then, neither do many economic studies, either. The Laffer Curve, named after Dr. A. Laffer, (who with a name like that must have had a heck of a time being taken seriously in high school), is a stab at estimating the rate of tax at which the government maximizes corporate tax collection while still maintaining a fair and viable corporate economy. In other words, it is a balance between a healthy tax rate and a healthy business environment. The curve starts at zero tax on one side which does not benefit the government at all, and initially rises as tax rates increase; but then it goes rapidly down again when a limit is reached that begins to strangle the economy (and business), and effectively becomes unaffordable. To better explain, at zero tax, the government would of course receive no tax, which means that’s not going to work at all; at a hundred percent tax rate, of course, the government would still get no tax, because nobody would remain in business. The trick is to find the optimum balance in the middle. The general consensus among economists seems to be that this is a point or two under a third.
To say it again, with the one exception everyone agreed that 14% was far, far too low for the small businesses and professional corporations. As a minimum it should at least be the same rate as the lowest taxed Canadian (that’s the rate paid by a $20 an hour working mother, for example). As to BIG business, everyone agreed that a third, or around 33%, seemed reasonable. It approximates the tax rate paid by the Canadian individual taxpayer when averaged across the board. Agreement was emphatic in one area: “They”, the government, should definitely do something to ensure that any corporate incentive built into the rates be used as intended, and a corporate incentive rate was actually defined: anything less than the maximum rate of personal income tax, which is around forty percent. After all, how much of a break do you give Walmart and our banks?
So how do you cure this, or anything else, for that matter? That was when we decided to start taking notes, beginning with the GIS which had been discussed the prior week. Our goal? On all legislation, we want to suggest to the government how to be fair to the average Canadian, and at the same time save significant money. I guess that as minister of finance, my old friend, you seemed to be the best option we had of getting someone to take notice, and we unanimously decided to pass copies on to you. After all, isn’t politics all about the people you know?
* * *
The group’s conclusions on corporate tax are recapped as follows:
- small business corporations should be taxed at the lowest federal/provincial income tax rate of an individual Canadian (around 25%) on annual taxable profits up to $500,000;
- taxable income over $500,000 for small business corporations will be taxed at the same rate as a large public corporation (as is now being done);
- a specific proviso should be enacted such that these low-taxed profits are actually used for small business purposes, a current omission that appears to be one of gross negligence (or flagrant vote pandering);
- large businesses (most of which are publicly traded entities) should be subject to a total federal/provincial income tax of around thirty-three percent on all taxable income;
- to even the playing field with the taxpaying public, and since an individual’s top rate of income tax averages around 40%, a temporary, refundable surcharge should be levied on profits that are not used for business purchases. This levy would be fifteen percent for small businesses taxed at 25%, and seven percent for large businesses taxed at 33% (the difference between corporate and individual top rates of tax). There are several ways this refundable portion of the tax could be calculated, including an annual balance sheet analysis, keeping track of after tax profits used for investment purchases versus small business spending, or a combination of both, just to give an example. This withholding tax account would be refunded when profits are later used for the purposes intended (reinvestment in another business or in business assets) or when distributed to the shareholders by dividend. It could be handled quite readily through the present levy on investment income known as Refundable Dividend Tax on Hand (RDTOH). The RDTOH already exists for income earned on such non business investments, simply because part of this problem was recognized; however, it only addresses the income from such unintended usage of surplus cash. Unfortunately, it negligently omits to do this for the initial purchase of a non-business investment, a far greater misuse of the intended legislation. As mentioned, the system of levying RDTOH is already in place but it is complicated to explain, so there’s no point in bothering you with it here. However, the Canada Revenue Agency knows exactly what I’m talking about.
* * *
Jim, I hope that does it as far outlining a real problem, and letting you know how we feel. Personally, I think this piece of tax legislation is one of the most unfair and discriminatory set of financial regulations Canada has on her books. I trust you will find our notes to be of interest.
Abuse of the GIS (or, Let’s Grab More Dough and Leave It to the Kids)
SMCC Conclusions for Minister of Finance James A. McGregor
Me again. The ‘table talk’ notes on the Guaranteed Income Supplement (GIS) are attached as earlier mentioned, even though the time line is out of order. The GIS issue was the first one we took notes on, but we sent you the fourteen percent tax comments ahead of them because we figured that’s costing the government way more money, and the legislation is more widely abused (or is far more negligent, take your choice). Not only that, it is far more unfair to far more people. Not that the GIS rules aren’t unfair either, or the resulting abuse for that matter, but this probably “only amounts to a billion or two.”
There was total agreement within the coffee group on this one, once everyone heard about it. The abuse of the GIS came as quite a surprise to about half the fellows (but not at all to the other half, probably because their relatives are doing it). This pretty much shows how common it is among ‘the old folks’, which also means that this fiddling is generally accepted, on the basis of “everyone else is doing it, so why not me?” Not that this should come as a surprise. Look at the Senate. (I think we’re all turning into a bunch of cynics). Humanity in general grabs what it can nowadays, because it sees more and more immoral money grabbing by others than we ever used to see, and it seems to go all the way to the top.
To wit, in the Western world, there are many, many assistance/welfare programs that fall under the modern catchphrase “the socioeconomic safety net.” These programs take many forms, and are delivered by many organizations, not just our governments. These benefits are not just delivered to Canadians, either. They extend to many in need the world over, including those who have in whatever manner reached our own shores. It seems, however, that they all have one thing in common: each and every program is abused to some extent, from minor dollars slipping through the cracks, to outright negligence and fraud. E.g. Haiti, and the fact that years after the tragic event disaster funds still haven’t reached the people, and probably never will; Afghanistan, where multi-millions were simply diverted to senior politicians who made themselves and their relatives very rich; and our own refugee process, a system that is frequently milked by the very people it is intended to help. This abuse is worldwide, and it is the lowest form of corruption--stealing funds intended for the poor and needy.
In some cultures this type of thing is endemic, in others it is accepted as the norm. In many it is even a way of life; and while in more supposedly civilized cultures it is totally illegal and often prosecuted, it seems to be recognized that it can’t all be caught, so let’s hold it to a tolerable level. Canada falls into the latter category, and yet the general feeling of the older population is that not enough is being done to halt this abuse. In other words, the government is just not tough enough--a consistently voiced opinion, that seems to fall on deaf ears in Ottawa. The coffee table talk often focuses on the abuse of foreign aid: the money sent abroad without accountability; the money spent on foreigners illegally reaching Canadian shores, criminals in particular; or those who are here legally but commit criminal acts, and still somehow seem to remain...
Jim, I’m sorry. I digress. I’m not at Mew’s Road House Cafe; I’m supposed to be writing about the GIS. And yet, the dicey attitude commented upon above is also prevalent along seniors claiming the GIS. You see we’re in Canada, and for the most part our seniors obey the law; and just about all of them certainly draw the line at stealing. However, legal abuse is not stealing; and by many, it’s not even considered immoral.
As you can see in my earlier notes on the table talk, this summary on the GIS deals with a form of abuse that is actually quite legal, due to the lack of proper rules in the program. As such, it is probably classed as immoral abuse, with political permission. After all, if half of the guys at our table were aware of what’s going on, then at least half of our politicians must also be at least vaguely aware of this kink in the GIS program. They are probably not, however, aware of its extent.
