Do young workers suffer first from increased payroll taxes?

By Jordan Press

THE CANADIAN PRESS

OTTAWA _ “The first people who suffer when payroll taxes go up are young Canadians and new entrants into the workforce.” _ Conservative Leader Andrew Scheer.

_

Newly minted Conservative Leader Andrew Scheer was hoping to lure young voters into the Tory tent this week when he said “payroll taxes” ultimately hurt new and young workers a key constituency in 2015’s Liberal election win.

Such workers would be left behind if increased payroll costs, linked to plans to expand the Canada Pension Plan, dissuaded businesses from making new hires, Scheer argued.

“This is the great lie of the left,” he said  ‘hat they hurt the people they claim to help.”

How much truth is there to Scheer’s statement?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of “no baloney” to “full of baloney” (complete methodology below).

This one earns a rating of “a little baloney” the statement is mostly accurate but more information is required.

THE FACTS

Scheer’s argument stems from a concern the Conservatives have voiced for years: increased Canada Pension Plan premiums dampen employer interest in expanding workforces because of increased labour costs.

Over seven years beginning in 2019, CPP premiums will be gradually increased as the program is expanded, resulting in a one per cent increase in the premiums paid by employers and employees.

That’s about $408 more per year coming off paycheques _ hence the Conservative “payroll tax” label.

The Tories point to 2014 research by the International Monetary Fund on youth employment in Europe that suggests a one per cent increase in payroll taxes can increase youth unemployment by between 0.3 and 1.3 per cent, compared to 0.5 per cent for adults. Likewise, Scheer’s staff point to a 2011 Organisation for Economic Co-operation and Development (OECD) paper that said it is “reasonable to conclude” that higher labour taxes affect unemployment.

A University of Calgary study this year found higher corporate income tax rates tend to result in lower wages for workers. Older research papers suggest similar effects on wages in Colombia and Chile from changes in payroll taxes.

When looking at cost reductions, a 2014 Queen’s University paper found that employment rates increased between one and two per cent for young workers between the ages of 18 and 24 when the federal government offered would-be employers rebates on EI premiums.

The Liberals promised to do something similar in their election platform, but have yet to follow through on the pledge.

THE EXPERTS

Markets decide how best to deal with the costs of payroll taxes, be it through increased consumer prices or reduced shareholder revenues, but they mostly materialize through lower wages,

Companies decide best on how to deal with the costs of payroll taxes, either by passing the extra cost along to consumers in the form of higher prices, cutting dividends to shareholders or _ as is most often the case _ by cutting wages, said Ken McKenzie, an economics professor at the University of Calgary who co-wrote the 2017 paper.

“Most of the action happens on lower real wages and it takes some time for this to happen,” said McKenzie, who has studied and advised Canadian and international governments on taxation.

“Companies faced with higher payroll tax costs will just give lower increases in wages, or inflation will go up because labour costs go up, and that slowly erodes the real wages.”

Businesses can adjust their spending in the face of higher labour costs by cutting back on hiring, which affects new entrants to the labour force, said Craig Alexander, chief economist at the Conference Board of Canada.

Just how much the CPP premium increase, spread over several years, would affect hiring is unclear, but it would likely be minimal, Alexander said.

Tammy Schirle, an associate professor of economics at Wilfrid Laurier University in Waterloo, Ont., said a payroll tax that is clearly visible and directly connected to an individual benefit _ saving for retirement, for instance _ ought not have negative employment effects as long the benefit is of value to people.

CPP premium increases will likely reduce employment levels in the short term and be replaced in the long run by lower wages, said Ted Mallett, vice-president and chief economist with the Canadian Federation of Independent Business. CFIB modelling suggests new entrants to the labour force, including youth, are likely to be disadvantaged in the long run as employers look to hire someone with more employment history.

It is possible that some employers will cut back on their private pension plans as a way to neutralize the effects of a CPP premium increase, but it’s unclear by how much, Mallet said. Employees, too, will likely cut back a bit on retirement savings, he added.

THE VERDICT

There is evidence to support Scheer’s comments about the general effects of payroll taxes. His statement, however _ one of his first as Opposition leader _ lands a rating of “a little baloney” because of a shortage of evidence when it comes to young workers.

“For political reasons, you can see why he would say that. His comments, as far as I can see, weren’t totally offside. He’s basically saying that payroll taxes may actually hurt people,” McKenzie said.

“He focused on young people, and that’s an area where there’s not a lot of empirical work, because most payroll taxes affect everybody.”

