A payroll tax cut that should be just a start
The federal government plans to reduce the base Canada Pension Plan contribution rate from 9.9% to 9.5%, effective January, returning over $3 billion annually to workers and employers. The move is framed as a payroll tax relief measure that does not affect future CPP benefits, as the plan remains financially sustainable. While the cut is modest, it addresses concerns about high payroll tax burdens on businesses and could stimulate economic activity through increased worker spending.
- ▪The federal government will reduce the base CPP contribution rate to 9.5% from 9.9%, starting in January, with Quebec having already lowered its provincial pension plan rate last year.
- ▪A worker earning $70,000 will save $133 annually, with matching savings for employers, totaling over $3 billion in annual contribution reductions across approximately 16 million contributors.
- ▪CPP benefits in retirement will remain unchanged, and the most recent actuarial report confirms the plan's financial sustainability at the lower contribution rate.
- ▪The Canada Pension Plan Investment Board manages over $780 billion and has pursued an active investment strategy since 2007, which some analysts argue underperformed benchmarks and cost the fund over $70 billion in foregone returns.
- ▪The Canadian Federation of Independent Business reported that in 2023, employers paid an average of $5,067 in payroll taxes per $50,000 employee, excluding income tax.
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Open this photo in gallery:CPP contributions have risen in recent years due to the Trudeau government’s enhancement of the program.MARK BLINCH/ReutersShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountThere were few fiscally conservative elements in the federal government’s spring economic update, but there was one exception. The cuts to Canada Pension Plan contributions are a welcome move that trims payroll taxes and puts more money back into the hands of businesses and workers. The federal government, with agreement from the provinces and territories, plans to reduce the base CPP contribution rate to 9.5 per cent from the current 9.9 per cent, based on employment earnings between $3,500 and the annual limit, starting in January.
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