It’s important to first point out that the Guaranteed Income Supplement is meant for seniors who are truly in need--a subsidy for those who just can’t make ends meet, and who have little cash flow or backup assets in time of need. However, due to the current rules, seniors who are now eligible for the GIS actually fall into three categories:
- seniors and their partners who have few assets and little or no income, and are in serious and often dire need of funds;
- seniors and their partners who have significant assets or a respectable cash flow and yet have little or no reportable income for tax purposes, and could be temporarily in need of funds;
- seniors with significant assets or cash flow who are eligible for GIS by virtue of circumstance or design who really have no need and do not deserve the GIS at all.
The second and third categories includes senior(s) with a non-income cash flow that does not register with the GIS authority, be it return of capital, repayment of loans, mortgage paybacks from the kids, an annual lottery payout, and so on. They also include the senior(s) who has voluntarily divested his/her assets or been urged/pressured to give them away (usually to the children) and instead allow the various senior support programs to take care of them instead of using the assets that they quite often had planned on using for their old age.
The Problem Summarized
It is unfair to both the Canadian taxpayer and to those seniors who have saved and planned to support themselves in old age and now do so, for governments to use tax money to provide supplemental income support (GIS) to seniors who have significant assets (wealth). It is similarly unfair to provide the GIS to seniors who have previously disposed of significant assets (wealth) by giving them away, and thus not retained these assets to take care of themselves in old age. Finally, it is equally unfair to freely distribute the GIS to seniors who have significant cash flow that, due to its nature, does not count as net income on their tax returns. The unfairness found in these three examples becomes twofold.
- There is an obvious, basic unfairness (or injustice) in freely providing funds to seniors who would otherwise have the ability to pay their own way in retirement had they not chosen to maintain/keep significant non-income producing assets, or give away significant assets to next of kin--versus the majority of the senior population who had/have similar asset values and are using them to pay their own way;
- The secondary wrong (or injustice) is that seniors with such non-income producing wealth or non-income cash flow, in receiving the GIS to pay their living expenses, are effectively adding it to their worth in the long run. How? They use the GIS to help keep their estate intact instead of using it to help themselves in their old age, thus ultimately leaving greater asset value to their next of kin funded by the gross amount of the GIS paid by the Canadian taxpayer--or, the GIS is simply funding a much higher life style than that of the plan’s intended recipients.
The above practices effectively provide funds to seniors who are not poor by definition, and nor are they in need, also by definition. As such, they should be halted immediately.
- the GIS will still be allotted to seniors under the present income testing method of the prior year’s income tax, but any application will be accompanied by a statement of all assets and liabilities, plus any cash flow that does not appear on the recipient’s income tax return;
- a statement of all gifting and loans to children and relatives and others over the prior ten years will also be provided, to determine to what extent it might be recovered, rather than have the Canadian taxpayer fund such largess, because the pensioner’s resulting cash shortfall is being subsidized by the GIS;
- seniors who have cash flow problems and receive the GIS and yet have significant assets will have all GIS payments treated as a low interest loan, and their assets, subject to a base exemption, will be attached accordingly for future repayment in a manner similar to a reverse mortgage loan. (A base exemptions of $50,000 was thought to be reasonable);
- for seniors who have gifted significant assets to children or kin (a total base exemption of $50,000 for all children, not each child, was thought to be reasonable), the GIS will either be withheld or an equivalent attachment made on the assets of the individuals in receipt of the gift;
- cash flow from items such as receipt of loan payments, lotteries, inheritances, gifts, etc., will be treated as income flow for GIS purposes, and also included in the assets calculations stated above;
- finally and so far not mentioned, business losses and other such deductions will not be allowed in the calculation of net income for GIS purposes. The federal government is not in the business of subsidizing losses, business or otherwise.
It was recognized that such a new program is difficult to initiate and enforce. Audit would by necessity be limited, and a good deal of the information will be obtained on trust, with a certain level of random follow-up, or on a follow-up based on information provided by third parties. However, if any program is fair and just, it should not be abandoned simply because it is difficult to administer, and it definitely should not be abandoned because it is not politically beneficial, and will cost votes.
As for the long term, there will be an enormous benefit to the present OAS/GIS system so far not mentioned in the previous (attached) discussions. It is an advantage that will stretch into the days when the budget is straining to fund old age pensions as the last of the baby boomers toddle unsteadily through the system. It works like this:
While it is estimated that more than a billion cash might be saved every year through eliminating GIS payments to people with tangible wealth (including those who have deliberately shed assets), or are in receipt of cash flow(s) that are ignored because they are not classified as income, there is probably as much again to be saved and utilized in the future by attaching assets such as that modest, million dollar Vancouver bungalow mentioned in the table discussions. When assets are sold as the GIS recipient ages and GIS funding is repaid, or as repayments are realized through estate situations, the funds recovered by the government will help relieve future burgeoning pension costs.
Public Pension(s) Reform
SMCC Conclusions for Minister of Finance James A. McGregor
Unlike some of the other sessions for which notes were taken (again, the table talk is attached), this one received unanimous support, particularly the elimination of defined pensions for public servants and politicians. The unanimity here was probably helped in that the two civil servants at the table are already receiving their government pensions--but keep that to yourself. On the issues of MP pensions (and severance payments too, by the way) everyone would have stuffed the ballot box just to get in a few more nay votes. (It’s amazing, isn’t it, how our elected figures are able to blandly enact legislation that is detested, perhaps even loathed and vilified, by the people they serve, and yet those same MPs blithely carry on and reap the benefits--just a gentle dig.)
As you can also see, the CPP was included as needing reform, mainly because of the total shock that hit some of the guys when they learned that their spouses wouldn’t get their fair share of their CPP if they croaked first (and vice versa). I’m starting out with this part first, because it’s pretty straightforward. Again, this should be read in conjunction with the table talk summary.
The Canada Pension Plan
The social engineering clauses inherent in the Canada Pension Plan are not consistent with any other plan that is touted as a pension plan. It contains social legislation for non-pension items such as orphan benefits and disability benefits, items that are almost always separately funded in any other financial environment. There are also inequities in the payment of survivor benefits to spouses that need addressing. In all instances, if this was not specifically a legislated plan, there was a general feeling that it just might be seen as containing clauses that are in contravention of Canada’s Bill of Rights. The following details these inequities, along with their suggested resolution.
The Problem (1)
Disability benefits and orphan benefits are now part of what purports to be a retirement fund. This was a decision made by the government at the time of the CPP legislation (effective 1966) in attempting to create a “user pay” plan that is also an income support program for people in need, not a real pension plan. While this, in itself, is or was commendable, most if not all pension funds do not carry such benefits. These are normally addressed by other plans, particularly the disability benefits. (Certain benefits may be paid from a deceased’s commercial pension plan to orphans if the deceased had no spouse--but only at a rate based on contributions, not the number of children, which is now the way of the CPP.)
Disability and orphan benefits should be dealt with through separate funding to ensure that a proper accounting for premium costs versus benefits is made, and to provide visibility to the stakeholders of each. (It is interesting to note that the disability benefit, which is greater than the retirement benefit, reverts to the lower figure on reaching the age of sixty-five, thus ignoring the actual effect of the disability at that time. In other words, it acts just like most disability insurance plans in the workplace).
The Problem (2)
The following clauses in the plan seem to be arbitrary, and violate the normal rules of a pension plan, (and perhaps even the Bill of Rights under any other circumstance, in both age and marital status) in that they attempt to institute specific social programs and ideals, rather than fairly distribute CPP premiums paid by both the employer and the employee.