 

Jonathan Gruber (1995). “The incidence of payroll taxation: Evidence from Chile.” National Bureau of Economic Research. Link: http://www.nber.org/papers/w5053

$85,000 Non-Pecuniary Assessment for L1 Fracture and Concussion

Reasons for judgement were released today by the BC Supreme Court, Vancouver Registry, assessing damages for injuries sustained in two collisions.

In today’s case (Wiebe v. Weibe) the Plaintiff was involved in two crashes, the first in 2012 the second in 2013.  The first collision caused a fracture at the L1 level of the Plaintiff’s spine along with a concussion.  The second aggravated some of her symptoms.  By the time of trial she was left with some residual barriers due to her injuries as well as lingering pain.  In assessing non-pecuniary damages at $85,000 Mr. Justice Tindale provided the following reasons:

[183]     I accept that the plaintiff suffered an L-1 fracture as well as an injury to her mid back. I also accept Dr. Reddy’s diagnosis that the plaintiff suffered a concussion which is in keeping with the plaintiff’s description of her injuries after the First Accident….

[185]     The plaintiff was virtually couch bound for a number of weeks after the First Accident.

[186]     The plaintiff suffered a considerable weight gain after the First Accident though she has ultimately lost that weight. The plaintiff is currently physically active, able to run on a regular basis as well as attend a gym.

[187]     The plaintiff still suffers from mid back pain though there has been significant improvement in her condition…

[190]     The plaintiff in the case at bar suffered a serious injury to her low back as well as injuries to her mid back. She also suffered a concussion and developed anxiety which had an impact on her daily life for a number of months after the First Accident.

[191]     Considering the inexhaustive list of common factors in Stapley and the fact that the plaintiff continues to suffer pain I conclude that damages of $85,000 are appropriate for this head of damage.

A cottage agreement can save the family headaches

A cottage agreement can save the family headaches

There’s a family I know who have a story they’d like to share. Eric, Ben and Emma are siblings who inherited their father’s cottage four years ago when he passed away. They all love spending time at the cottage, and love one another – most of the time. Still, they can drive one another crazy. “Tim, I love my sister,” Eric said, “but when we’re at the cottage together, she plays the bagpipes all day long. Supposedly it’s good for her asthma. It drives me nuts.”

If you own a cottage and are thinking of leaving the property to your heirs one day, there’s no guarantee that they’ll be able to share the place successfully. But you can stack the odds in favour of a happy co-ownership through use of one terrific tool: A Cottage Agreement.

The agreement

A Cottage Agreement is a document signed by you, and each of your heirs who will one day inherit your cottage. The agreement should be finalized after an open discussion with your heirs so that they provide input into its creation. What’s the purpose of a Cottage Agreement? To provide a clear understanding of how the finances, usage, upkeep and decisions around the cottage will work when you’re gone. The agreement will also spell out how disputes will be resolved, when (not if) they arise.

As the current owner of the cottage, you might want to pass ownership to the kids during your lifetime, but retain certain rights related to the property – such as the right to continue using the cottage. A Cottage Agreement should spell out these rights.

Sure, a little moral suasion may be enough to keep harmony in the family while you’re around, but even the most loving families can face stresses related to a shared property if there’s no clear understanding around key issues.

The issues

When heirs are going to share the cottage, the following issues should be discussed, with answers baked into your Cottage Agreement.

  • Use of the cottage. Will all the kids be allowed to use the cottage all the time? This will require that they be willing to stay with one another (and may require Eric to be respectful of Emma’s bagpipe asthma treatments). Or will each have exclusive use at certain times? How do you allocate these times?
  • Guests at the cottage. Are heirs allowed to bring guests to the cottage, or will it be family only? Further, can an heir rent the cottage during his or her exclusive time, or is renting prohibited?
  • Sharing the costs. How will your heirs split the costs of upkeep? Should the costs simply be split evenly? Should it be based on who can afford to pay? Should it be in proportion to use of the cottage? Will you leave a “cottage fund” in trust for the heirs to help cover some of the costs? Perhaps your heirs should set aside money annually to create a “reserve fund” to pay for larger repairs when they become necessary.
  • Managing the money. Once everyone agrees on how to pay for things, who will make sure suppliers are paid? Someone has to collect the money, pay the utility bills, property taxes and insurance premiums, among other things.
  • Labour at the cottage. There’s plenty of work to do at the cottage. Who is going to open and close the cottage if required? Who will cut the grass, rake the beachfront, put the dock in the water, prune the trees and hedges, clean out the shed, and more?
  • Rules at the cottage. I’ve seen many cottage heirs squabble over the mess left behind by a sibling, leaving the boat without gas, leaving rotting food in the fridge and other minor inconveniences. Preparing some “Rules of Use” to accompany a Cottage Agreement is a good idea.
  • Succession of the cottage. Will each have the right to leave his or her share to a spouse (who may remarry later), or should the share go to the kids of a deceased owner? Heirs may need a way out of cottage ownership if necessary. Should each have a right to sell his or her share, perhaps giving the others a right of first refusal to buy?
  • Decisions about the cottage. How will your heirs arrive at agreement on matters related to the cottage? Should a majority rule on minor issues? Will certain decisions (such as selling, or making major improvements) require unanimity? How about mediation if they can’t agree?

