Finance Committee on Feb. 8th, 2007

[The Chair, Conservative, Brian Pallister]

That's correct.

It's not my job to determine that. I note there is no unanimous consent, so I move now--

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

No one said "no". Was it Mr. Wallace? Very good. It wasn't any more complicated than that. It would have been quicker if we had been told that at the outset.

[The Chair, Conservative, Brian Pallister]

I urge the committee members to give Mr. McTeague the attention he deserves.

And Mr. McTeague, you may proceed now.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Chair, thank you very much for having me here. Colleagues, I'm glad to be here on such short notice. I want to thank the committee for taking the time to consider this bill.

I am joined by Mr. Peter Lewis, who is the chair of the government relations section of the RESP Dealers Association of Canada. He will also be making some comments here and perhaps provide opportunity. I am joined also by my colleague Mr. Glen Bradbury, my legislative assistant and no stranger to the Hill.

The purpose of the bill, as you know, is to amend the Income Tax Act to allow contributions to registered education savings plans to be tax deductible. This bill provides regulatory regimes similar to those for RRSPs, and it also has built-in penalties and guidelines to prevent the RESP from being used as a tax shelter, instead of having as its sole purpose the generating of funds to be used to pay educational costs.

I think all of us in this room would agree that nothing is more important to the future prosperity of our country than having a highly educated workforce, but the reality driven home to us yesterday by many students who were here is that soaring tuition costs at universities and colleges are creating concern that post-secondary education may soon be within the reach of only the wealthy. I believe many of you here will agree that such a situation would be unacceptable and would place Canada at a considerable economic disadvantage both domestically and in the international marketplace.

We know that a highly skilled workforce is paramount to Canada's future economic growth and prosperity. This bill will assist efforts to obtain more appropriate funds to address soaring education costs and enable more Canadians to attend institutions of higher learning. In addition, providing more self-generated funds from RESPs will no doubt lessen student debt upon graduation.

I must tell you that only 32% of Canadian families have RESPs to help pay for their children's education. One of the major reasons for this relatively low percentage is the financial burden it places on families to maintain an RESP. Regardless of the long-term benefit, contributing to an RESP requires after-tax monthly income, and as we well know, some families within our constituencies are simply unable to afford the minimum monthly contribution, usually $100.

Making contributions tax deductible offers families incentives and financial assistance to create and manage an RESP. In addition, making contributions tax deductible not only provides a means to help address education costs, but will also lessen post-graduation debt, which is often a debilitating financial drain, as we were witnessing yesterday. According to StatsCan, in Canada's labour market today two out of three jobs require more than a high school education. Post-secondary graduates have a higher employment rate, are less vulnerable in economic downturns, and receive higher incomes.

As I mentioned to you, a number of measures similar to those for the RSP are built into the bill to prevent the use of this as a tax shelter. We can discuss those later. I'd certainly be willing to talk about them, but there is specifically section 204.94 in part X.5 of the Income Tax Act, when it is withdrawn.

The safeguard in this bill, Mr. Chairman, is that the Income Tax Act says that under the conditions for registering the RESP, the promoter can pay if the student is enrolled as a full-time or part-time student in a qualifying educational program at a post-secondary educational institution, or the student cannot reasonably be expected to be enrolled as a full-time student due to serious medical incapacity, or the student unfortunately is deceased.

I will give you very briefly the outline, Mr. Chair. I hope there will be plenty of discussion in the next few hours or the next few minutes. I'm most concerned that we are not meeting the target and that we can do a much better job. With the coming demographic crunch of one in five Canadians being in retirement, we need to ensure that students have an opportunity to gain the skills to earn more, so that we can sustain our valuable programs and continue Canada's prosperity. That is the global reality that requires and necessitates this bold step forward.

I thank you, Mr. Chair. I look forward to your questions.

[The Chair, Conservative, Brian Pallister]

Mr. McCallum will begin.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

I'd first like to congratulate my colleague on his fine work on this subject, which is so critical not only to students but also to Canada's competitive position. I believe it's especially important since the Conservatives cancelled all those measures we had in our election platform, measures that would really have improved access, and replaced them with rather pathetic half measures like textbook deductions. I think your bill is particularly timely, given the inaction on this file on the part of the government.