- a spouse under thirty-five will receive no spousal survivor benefit if he or she has no children, whereas a spouse under thirty-five will receive a full survivor benefit if there are children;
- a spouse under forty-five (35 to 45) will receive only a reduced spousal survivor benefit if he or she has no children, while a spouse with children of the same age will receive full survivor entitlement;
- similarly, a spouse who would otherwise be penalized in the above two categories will receive full spousal survivor benefits if they are disabled.
Each practice should be eliminated due to the discriminatory manner in which it deprives widows and widowers of survival benefits based on their age, family status, and/or condition of health. Surviving spouses should receive a pension payment based on the deceased spouse’s actual contributions, as is done by other pension schemes; i.e., factored back based on the age of the survivor, and the contributions made. To do otherwise is federal social engineering built into what purports to be a pension plan. The plan is, in fact, called the Canada Pension Plan, but if its aim is also to compensate based on anything other than members’ contributions, the name should at least be changed to avoid confusion, (and misleading terminology).
The Problem (3)
A spousal survivor benefit is paid out only to the extent of the surviving spouse attaining a single pension maximum (currently $1,065.00 per month). This discriminates in the allocation of a deceased’s CPP benefit in that it is based on the financial status of the pension beneficiary, not the amount of the deceased’s fund balance entitlement. For example, and I’ll take a worst case scenario by comparing two deceased persons who were in receipt of $1,000 per month in CPP benefits (call them a. and b.).
If the spouse of a. was receiving no CPP benefits, he/she would receive $600 per month as a survivor benefit. If spouse of b. was receiving the maximum $1,065.00 per month benefit, however, then he/she would receive no survivor benefit, because he/she is already at the maximum paid to a single individual. This policy is patently unfair, creating a discriminatory bias against people who have forcibly contributed to their own pension fund for their entire working life, and might now leave no survivor’s pension simply because their spouse also contributed that maximum. Again, if person b. died within the first month of receiving his/her CPP cheque, he/she leaves their spouse nothing out of possibly forty-seven years of contributions. Under the same circumstances, a’s spouse would receive $600 per month (plus minor inflation raises) for the balance of his/her life.
This inequity is social engineering and is unconscionable in a plan that many members of the general public believe to be a true pension plan. (Note: the amount of a survivor benefit is prorated depending on how much he/she is receiving in Canada Pension. The irony of this is that if, say, a widow of b. was fifty nine years old and earning $50,000 a year when a spouse dies, there would be a $639 survivor benefit, indexed until age sixty five. If she then retired with her own CPP at maximum, and without any company pension (75% of the private sector do that), then her income drops $50,000, and her CPP kicks in at only $1,065. Her survivor benefit of $639 now stops, however, just when it’s most needed. Meanwhile, her husband’s contributions are retained by the plan).
A short answer would be that the deceased’s benefits be paid out in the same manner as the majority of other pooled pension plans. After all, what a deceased person had in terms of value in any pension fund should be part of his/her (spousal) estate and should not vanish based on a spouse’s income, nor should it be co-opted by a plan simply to satisfy social balance. To elaborate somewhat on what the majority of pooled pension plans would do (and the CPP purports to be a pooled pension), as long as the surviving spouse is alive, the sixty percent benefit should be paid out for the rest of that spouse’s life (or whatever percentage as allowed by the plan), based on his/her age, both for receipt and amount. If the deceased was single or a widow(er) at the time of death, then a vastly reduced payout (of his or her plan) would be awarded to the next of kin, either to the estate in a lump sum or rolled over (for example) as a five year payout.
Civil Service Pensions, All Levels
You know, Jim, when I started working full time in 1960, the private sector was paid a bit more than the public sector, and it was for three reasons. The first was better job security in the public sector. The second was way more benefits in the public sector. The third, alas, was never acknowledged but it was true: in general, the majority of the public sector force did not work as hard, either. This was patently true, and it remains so today.
I know one is not supposed to make general statements like the last one, but it’s valid. It is borne out by the “sick” days aloneâ€”days off in the bureaucracy are more than double that of the core private sector. A huge element of the civil service takes all the sick time that’s allowed, which is sad, really. One of the main differences with the work itself is that most of the civil service lacks any kind of productive measure, which often takes away that commitment to a job well done. I don’t know how you solve that.
One result, unfortunately, is that many public employees end up not knowing the difference between keeping busy and actually being productive. Meetings, for example, keep you busy, but they are only productive up to a certain point. I suspect that government employees, particularly white collar ones, attend at least three times as many meetings than their private sector counterparts. Of course, they’ve got the time to do that.
This is all well and good, I suppose, but I wander. The work differences are actually fine with most of the general public, myself included. We all lead our own lives, and make our own choices. However, if there’s one thing that irks the average Canadian, non government worker, it’s the change in pay scale over the past fifty years. The public service, on average, not only gets paid significantly more than the private sector, the employee benefits are vastly superior, and not often found even in the largest of private employers. Sure, the public and private sector have their health care, vacation time, stat. holidays, paid days off, per diem expense allowances (the Feds pay a daily allowance almost twice what a trucker is allowed to claim for tax purposes, and he pays his own), family time etc. etc. --all the standard stuff, though a good deal of even this is not to be found in greater portion of the working private sector, and particularly with small employers.
And yet, after all this, on top of that is the public service pension plan!
If the MPs have a gold-plated pension plan, then the civil service, by and large, has a silver spoon pension plan. It operates contrary to all the practices that are quite justifiably mandated for the private sector.
Unfunded pension plans do not exist in the private sector for a start, both for defined benefit plans and defined contribution plans. (Just to make sure we’re on the same page, defined benefit is a predetermined formula; in the civil service it’s usually a percentage of the best five years average salary. Defined contributions are a pension made up of both employer and employee contributions plus the income made by the pool, and your share of what’s there is what you are paid out on retirement--or to some extent on death). Government regulations forbid all underfunding of either plan for the private sector, and there are specific rules for “topping up” a pension fund, should this happen. This is not so in the civil service, where the philosophy seems to be that future taxpayers will fund the greater part (the majority) of an employee’s pension. This is akin to taking a significant portion of an employee’s salary and having it paid by a future employer (the future taxpayer) to an employee who is no longer working, often more than three decades later!
Depending on whose figures you believe, the federal government pension administration only funds less than twenty percent of its total pension liabilities. It relies on future taxpayers to make up the huge difference. This means that even with the latest changes to federal civil service pensions (which will gradually lift the minimum age of retirement to sixty-five from fifty-five, and tinker with the employee’s share of contributions), if a currently retiring employee or spouse lives to ninety, then twenty-five years from now the taxpayers will be funding more than eighty percent of his/her pension. If that same employee retires this year while the age limit is still fifty-five, then the taxpayer would still be funding his/her pension thirty-five years from now.
This could be longer than the employee ever worked as a civil servant. It also means the employee is receiving pension benefits to which he/she has not fairly contributed (it effectively becomes a wage bonus in that his employer [the taxpayer], will in the long run possibly pick up more than eighty percent of that bill).
The “defined benefit” formula is now being abandoned worldwide by both the private and public sectors because it’s unaffordable. Not only that, it has proven to be technically unfair. As an example, public pension payments might be contributed to by an employee over a thirty-five year period based on a gradually increasing pay scale; yet the defined benefits are usually a set percent of the best five years’ salary: e.g., sixty two percent of the five final years. The employee thus receives pension benefits for which he/she has not paid a fair share due to being on a lower pay grade most of that working life; future taxpayers (some now still in play school) will kick in the extra for as long as the employee and spouse (partner) remain alive. This is often compounded by often receiving late career promotions which will sometimes come with huge salary increases, (and even modest “friendly” promotions given just ahead of retirement; politics are not the only game where it’s a matter of who you know).