Banks sell mortgage insurance, but independent experts say you shouldn’t buy it

Personal finance experts are a pretty soft-spoken bunch. It isn’t often that they say they would “never ever” advise buying a certain financial product.

But that is exactly what they generally say when asked about mortgage protection insurance, according to Anne Marie Thomas of InsuranceHotline.com, an insurance comparisons site.

Mortgage protection insurance isn’t the mortgage insurance most Canadians are familiar with, the one you need to buy, generally from the Canada Mortgage and Housing Corp. (CMHC), when your down payment is less than 20 per cent of the value of your home.

Unlike the better-known mortgage insurance, which protects lenders if homeowners default, mortgage protection insurance is, essentially, a type of life insurance. It covers your mortgage debt if you die or become disabled.

Banks generally try to sell homeowners this type of insurance when they sign up for a new mortgage. Insurance premiums are then seamlessly added to their monthly mortgage payments.

So, what’s not to like about that?

A lot, according to Thomas:

1. The payout from mortgage protection insurance shrinks with your mortgage

These kinds of policies only cover your outstanding debt, meaning the payout gets smaller and smaller as you pay off your mortgage. Insurance premiums, on the other hand, stay the same through the insurance term.

2. You may find out when you file a claim that you aren’t eligible for coverage

Mortgage insurance policies are “typically underwritten after the fact,” noted Thomas. This means that the insurance company will only take a close look at your case once you file a claim. And it may very well find that something in your particular situation violates the insurance contract, which would leave your family without coverage just when they need it most.

If you purchased mortgage protection insurance, comb through your policy carefully to make sure there’s nothing that could potentially exclude you for coverage, advised Thomas.

3. Your might get saddled with higher premiums when you renew your policy

With mortgage protection insurance, you’ll need to renew your policy at the end of your mortgage term, said Thomas.

Your new premium will be based on your — now smaller — outstanding mortgage balance, but that doesn’t mean you’ll be paying less. Because you’re a bit older, your premium won’t necessarily go down — in fact, it may go up, Thomas told Global News.

4. Your bank, not your family, pockets the payout

Assuming the claim goes through, mortgage insurance guarantees your family won’t have to worry about mortgage payments if you die or become disabled.

In case of death, your beneficiaries can counts on a lump-sum payout that will take care of the outstanding balance, according to Jason Heath of Objective Financial Partners, a fee-only financial planning firm. In case of disability, the policy will generally cover your monthly mortgage payments until the debt is extinguished, he added.

But does it make sense to use the money to pay off the mortgage?

Not necessarily, said Heath. Perhaps your survivors could have easily eliminated mortgage by selling the house. Or they might have preferred to use the money for other purposes, while keeping up with your mortgage payments.

Mortgage protection insurance means any payout will flow out to your mortgage lender, not to you or your family, noted Thomas. And that’s much like CHMC insurance.

Consider plain life insurance instead

Skipping on mortgage protection insurance doesn’t mean you have to go without coverage. Instead, you could buy life insurance, both Thomas and Heath said.

With life insurance, your payout remains the same through the term of the policy and the money comes with no strings attached.

For example, if you had a $300,000 mortgage and took out a policy for the same amount, your beneficiaries would still receive $300,000 even if you had paid down your mortgage in full by the time the claim is filed.

And life insurance is generally much cheaper, too, said Thomas.

“It typically could end up costing you half as much,” she said.

Why does anyone get mortgage protection insurance, then?

Many homebuyers, especially those buying their first home, haven’t done enough research to know what they’re getting into, said Thomas.

“Generally, the way it’s offered to [homebuyers] is when they’re sitting there, signing a whole bunch of [mortgage] paperwork and they’re bored and they’re starting at the wall,” said Heath.

