Notwithstanding my political leanings, if the budget is ever passed into law, here is the reality of the situation.
As my readers are aware, I am the managing partner of my firm (Note: I have not yet discussed the implications of the budget with my partners, so these views are mine at this point and not of my firms and any venom from Liberal and NDP supporters should be solely directed at me).
Here is how our partner meeting after the budget is passed (if it is ever passed) will go. I will say to my partners we have 30-35 people in the office and the cost of the pension reform will be as high as $1,700 per person or somewhere in the range of $50,000-$60,000 before tax for our firm. Our income taxes have gone up say $3k to 4k per partner, so we are out $18,000-24,000. Thus, we will have $70,000 -$85,000 less in our pockets.
I would then proceed to say we are willing to absorb say 25% of this hit, but not the next 75%. Thus, we have three options: either we lay-off our weakest employee, don’t hire the person we were going to hire that year, or cut back our costs $50,000 -$70,000 (assuming we are absorbing 25% of the hit).
It’s very simple math and if people are honest, the same conversation will go on around the province and those employers with the ability to hire out-of province will do so. Those without the ability to hire out of province will have to decide whether to absorb these additional costs (some large corporations may also have an additional corporate income tax hit) or reduce their workforce to keep their total costs in-line.
The result, net-net job gains of zero or at best a job rate growth of an infinitesimal amount.
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Most things about this new pension plan seem pretty vague so far. The payroll taxes for employee and employer seem clear enough (as you've made clear), but I don't know exactly who it will apply to and at what age benefits would start.ReplyDelete
Hey Michael, yes very vague. But if this passes, employers will have a huge additional cost they will not want to absorb and in some cases cannot absorb. Obviously I look at this from an employers perspective and my employees would not necessarily agreeDelete
It's not all bad news for business. Wouldn't the new 10-year, $2.5-billion fund that offers grants to business companies investing in Ontario help create jobs?ReplyDelete
A little light on details, but probably/possibly if not mismanaged. I am skeptical of these type funds because the business it attracts is only $ motivated, but yes, could be beneficial. However, for business currently here, a massive additional cost of doing business in Ont.
No worries. The budget is not going to pass. We're heading into a June 12 provincial election - more money to spend on electing another minority gov't. Every politician's mantra: tell them what they want to hear in order to get elected. And so it goes ...ReplyDelete
Yup, but I felt better ranting :)Delete
What's stopping employers from creating a pension plan at 0.1% instead of the ORPP rate of 1.9%?ReplyDelete
We don't know the details of the plan yet. But I would expect the rate is mandatory with no variance allowed, but that is speculation.
Normally for pension plan employer would be require to contribute at least 1% which leverage a bit compare to 1.9%. From an employer point of view pension plan are much more complicated to manage (pension comittee, etc.). I guess it will be up to some company to review if it's better to just pay that 0.9% or add lots of administrative work to their business. There is no good or bad answer right now, we'll need to wait for final regulations.Delete
More information on this plan: http://www.ontario.ca/government/ontario-retirement-pension-plan-key-design-questionsReplyDelete