More fairness needed? How about beginning with the basic wages upon which pensions are based?
The premise we all felt was reasonable is that the civil servant should be remunerated on a scale similar to that of the private sector (i.e., the total private sector, not just the pay scales of large corporations such as the oil companies, auto manufacturers, financial institutions, telecommunications, etc., who are the top wage payers in the private sector). Yet this is not happening and so it reflects in the both the wages and the pensions. It also reflects in who actually has one!
Only about twenty-five percent of private sector employees enjoy company pensions compared to around eighty-seven percent of civil servants. Of that twenty-five percent, the defined benefit pension funds constitute just over half (thirteen percent), but this ratio is falling dramatically (twenty years ago that figure was eighty percent, clear proof that this type of plan cannot be sustained by a trading economy). The reason for this drastic drop is simple. Even the wealthy companies can no longer afford to fund defined benefit pensions. They are either switching to defined contribution pensions (which means that what is put into the pension fund plus the income it makes is what employees get back), or dropping company pensions entirely. Since 1992, the percentage of all Canadian workers (not just the private sector) without employer shared pension plans has risen from about fifty-five percent to around sixty-four percent. It is the private sector, however, that has taken that hit.
The figures speak for themselves: private sector employers that fund defined benefit pensions (pensions based on a percentage of salary) are getting out of them because they have become unaffordable. As mentioned, this is a worldwide phenomenon. Yet our civil public sector is almost universally demanding retention of defined pensions, and sticking future taxpayers with this growing shortfall. This stance is positively shameful, if not disgusting. (It should also be noted that, in general, the defined benefits of private industry pensions were/are not as generous as those of the civil service to begin with).
The bottom line does not really need to be summarized, for it is obvious. Nonetheless, it can be summarized by the following statements:
- the civil servant enjoys a silver spoon pension scheme that is next only to the gold-plated pensions of the politicians, and he/she expects to see it funded by Canadian taxpayers three decades into the future, rather than by what he and his employer have put aside as savings;
- twenty five percent of private sector employees participate in company pensions, all of which are required by legislation to be fully and independently funded. In general, the benefits paid to the rank and file in the private sector pensions are not as generous as those paid by the civil service;
- seventy-five percent of working Canadians have no employment pension other than the CPP, and must save for their own retirement;
- the federal civil service pension has funded only a fraction of its liability, and this tremendous shortfall has occurred primarily due to paying out far more pension payments than were warranted by the contributions of both employees and the employer. The future debt is still growing;
- it is both shabby and dishonourable to place the public sector on a level that is far, far above the level of the private sector, or to phrase it another way, the average Canadian who must pay the bill. The general population, i.e., big business and small business employees combined, should be the general guide to all civil service benefits, including salaries. All benefits--not just pensions--should not be set by comparing them to the top levels of Canadian industry, but rather to the private sector in general.
One of the basic precepts of public service employee remuneration is that it should be comparable to that of the taxpayers who fund it. Ironically, when public service pensions are considered, this is patently impossible. As an employer, the federal government simply cannot stoop that low. After all, seventy-five percent of the private sector does not even have a company pension. On the other hand, the public sector’s pensions should certainly be no higher, on average, than that of the other twenty-five percent of the public sector that do have pensions. The type of pension should also be consistent in comparison, in that the private sector’s ratio of defined benefit pensions is only about half of all pensions, and even this will gradually shrink ot next-to-none over the next decade or so.
The solution is obvious:
- join the general movement now underway throughout the entire Western world in both the private and public sector: in future all public sector pensions are to be fully funded, 50/50 matching, defined contribution-based pension schemes (namely, what the employee and the employer contribute to the pool of funds is what is paid out);
- initiate an independent fund, fully funded, for these defined contribution pension scheme similar to the rules of the private sector. The CPPIB (The Canada Pension Plan Investment Board) might be expanded to accommodate this with separate funding, and the power to demand further funding from both the employer and employees for any shortfall;
- contributions should be based on a fifty/fifty sharing base between employer and employee, similar to the private sector norm, and the pool of funds should be subject to the same strictures as private sector pension plans;
- despite the comparative unfairness involved to the taxpayer and, by comparison only, to a new generation of civil servants, there seems little choice but to temporarily continue on with the current defined benefits plan now in place. These will gradually fade into oblivion over the next five or six underfunded decades as those eligible pensioners die off. Those employees still working, however, should have their defined benefit pension frozen at once, and begin contributing to a defined contribution pension. On retirement, they will receive two pensions: a pro-rated defined benefit pension based on its worth at the time of the freeze, plus the defined contribution pension benefit, based on contributions from that point on. Alas, there is no reasonable way to stop those already feeding at the trough. As the Brits might say, nothing but bloody incompetence--but then, they’re in just as great a dilemma over there...
Members of Parliament
Jim, the recent amendments to modify MP pensions have helped, but the consensus was, all it did was reduce the scheme from grand theft to simple larceny. The bottom line seems to be this: previously the taxpayer would be paying $23 of the lifetime pension payments to an MP for every dollar paid by the member himself. This will now be reduced to $7 (a ratio that I believe is not much different from the average federal civil servant’s present pension scheme, with emphasis on the word scheme).
This simply is not good enough. If an MP wants to represent the people of a constituency, then at the very least, common decency would indicate that he/she not receive special financial benefits that are not available to their constituents.
One of the anomalies existing in almost any Canadian parliament, legislature, or council is that the members, while elected, set their own pay scale and benefits package. Past members of parliament are no exception. They voted in an MP pension plan that is essentially a defined benefit program (only with horrendous returns), nearly all funded by the future taxpayer, because so far it has not been really funded at all by the MPs themselves.
The concept of funding the pensions of more than 460,000 federal employees, and the fact that most (eighty-seven percent on a pension plan) have defined pensions, has already been addressed above. And while I’ve been unable to determine exactly what the civil servant actually contributed overall to his defined pension, based on the projected shortfalls and the funds so far put aside, it’s less than twenty percent. Until recently, an MP would have only contributed a shameful four percent of his federal pension; the latest changes plan is to boost this to approximately fifteen percent, which is likely similar to the current civil servants’ contribution. Yet considering the amount of the MPs’ pension as a ratio of years of service, it is still far richer than that of all others. Both plans, due to being underfunded, are relying on future taxpayers to pay these pension cheques for many, many years into the future. The only reason that the MPs’ pension plan appears to be more sustainable (on the surface) is that there are far fewer MPs than there are public service employees.
There is also the matter of fairness. Being a member of parliament is a full-time occupation while elected, but only a part-time career. MPs are only employed as long as they are elected. It requires six years to qualify for the MP pension, and an enormous number of MPs don’t sit more than eight (they’re mostly bounced). They are well remunerated, particularly in light of their specific job qualifications, which are essentially the ability to win a popularity contest, and nothing more. No experience is required, and generally speaking, nobody has any specific job training before dropping into a job that pays a minimum of just over $13,000 a month, with full benefits and a generous pension. Is it fair to receive a pension of $40,000+ a year for eight to ten years of well-paid work, a pension to which you have contributed fifteen percent of the value?