When the bank proposes adding mortgage protection insurance, “for most people, it’s a five-second decision.”

Banking and mortgage industry professionals are often under enormous pressure to sell mortgage insurance, and benefit handsomely through commissions when they do, said Heath.

“Your friendly neighbourhood banker is financially motivated to get you to buy mortgage insurance, whether it’s in your best interest or not,” he added.

That may be why, a few years back, Heath himself discovered in his first-ever mortgage statement that he was, in fact, paying for mortgage protection insurance even if he had clearly declined coverage.

Heath eventually got his lender to cancel the policy and refund the premiums.

But many homebuyers aren’t well-informed enough to know they shouldn’t have signed up for the service in the first place.

“Mortgage [protection] insurance is very expensive, but it’s a captive market,” said Heath.

Housing agency now backing $502 billion in Canadian mortgages

Read more

$90,000 Non-Pecuniary Assessment for Chronic Wrist Injury

Reasons for judgement were released today by the BC Supreme Court, Kelowna Registry, assessing damages for a chronic wrist injury.

In today’s case (Ackerman v. Pandher) the Plaintiff was involved in a 2011 collision.  The Defendants admitted fault.  The Plaintiff worked as a tile setter and the chronic injury disabled him from his profession.  In assessing non-pecuniary damages at $90,000 Mr. Justice Schultes provided the following reasons:

[29]         The medical evidence about Mr. Ackermann’s wrist injury and its effects was not disputed. It indicates that he suffered what is known as a “perilunate dislocation injury[1]” in the accident. This results in “significant soft tissue/ligamentous disruption within the wrist.[2]” Some degree of stiffness is usually seen in patients with this type of injury and his ongoing symptoms are considered to be “reasonable given the nature and extent of his injury.[3]” When he was examined in May of 2015 he had flexion (moving the hand downward from a horizontal position) of only 20%, although his abilities to pinch and grasp were good[4]. His prognosis is for increasing arthritis in the joint as a result of the injury, “with gradually worsening pain and limitation.[5]” A consulting orthopedic surgeon described his condition in 2015 as “chronic and static with a very high likelihood of deteriorating over time.[6]

[30]         If his pain worsens he may require a partial or total wrist fusion, which “typically improve[s] pain however at the cost of significant range of motion.” A total fusion would mean that he could no longer flex or extend the wrist.[7] For now his symptoms can be “slightly improved” by the intermittent use of a brace and by anti-inflammatory medication.[8]

[31]         With respect to work prospects, the orthopedic surgeon offered the opinion that “[b]etween the associated pain and the limited range of motion to his wrist, [he does] not believe that there is any chance of Mr. Ackermann returning to a physical job involving extensive use of his right wrist.” Nor did he believe that there were any “interventions” that would allow Mr. Ackermann to do so[9].

[32]         During his evidence, Mr. Ackermann demonstrated the restrictions in his range of motion of his right wrist and how moving the wrist forward and backward or from side to side causes him pain.

[33]         When he attempted to return to work after the accident he quickly found that the pain in his wrist made it impossible to perform the essential tasks of tile setting.

[34]         This injury has also undermined his ability to engage in the extensive range of physical activities that made up his life outside of work. These have included gardening, shovelling manure for his wife’s chickens, performing home maintenance tasks and minor renovations, playing sports as part of his Sunday social activities and playing with his grandchildren. He also cannot go hunting because of the effect on his wrist of firing a gun.

[35]         Using his wrist to do work of any kind causes a burning pain which is severe enough that it can also wake him up at night. He always feels pain to some extent but if he “takes it easy” it is lessened…

[132]     I think that in this case Mr. Ackermann’s circumstances demonstrate a meaningful requirement for solace, one that is greater than his physical injury might otherwise suggest. It was not contested that he was previously a person for whom the ability to interact physically with the world, and his identity as a “worker” in both his actual employment and his home life, were extremely important. The pain that is brought on by the use of his wrist is serious enough, but in my view a critical aggravating factor has been the comprehensive undermining of his sense of capability in the parts of his life that he otherwise found the most fulfilling. Even though he was rather stoic when giving his evidence, the overall sense he projected of someone who has been cut adrift from the previous fundamentals of his life was still palpable.

[133]     Taking care to distinguish these effects from the harm that has been caused to his earning capacity, which is of course to be dealt with separately, I conclude that an award of $90,000 under this heading is appropriate.

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