The demise of Canada’s one-cent coin will cost taxpayers a pretty penny.
Finance Minister Jim Flaherty announced the impending withdrawal of the penny in last March’s budget, saying the government would save $11 million a year in production costs.
That’s because production of each penny had cost the Royal Canadian Mint about 1.6 cents.
But a new cost analysis shows redeeming the mountain of circulating pennies, beginning Feb. 4, will cost taxpayers about $7.3 million a year.
The analysis projects a net cost of about $38.3 million to redeem the six billion pennies expected to be turned in by consumers and financial institutions over the next six years.
Costs include $53 million that will be paid out to redeem the face value of the coins, as well as another $27 million in handling and administration costs by the Royal Canadian Mint.
Recycling the zinc and copper from melted-down pennies will bring in about $42.5 million in revenue, leaving government in the red at just over $38 million.
However, adding the $11 million in annual savings from not minting any more pennies, which ceased production May 4 this year, still gives the government annual savings of almost $4 million over six-year period.
And beyond six years, Ottawa will reap the full $11-million-a-year in savings.
The Finance Department posted a cost-benefit analysis Wednesday.
Under government policy, the department was also required to consider non-regulatory measures for the return of pennies.
“A non-regulatory alternative option would include refusing to pay for the returned pennies,” says the notice.
It adds, “This option has been rejected because, without a government commitment to cover the redemption costs, Canadians might lose confidence in the value of the penny, and other circulating currency. This could threaten the integrity of the coinage system as the intrinsic value of Canadian currency is based on a high level of confidence in the currency system.”
A cabinet order earlier this month conferred on Flaherty the authority to pay financial institutions for the pennies they’ll begin to redeem starting Feb. 4. However, they’re not being compensated for handling costs, only the face value of the coins.
The mint has stamped an estimated 35 billion pennies from metal plates over the last century. The penny remains legal tender even after Feb. 4.
As the coins are withdrawn, cash transactions will begin to be rounded off to the nearest five cents, but there are no government-imposed rules or policing.
Electronic transactions, such as those on debit cards or credit cards, would still be registered in cents.
Pennies were to have been withdrawn from circulation starting this fall but retailers successfully stalled the plan, saying they wanted to keep the coins for the holiday shopping season.
In the meantime, the Mint is trying to figure out how to make coins more cheaply without sparing its quality and durability, or altering its size and appearance.
A 400-page report presented last week to Congress outlines nearly two years of trials conducted at the Mint in Philadelphia, where a variety of metal recipes were put through their paces in the massive facility’s high-speed coin-making machinery.
Evaluations of 29 different alloys concluded that none met the ideal list of attributes. The Treasury Department concluded an additional study was needed before it could endorse any changes.
“We want to let the data take us where it takes us,” said Dick Peterson, the Mint’s acting director, on Wednesday. More test runs with different alloys are likely in the coming year.