Compare this to the MPs’ constituents. Other than the public sector employees, seventy-five percent have no company pension at all and must contribute one hundred percent of their RRSPs when and if they can afford them. The other twenty-five percent belong to company pension plans which are totally funded, usually on a fifty/fifty basis with the employer. This begs a question: who the hell do the MPs and the civil servants think they are, when demanding defined benefit pensions while paying in less than twenty percent of the cost? It would seem to most reasonable people that those who serve and particularly those who are elected should be no more than on an equal footing with those who pay for their services.
The solution is perhaps not as obvious as that of the public sector, because there is a moral standard to be met--and this standard should contain a deep perception of fairness. To wit, all MP pensions should be based on the same premise as that received by the vast majority of their constituents. This would clearly show that any elected official is there to serve, and is not there for long-term reward. The current pensions, however, don’t even come close to this criteria. In fact, they do just the opposite.
The MP’s defined benefit pension plan now in effect should be eliminated for two reasons; it contains an inappropriate element of reward for the services rendered, and it is proportionately unaffordable. As such, our first recommendation follows the basic solution suggested for the public service pensions, including the phasing out period of the current plan by freezing it (or a grandfather clause, if you prefer). What follows would be an RRSP based pension plan (as far as contribution limits are concerned) with two pension choices offered to each MP on being elected:
- a basic 50/50 matching of RRSP contributions on a payroll deduction basis, going to that particular MP’s individual plan. I’d point out that this is far better than the way a vast majority of an MP’s electorate are treated, for most people who vote for their MP must by necessity contribute their entire RRSP, if and when they can afford it.
Whatever is in the RRSP on leaving office is simply passed on to the MP, like any other such RRSP plan. (In eight years, using present maximum contributions of $24,000 per annum, the fund, at 5% per annum gain, would amount to around $225,000--half of which would have come from the employer’s portion). The details of where to invest, the permanence of each fund, and so on, could be negotiated. The same sort of pension option would also be initiated for the Senate;
- using the same maximum contribution limits as RRSPs as per the above, (current maximum at just over $24,000 per annum in total), a fully funded “Member of Parliament’s Pension Plan” should be initiated. This, too, would have equally shared (fifty/fifty) contributions. The pool of funds would be administered in the same manner as a private sector defined contribution pension fund, and under similar regulations. The same sort pension option would be instigated for the Senate.
End of story, other than to reiterate: what’s fair for one is fair for all.
Moving Toward a Pension Fund for Everyone
Jim, it’s fine bitching and whining about pension reform for the civil service and politicians; I think that such reform is not only just, it’s sorely needed. There are a good many things wrong with the CPP too, a plan which will have its fiftieth birthday in 2016, and there’s nothing wrong with bitching about that one, too. We have, in fact, done exactly that, and for some time, along with many other Canadians who are simply not being listened to.
We have, alas, like so many others in the country, from our senior politicians to the bitch and gripe coffee crowds, done nothing other than bemoan the fact that seventy-five percent of the private sector has no company pension plan at all. They are all going to retire, and the vast majority will have little or no pension, and yet nothing is being done. Perhaps this is because the problem is not critical--yet; on the other hand, perhaps it’s simply because it is so hard to know what to do.
For a huge section of the population, the Canada Pension Plan and the Old Age Security pension are their primary or even their only income when fully retired. This is particularly true for those whose working life has been spent at the lower end of the pay scale. These two may be the only pensions they will ever have, other than when it is supplemented by the Guaranteed Income Supplement, which is government support for the poor--which such people often are. In other words, this total lack of a pension fund will also create hardship in later life both for the individual and a government that will be forced to make up the shortfall for necessities.
The math is simple. If a pensioner receives only OAS and CPP it will effectively reduce his/her (working) income by around sixty percent on retirement, based on having previously earned the average wage. This is bad for many sectors, to name just a few: the pensioners themselves, obviously, which is why we have the GIS; the economy suffers too, because their spending is severely curtailed; it’s bad for the federal government, who are kicking in extra pension in the form of the GIS; and it’s bad for other levels of government that must subsidize a long list of local necessities; and last but not least, it’s also bad for family morale.
Who are the great majority of these people in this below-poverty level situation? They are a very, very significant portion of that seventy-five percent of the private sector who have no employer pension plan, and did not save or put away RRSPs. They are usually those members of society who for various reasons have never had the financial means to set funds aside for their old age, or may have simply not bothered to do so during the times that it was possible.
Collectively, they represent a huge cost to the present senior support programs, and quite possibly account for the majority of all OAS expenditures when the GIS support program is also taken into account. In other words, they account for a significant portion of the massive, long-term expenditures that the government, out of sheer necessity, will have to pay for old people’s well-being.
The creation of this problem is twofold. The first is obvious: a huge segment of that seventy-five percent of private sector workers without employer funded pensions have set nothing, or next to nothing, aside for eventual retirement. The second is almost equally obvious: neither has the government, which has seen this problem coming for the past sixty years.
To take this latter point further, it is worthy of mention that virtually no one who is in receipt of an employee/employer pension or a reasonable pension from RRSPs is collecting the GIS. In fact, there are many in receipt of pensions, or who have saved for their old age, whose basic OAS cheque is being fully or partially clawed back In the latter instance, this actually saves money for the government.
The Problem (summarized):
We are only talking about pensions here, not the general plight of old age pensioners in difficult circumstances. To take that further, we’re talking primarily about that seventy-five percent of the private sector workforce whose employers do not have a company pension plan, and some of that thirteen percent of public sector employees who are in the same position.
There are several aspects of this state of affairs that immediately come to mind. First there’s the obvious: if employers do not have a pension plan, then there is no compulsory mechanism that forces their employees to save for their old age. This is quickly followed by the knowledge that for most human beings, unless something is compulsory, there’s a very good chance it won’t get done. And even if it does get done, such as setting funds voluntarily aside for retirement in an RRSP, for example, it’s just as likely to get plundered at the first sign of perceived need. There is also the aspect that financial investment institutions are not particularly trusted by many low- and even low to middle-income individuals in the first place, and maybe for good reason.
Putting funds aside for retirement on an individual basis is further complicated in that unless something is made easy, such as through a payroll deduction, it requires being proactive. Put another way: it’s one more chore that may never get done. To demonstrate, one might pose a hypothetical question: if a public sector employee did not have his pension contribution deducted from his pay cheque but had, instead, to issue a voluntary cheque from his bank account at the end of the month, how many would have made full contributions over a thirty-five-year career--especially in those younger years, when compounding really counts?
Going the other way, however, it is equally apparent that one cannot force people to put money aside for old age, nor can employers be forced to chip in either (small business already funds heavy payroll add-ons). There is a pragmatic aspect when dealing with a hostile public on this, namely: “we live in a democracy and you can’t ram things down our throat.” There’s also the historical aspect--this forced contribution has already been done by the government with the CPP, and that was totally botched up from day one and resulted in a pittance-pension anyway, which many people resent--myself included.
Nonetheless, looking at all of the above, what can be done to get these seventy-five percent of the private sector and thirteen percent of public sector employees into a pension plan?
The answer is, you can’t, not all of them, anyway. So like so many things in life, you do your best, and come up with an approach that has enough appeal to get a decent double-digit percentage of employers and employees to join up--in other words, a start. To do this, one must first look at the reasons why so many employees and employers are not stashing funds away for their old age.
