CPP boost to cost feds $250M per year to offset fresh burden on low-wage earners

The federal government estimates it will cost taxpayers $250 million per year to offset the additional financial burden that expansion of the Canada Pension Plan will eventually place on low−income earners.

Ottawa and the provinces reached an agreement−in−principle this week to gradually increase CPP premiums as a way to boost the program’s benefits for future generations of retirees.

The announcement also included a federal commitment to enhance its refundable "Working Income Tax Benefit" to help compensate eligible low−wage earners for the higher CPP contributions.

The Finance Department projects that change will cost about $250 million annually once the CPP premium increase has been fully phased in.

The federal government also says it will allow the provinces to make specific changes to the tax benefit so it’s more harmonized with their own programs.

Due to this, Ottawa says it will continue working with the provinces and territories before implementing the adjustments to the tax benefit.

The Canada Revenue Agency describes the tax benefit as a refundable tax credit that provides relief for low−income individuals and families who are already in the workforce. The agency also says the benefit encourages others to enter the workforce.

Earlier this week, every provinces except Quebec and Manitoba agreed to the deal to expand the CPP.

The agreement states that CPP premium increases on workers and employees will be phased in over seven years, starting on Jan. 1, 2019.

Under the deal, the federal government also said it would provide a tax deduction — instead of a tax credit — on the increased CPP contributions by employees.

The CPP changes will increase the maximum amount of income subject to CPP by 14 per cent, to $82,700.

The full enhancement of the CPP benefits will be available after about 40 years of contributions, the government said.

The income replacement rate will rise to one−third from one−quarter, meaning the maximum CPP benefit will be about $17,478 instead of about $13,000.