My first question is to the officials or to you, Mr. McTeague. I'd like to know the annual cost of the measures you are proposing.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Mr. Chairman.

Thank you for that, Mr. McCallum. I agree with you that more can and should be done, and I believe this is an issue that should not be confined to a question of where parties stand ideologically. We all have a reality. We all have students. We all have parents who want to make sure—more than even their retirements, their RRSPs—that their children have an opportunity to gain the advantage of a decent job. That can happen only as a result of higher education.

Our institutions are badly strained. Tuition fees have risen, of necessity. The only way to meet them is to provide an instrument that currently exists within the administration of the RRSP and RESP to make a better—

[John McCallum, Liberal, Markham—Unionville, ON]

Please don't use up my time before you cover the cost.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

On the question of cost, I want to tell you that there is no outlay of government money, as there currently is. As you know, Mr. McCallum, the government spends almost $600 million a year, with a top-up of 20%. We have less than one-third of students taking advantage of that, so my concern is one of recognizing that this would be a question of the government being denied revenue, but there is no cost outlay.

[John McCallum, Liberal, Markham—Unionville, ON]

Let me rephrase the question, then, this time to the Finance officials. When I say “costs”, I mean revenue forgone, so what would be your estimate of the costs?

[Baxter Williams, Director, Personal Income Tax Division, Tax Policy Branch, Department of Finance]

Our estimate, based on recent contributions to the RESP program, would be that it would cost at least $565 million in forgone revenue. If it were to trigger an increase of 20% in the value of contributions, that amount would grow to close to $800 million.

In addition, since it would reduce income for tax purposes, all provinces participating in the tax collection agreement would see their revenues reduced as well. The cost to them would be in the neighbourhood of $250 million to $300 million.

[The Chair, Conservative, Brian Pallister]

Mr. McCallum, I'll give you more time. I just have to interject at this point to question the Finance official, if I may.

In your cost calculations, do you consider the impact of the income tax responsibilities from the adult contributor to the youth in receipt? In other words, the student may well be in a lower bracket or be non-taxable when the money is withdrawn. Is it withdrawn in their name?

[Baxter Williams]

My understanding is that when the contribution is withdrawn, it's the contributor who bears the tax.

[The Chair, Conservative, Brian Pallister]

So is there any assumption of a lower or a higher bracket on the point of withdrawal in your calculations at all? Or are you just assuming the same tax consequence ultimately by the contributor, as was the case when they contributed?

[Baxter Williams]

You are correct, and I should clarify that I'm examining upfront costs associated with the measure. Over time, as the program matured, there would be a recovery of revenue as the amounts were withdrawn. But presumably that is something that would occur over the next twenty years.

[The Chair, Conservative, Brian Pallister]

I think it's an important question, and it's one that's rather pertinent to another topic we've just recently discussed here as well.

I'll continue now with Mr. McCallum.

[John McCallum, Liberal, Markham—Unionville, ON]

So this would be deferred revenue.

[Baxter Williams]

That's correct.

[John McCallum, Liberal, Markham—Unionville, ON]

And Finance counts that as deferred revenue in its calculations, right?

[Baxter Williams]

What I'm referring to is the cost over the current horizon. In effect, you would be deferring tax paid on the amount of the contribution, although over the immediate horizon you would see only the tax consequences of it, in terms of lost revenue.

[The Chair, Conservative, Brian Pallister]

Again, just to clarify, what we're really talking about for tax cost isn't necessarily $800 million. We're talking about the present value difference between that $800 million received now versus it being received at some projected date in the future. Is that what we're talking about as a real tax cost here?

[Baxter Williams]

No. It's difficult for us to estimate what the final recovery would be without understanding better the nature of the contributors. We're looking at a fairly simple calculation, based on the existing program, of what the upfront revenue loss associated with introducing this program would be.

[John McCallum, Liberal, Markham—Unionville, ON]

So just to determine it—

[Baxter Williams]

Just to be clear, there's no present value calculation in here, in which we try to take into account the recovery in the future of—

[John McCallum, Liberal, Markham—Unionville, ON]

So this is just the gross upfront cost for this year, with no allowance for additional revenues that would accrue in future years.