- the employer doesn’t want to go through the cost or the rigmarole of setting up an employee pension plan;
- the employer and employee who may want to make contributions to a pension plan want it made easy, and by payroll deduction (money an employee never sees);
- the employee wants to make the amount flexible and affordable, which is often a necessity for people on lower wages, and this flexibility is usually not available;
- the employee is usually no financial guru, and does not like having to make the choice (or gamble) of deciding where to invest, pay fees and commissions, or deal with the inconvenience of even initiating a plan;
- the employee does not want to send his funds off into the ether; he likes to see a statement detailing how his accumulation of funds is faring, and be reassured that his investment is safe;
- the employee simply does not have the money available, it’s always needed elsewhere.
There are probably more reasons, Jim, and if you think of them, feel free to use them. In meantime, it seems clear that any move toward establishing a general pension plan would have to be voluntary for an employee, and gentle on an employer; it should also be available to the self-employed. So right off the bat, it must also be made attractive. It would have to be done by payroll deduction, on a flexible basis, in order to be convenient and affordable, particularly to the lower end wage earner.
Ironically, the means to do this is already in place!
It can be done alongside the CPP deduction, and remitted to the same independent body that handles the CPP investments: the Canada Pension Plan Investment Board (CPPIB), about the only Crown Corporation I can mention off the top of my head, that seems to have a decent financial history.
-the first and foremost recommendation is that the CPPIB change its name, or create a new and completely separate division with its own name. This reason is twofold. The CPPIB has an impressive rate of return on the CPP funds it has administered since its formation in 1997, and we propose utilizing its resources as the mainstay of our recommendation. The second reason is to remove any stigma that may be associated with the current acronym CPP. For purposes of this proposal, it will be referred to as the CIPF (The Canadian Independent Pension Fund);
- the CPPIB should initiate a pension fund investment pool in which employers and employees are able to make voluntary monthly contributions through payroll deductions (the CIPF), in conjunction with the regular CPP deductions;
- employees may voluntarily contribute to the fund on a flexible basis, limited only by the general regulation limits as set out by RRSP rules and regulations, and as shown on their annual income tax assessment;
- the employer will be required, as an incentive to the employee, to contribute a minimum of one percent of salary, but is not required to contribute any more than the employee (e.g., if one percent of the employee’s wages for the year is $500, but the employee contributes only $200, then the employer is only required to contribute $200; if, however, the same employee chooses to contribute $4,800, the employer is still only required to contribute $500, though in both instances he has the option of adding more);
- the IPF will not be subject to arbitrary withdrawal, and must remain invested as a retirement asset according to rules to be set up by the CIPF (in other words, it’s non-cashable except through a pension payment);
- the personal CIPF pension will be creditor-proof, and non-assignable;
- the federal government should consider, at least initially, minor limited assistance or minor added tax benefits to individual contributors to encourage initial growth of the fund;
- regular statements of cash value and estimated pension benefits would be issued to each contributor, to encourage further participation, once enrolled;
- it is recognized that the financial community may not be pleased with what would be interpreted as federal government competition, and as such, the CIPF might consider distributing an agreed percentage of the pool amongst various institutions on a negotiated basis, that would also depend on comparative performance and volume discounts for management fees.
And Jim, that’s it for this one....
Parliamentary Reform (or, Politicians and How to Prevent Them)
SMCC Conclusions for Minister of Finance James A. McGregor
Jim, to set the tone for this one, I won’t beat about the bush. The seniors’ team came up with a fairly early premise that formed the basis of our ultimate conclusions, and it was summarized in what we felt was a fairly profound paragraph:
The democratic system, by its present nature, created its own destructive abomination: the career politician. Throughout history, career politicians have risen from the ashes of dictatorial regimes such as the Soviet Social Republic: men like Lenin, Stalin, Putin, and their ilk. They are also found in long-existing democracies such as the United States, some with even a hint of dynasty: the Kennedys, the Bushes, the Roosevelts. These people have become the poison pill in any formula for a nation’s true freedom of choice in government by turning the privileged position of representing the people into nothing more than a career choice that seeks influence and power. Democracy thus grows corrupt as elected officials are increasingly tempted to sacrifice integrity and judgement to maintain that power and privilege. In doing so, they also corrupt the democratic system with the false assumption that no one exists among the unelected who is better suited than themselves. In this manner the lust for power trumps the ideal and integrity of service to the people; and in consequence, thus does the cost and corruption of government rise exponentially as politicians attempt to buy their way back into power by influencing the elective process for their own ends.
The border of any country in the world, once set, is an invisible wall that is nigh on impossible to move, short of war. The parliamentary system that exists behind any of those borders, once implemented, is as equally difficult to change as the borders themselves. Ironically, this is particularly true in a democracy. This is because, in a democracy, we don’t have revolutions (thank goodness), which seem to be the only way to change the fundamental workings of a country’s political structure. The reason for this is very simple. Those in power, whether in a dictatorial or democratic nation, do not want to ruffle the comfortable nest that has taken years and years to feather.
In the instance of Canada, as elsewhere, this is one of the reasons why we now find ourselves with highly rewarded politicians whose perks, position, prestige, power, and privilege (the five pees) together outweigh even the value of the salaries they are paid. This is an inevitable result of the position’s culture of self interest. It is also why a returning politician’s every decision is to some degree influenced, often at great cost to the public, by the desire to be re-elected.
We have long lost the ideal behind what it means to serve as a member of parliament (if it ever existed), or in any of our provincial legislatures, for that matter. This ideal, in theory, is supposed to be very simple: a sitting member has been honoured by the electorate in being trusted to represent it in governing its country; as such, he or she should not seek the position for reasons of power and prestige, or for monetary gain, but for the simple opportunity to serve.
Alas, this noble sentiment has likely never been met, though that doesn’t mean it should not be one to which we might aspire. To begin with, the notion that we have to pay people high salaries, severance pay, and gold-plated pensions to attract talented men and women to serve in parliament is absolute tripe. It is a myth concocted by those who would seek office. It’s a fiction akin to the old comment, Hi, I’m from the government and I’m here to help you. The theory that nurtured this myth is simple: we must pay MPs well in order to attract good people. If this were truly the reason, then the other side of that coin is far more true: in paying high salaries, severance pay, and gold-plated pensions to our elected representatives, we attract people who are running primarily for the remuneration and the benefits, and not for the good of the country.
Proof of the fallacy of this premise can be found in the fact that many (most?) MPs elected for the first time make far more money than they’ve ever made in their lives, all the more so when the long-term benefits of severance and pension are taken into account. The supreme irony of this is that nearly all of them have absolutely no qualification for the job, for such qualifications do not officially exist in either fact or theory. There is a further irony in this lack of qualifications, that proves the point: every elected novice MP starts at the top of the position’s pay scale, which is something unheard of in any other organization or enterprise.
To bring meaningful reform involves reforming the election process itself. The greatest barrier to accomplishing this are the politicians we have already elected, and here irony turns to paradox: in particular, it necessitates the approval of the career politicians. As mentioned above, the career politician is an abomination (a cancer?) in any elected assembly, because such a calling is based upon a false presumption: the politician who is able time and again to be re-elected is the best person for the job. This is pure fabrication. Like it or not, for all of us, there is a better person out there somewhere who can do a better job than the one we are doing, for just about any vocation on the planet. That’s life.
In “real life”, as opposed to political life, anyone holding down a regular job has usually been rigorously vetted for both skills and character. They do not attain their position by engineering a nomination for a one-off chance in an often biased and brainless popularity contest. The politician does, though, and that’s democracy, and so far it seems the best option. That doesn’t mean, however, it cannot be improved.
To reiterate, the tragedy of Western democracy is found in its career politicians. Once elected, these individuals do everything within their power to park their butt on a parliamentary seat and, backbencher or prime minister, will forever try to block that seat to all others who sincerely wish to serve their country. Frankly, this attitude not only proves the old adage that familiarity breeds contempt, it is also pretty damned selfish.
As to the election of the man at the top, that’s one of the few areas in which the United States deserves some credit: its president is elected to an eight year maximum term. Alas, there is much about their electoral process, including the presidency, that is far worse than ours, specifically an even deadlier partisan system, multi-billion dollar campaign costs, undue corporate influence (the term is used euphemistically), and individual haggling (blackmail?) over votes for often good legislation simply to obtain support for often bad legislation. This is to mention just a few. Eisenhower himself warned about this during his final speech as president, when cautioning America on a military-industrial bloc that has the potential to essentially run the entire government--and now seems to do exactly that.
Such conditions, of course, become the milieu in which the career politicians thrive.
Nonetheless, the Americans do elect their leader, and they don’t allow him to stay there forever. In Canada, however, every prime minister has worked and wrangled his way to the top in a restricted, partisan organization controlled by a fraction of the population, and thus finds himself in the most important position in the country without ever going to the general voter, as an individual seeker of such office. Look at the statistics in the last election:
Harper received 67,143 leadership votes at the Conservative nomination conference when he became leader of the party, out of 97,397 votes cast. At election time 5,835,270 votes were cast for the Conservatives. This means that 5,768,127 of the Conservative voters (98.9 percent) had no direct vote in choosing their party’s, leader, or more important, who the prime minister of Canada would prove to be. That was decided at a rah-rah convention convened by the unelected, $5 card-carrying members, and controlled by district executives and individual power blocks. And yes, those actively involved in the party will say with a great deal of sanctimony that those nearly six million other people could have purchased a $5 ticket and participated in the process. That comment is simply fatuous! It’s not only a cop-out, it is damned patronizing, and it is demeaning to the average voter because to do that is patently impossible.
Jim, I’m sorry; again I wander. But then, if you look at my notes on this one, we were all wandering on this when we discussed it, because after all, it’s all about politics. I’ll begin with the meat of the problem by summing up how the breakfast crowd sees it, then offer our humble (?) recommendations.
The first problem is a matter of focus, but then there is so much to focus on. What does the public really want of its politicians? Why is there so much infighting in parliament, both contra-party and intra-party? Why do parliamentarians publicly squabble on the House floor like children, and smear each other like inarticulate mudslingers? Why does a politician become corrupt? Why do they lie? Why do politicians make promises, and never keep them? Why does parliament make so many decisions, both on monetary and on policy issues, that the majority of the population doesn’t want? Why does the Prime Minister’s Office hold what amounts to dictatorial power? Why are there so few free votes? Why is so much time wasted by each “side” of parliament trying to score petty, often childish points against its opposition? How can we stop politicians from spending so much time and money on getting re-elected? In fact, how can we stop that re-election process from influencing each and every decision made by politicians? Oh, and what about that Senate?
The questions go on, and the problems seem endless, and of course there are many people, especially those involved, who don’t see them as problems anyway. In fact, they thrive on these issues and claim they’re not problems, just part of the process. So perhaps it’s simply best to pick a few items that seem to be generally abhorred by the everyday Canadian citizen, and address the ones that seem to be the greatest waste and the most irksome:
- nearly all decisions made by parliament are influenced to a greater or lesser extent by the individual MP’s craving to be elected and his party’s need to gain or remain in power. This often creates bad decisions by placing common sense second to personal and partisan interests, and fosters wasteful spending by channelling expenditures to areas likely to gain votes, particularly in an election year;
- political correctness has infected parliamentary procedure to such an extent that it directs discussion and implementation of important legislation, often hiding the truth and stifling common sense;
- the prime minister (PM), and through him the PMO (office), is appointed in such a manner that he effectively assumes autocratic control of his party’s sitting MPs, simply by default, and when in a majority, power that is almost dictatorial;
- individual MPs are forced to ignore their constituents’ needs and wants in order to comply with policy directives from the PMO;
- the system of appointing members of the Senate (and every other position) is a one man dictatorial process that is not democratic, and the senate appointments are for life until age seventy-five, with no means of accountability short of criminal activity. The result is a highly partisan and non-accountable institution.
The group felt that the root cause of the problems begin with the election process itself. This process needs a complete review, with an open mind; a review that is willing to contemplate a total overhaul while keeping the democratic process intact; i.e., election by the people, and for the people. One such proposal, which now follows, might be considered as a starting point of a debate that could eventually end with a referendum for change:
- consistency is needed in calling an election date. The present system, where the sitting PM calls an election based on political expediency and advantage, is that of a banana republic: political opportunism at the whim of “the boss man.” A fixed time should be chosen, which by its nature would force all parties to enter an election accountable for their current record, whether the time is opportune or not. After all, any party must be assessed on its ongoing performance at any given time, not just when it’s on a high. It was suggested that an election be held every four years (possibly five?), during a specific month and on a predetermined day; e.g., the second Monday of May, or the first Friday in October etc. etc.;
- in recognition that an elected member of parliament is unduly influenced in all his or her decisions by the desire to be re-elected, whether consciously or not, a member will only be allowed one term of office in a lifetime;
- it is recognized that a four year term is insufficient time in which to attain experience and political maturity; it is also recognized as insufficient time in which to assess the individual talents of an elected MP, particularly when considering promotion to ministerial level. Therefore, each MP will be elected, and will also commit, to an eight year term (or ten?), which will be divided into two four-year periods referred to as the first and second halves of service. It should be noted that this is close to the average term of office for many MPs under the present system. If an MP simply quits before the eight years without valid reason, he/she will be penalized accordingly;
- it is also recognized that parliament cannot operate with a complete turnover of elected members every time there is an election. It is therefore proposed that only half of parliamentary seats be up for election every four years, on a prorated regional basis. This will have the advantage of ensuring that at any time, only half the House is filled with novice MPs learning their role; the other half will be filled with MPs who have four years’ experience. (This may exceed the cumulative average experience now in place due to the erratic and high turnover of seats in recent elections.) This mix of experience will in many ways provide a more open democracy to parliament, eliminating much of the perceived partisan domination now held by controlling minority cliques of long-term (career) politicians. (A side benefit of this clause is that election costs will be slashed dramatically);
- there will be an initial, one-time transitional phase-in period to institute this staggered system of elections, during which up to half the sitting MPs could serve for up to twelve years if elected (this would allow an MP who has sat in parliament for up to four years to run in the first election under the new rules);
- during the first four years (first half) of service, an MP will remain a backbencher, eligible for junior administrative positions; senior positions (cabinet ministers) will be filled only by second half MPs, unless agreed to by a secret vote that includes all members of the ruling party or coalition;
- all senior appointments (cabinet positions, etc.) will be made by a committee of members drawn from governing MPs in the second half of their term. The committee will be chosen by a vote of all second half members, and will be co-chaired by the prime minister and the second-half member who received the most votes on being elected to the committee.
While the election process needs reform, there is also another problem that shakes the very ground of the democratic process: the present leadership appointment process is even more severely flawed. As shown in the last election, our prime minister (who this time just happened to be Harper) was placed in that position by 1.15 percent of those who actually voted for his party. To use an analogy here, the captain of the home team was chosen by the most ardent members of a fee-paying ($5) fan club at a convention of enthusiastic, deal-making club supporters. In reality: with nearly fifteen million Canadians casting ballots, only 67,143 actually voted for Mr. Harper as the leader of our country (less than a half a percent). And worst of all, they actually paid five bucks for the privilege. (And I’m not picking on just Harper; Stephan Dion and Michael Ignatieff were no different, only they never became PM, but by gosh they could have).
All the fanfare and expense in appointing a leader is part of the reason it is so difficult to fire him if he’s screwing up. In fact, you can’t really fire him (he has to resign) because you can’t get rid of him without another expensive, partisan convention. Not only that, even if he resigns because of non-performance, the party effectively commits political suicide anyway, along with most of its MPs--because it’s a public admission of gross incompetence. (In other words, for MPs to get rid of a bad leader means they’ll almost certainly lose their job. This is one of the reasons why a PM may be kept on the job way past his effective shelf life, which is truly ironic because he wasn’t democratically elected by the people in the first place).
To get the ball rolling, one proposal to counter this is as follows:
- the leader of all parties will be elected by the sitting members of the House, each member being able to vote for the leader of his own party between six and three months before an election day. All candidates must be MPs who are completing their eight years in office as an MP (and in all likelihood will be someone with four years in a ministerial position or shadowing a ministerial position if in opposition). Since each party leader will be elected by the sitting members of his party, this will mean that the leadership of the country is at least elected by MPs who have been selected by the public in the first place. In other words, the election process is doing its job for our PM, not that $5, card carrying rah-rah team. Furthermore, the leader will much more likely be chosen on merit, and by peers who at the time have nearly eight, or at close to four years’ experience working with him. (The six to three month dating also provides a period of transition, in which one leader can hand off to another);
- a party’s leader will vacate his home riding seat on the day of a general election, and it will be open to the normal process of an electing an MP. Each party leader will then, effectively, become a member at large, giving full attention to his new position. This system could be extended to include electing not only the leader, but a deputy leader for each party;
- subtle changes in the leadership’s powers will doubtless ensue, particularly if that leader’s party wins the next election. The PM will find that while the MPs in his party are still responsible to him, he is now very much responsible to them, as well. This should prove to be a very good thing. The deputy leader is also in place and can step in, should disaster fall or the leader fail to perform. Provisions should be made, perhaps specific to each party, where its sitting members may replace their leader should the necessity arise. They should thus be able to do so with far less political repercussions, and also perform their daily duties without unduly influence, particularly by the PMO;
- following a general election, the leader of the opposition will also retain a position as a member at large (along with a deputy leader). Other minority parties would also be allowed to retain their leader at large, perhaps subject to having won a certain number of seats in the general election;
- the prime minister, the leader of the opposition, and their deputies may hold their posts for up to eight years (two terms), but if a second term is given, they must be elected to it by the same process as the one that gave them their first term.
Jim, extra value came from our sometimes heated discussion of parliamentary reform. For much of this cross-table debate, the topic was focused on the House of Commons, and the denizens that walk its halls. At the very end of the discussion, our oldest coffee drinker, Alf, made a last minute suggestion. It centres on the Senate. It’s a sensible solution for what should be a venerable institution, rather than the venal palace of perks and patronage that it has become.
The Senate could serve a very useful purpose playing a role other than that of being a convenient home base for political favours. In other words, its powers might be reasonably beefed up, and it could resort to doing what a senate is supposed to do: provide a sage body of experience and learning to advise and to at least, on a temporary basis, check the government’s excesses. It could, for example, participate or even organize entire committees using their prior experience to advise our government, freeing up more of an MP’s time to work for their constituencies. Alf’s proffered alternative is quite simple and so obvious:
- the Senate will retain its regional balance, with redefined powers that mesh with and complement the House of Commons. Its original raison d’etre, that of a sober school of second thought and sage knowledge and advice, will be not only retained but truly restored. The difference will be that all 104 members will have a limited term, each will possess eight years related parliamentary experience--and they will be people who have been duly elected, not once but it will now be twice, as follows;
- when members of parliament finish their eight year term, they will all be eligible for a seat in the Senate. Around 165 MPs will be finishing their once-only term as an MP. At the same time, a minimum of fifty-two regionally based seats will become open in the Senate, under a similar four plus four, eight year, staggered election process. Those MPs who are interested in carrying on as a senator for this eight year term must stand for election, but they will be chosen by their peers in the House;
- vacant Senate seats will be allocated to the various parties based on the number of seats held in the House at the time of the Senate election, and the present coverage by each party in each region (province). Each party’s sitting members will elect the allotted number of senators from the names submitted from their own ranks, bearing in mind provincial residency. Each province and territory would end up with elected senators (in the sense they were elected once to sit in parliament, and a second time by being elected to the senate by people who have at least been elected themselves). When all’s said and done, our senators would not have lifetime feathered nests, and they would be elected based on merit and experience by elected peers.
- of course, the provinces and territories won’t like that. They probably wouldn’t have a problem with the concept, but they’d like to see the process take place in their own legislatures, and with their retiring MLAs. You could point out that this would only really work if they adopted the same election process for the MLAs, because then everyone would be in sync. Personally I think this has more merit!
Jim, there are probably as many ideas out there to change our political system as there are voters, and most of the controversy revolves around spending, policy, and accountability. Solutions range from regular referendums to simply weakening the dictatorial unaccountability of the Prime Minister’s Office. Yet one hardly hears about the most basic flaw of our current system of government: the eagerness of politicians to sacrifice their ethics and judgement in the quest to remain in power, and in further compromising their ethics in the drive to secure advancement, once in power.
This, in particular, translates to all MPs in the ruling party ceding to pressure on all sides, thus suppressing their moral freedom of choice: the Prime Minister’s Office; pressure groups in the home constituency; pressure groups in the country at large (every MP and PM succumbs to this regularly); and worst of all, having to lie to the media about how they truly feel on any given topic, or be ejected by the party for voicing an honest opinion that is contrary to policy. In fact, the present system, when conjoined with the media, forces politicians to become liars. It also suppresses popular opinion in favour of political correctness.
As to the latter, we old codgers at the coffee shop all believe that most politicians probably think no differently than we do, and a good deal of the views expressed around the coffee tables would be deemed as being politically incorrect. The resulting logic:just based on the law of averages, politicians must also hold many, if not all, of those same views. Only they cannot express them. In this manner is the final irony perpetuated: by slamming the politician for every perceived breach of correctness, the media itself contributes to suppressing the truth -- something it eternally professes to be seeking.
While this will likely continue, surely there is hope that a more honest and open dialogue might be heard when politicians know they are not going to be standing for re-election. How refreshing it would be to hear a politician just once answer an inane question from the press, or even the prime minister, in the same manner as he or she might speak to the Saturday morning coffee crowd: “Look, I don’t give a damn, just let me do the job you’re paying me for, and piss off!”
Of course, that’s no more likely to happen than a cabinet member or the PM saying, “Oh boy, yeah, that’s true, isn’t it? I did exactly that! I am so sorry. I lied and/or it was terribly wrong, and I’ll do the honourable thing. My resignation will be on the table in the morning.”
That’s not going happen. Nor is it likely that any real election reform is going to take place, either. The politicians have too much of a vested interest and besides, they know what’s best for us, don’t they--even if we did elect them on an entirely different precept. We’re all sure it’s just coincidence that the present system also works the best for them as well.
A spontaneous cross-country debate and a referendum is the only answer on this issue.
Can’t anyone help? Does anyone care?