Finance Committee on Feb. 8th, 2007

[Baxter Williams]

That's correct, but I should mention that even if we were to calculate that, in terms of the current-year fiscal costs and the amount available to the government, accounting rules wouldn't allow us to take those future recoveries into account.

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

Okay, but if one were to do a present value calculation, one might find the true costs in a longer-term accounting sense were radically less than $560 million once one took in future revenues that you have not accounted for.

[Baxter Williams]

The costs would be less. However, the amount would depend on the differences in tax position of the contributor at the time of making the contribution and when the taxes were ultimately paid upon it, and over time—

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

Thank you.

[The Chair, Conservative, Brian Pallister]

We'll continue with Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

I'd like to conclude so that I can get a clear understanding. At the present time, a parent, grandparent or friend can make payments on behalf of a child, and that contribution will be increased by the 20% subsidy. There's no deduction.

Will the scholarship become taxable when the amount is transferred to the children?

[Baxter Williams]

Under the current regime?

Under the present system, there's the tax on withdrawals,

on the withdrawals, although normally the student would be in a non-taxpaying position. So the effect would be that they would pay no tax.

[Pierre Paquette, Bloc, Joliette, QC]

So it's somewhat the same thing. The bill will make it possible to deduct a portion of the contribution paid to the registered education savings plan. When the student receives his scholarship, he'll pay tax, but since his income will be very small, which is usually the case, he'll have virtually no tax payable.

[Baxter Williams]

There is a distinction here, because in this case the contribution to the plan will be eligible for a tax deduction by the contributor, but when the contribution is ultimately withdrawn, the contributor will have to include that amount in his or her income.

[Pierre Paquette, Bloc, Joliette, QC]

I understood: it will be the person who has contributed to the registered education savings plan, not the student... That's what I'm trying to clarify.

Go ahead, Mr. McTeague.

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

Thank you, Mr. Paquette. We know that youths of 17 or 18 won't be able to pay a lot of tax because they won't have a lot of income. I imagine that few people who attend university earn $40,000 or $50,000 a year.

Consequently, the effect will be beneficial. There will be a burden, but it will very small, given the amount of the deductions available to students.

[Pierre Paquette, Bloc, Joliette, QC]

If I understand correctly, we can contribute money to a registered education savings plan, deduct that amount from our taxes, and, when the scholarship is paid to the student, the contributor will have to pay the equivalent of what is owed or—

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

That's not correct.

What happens when the student receives the money? He'll pay tax based on his income. The people who have contributed to it, like the parents or grandparents, won't have to do anything.

[Pierre Paquette, Bloc, Joliette, QC]

I'd like to clarify another thing. Let's take the bill. In principle, we think this is an interesting measure which is based somewhat on the idea of a retirement savings plan.

It concerns "unused deduction room". In the case of a registered education savings plan, there is a contract that you sign with a company. Consequently, how can you say that there is unused deduction room? For example, if I sign a contract with the company XYZ and I undertake to pay $2,000 a year, that amount will represent my contribution. I know that I can pay $4,000, but I have chosen to limit myself to $2,000. How can you say there is "unused deduction room"?

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

The problem is that the amounts that you contribute to it—a maximum of $10,000 a year—are already there. Are we ultimately talking about a contribution for a student? Is there an amount that won't be used? An amount that wouldn't be used would be taxable in the case of RESPs.

So it is out of the question that an amount would be left there for years.

[Pierre Paquette, Bloc, Joliette, QC]

The bill refers to unused deduction room. What does that definition refer to? Subclause 2(2) reads, and I quote:

(2) Subsection 146.1(1) of the Act is amended by adding the following in alphabetical order: "unused RESP deduction room"...

Is this the difference between deductions that have been used and the maximum amount of allowable deductions?

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

There is a maximum amount that can be contributed. At the bottom of page 1, the bill reads:the amount that is the lesser of the RESP dollar limit for the year and 18% of the taxpayer's earned income for the preceding tax year;

[The Chair, Conservative, Brian Pallister]

We'll continue with Mr. Del Mastro now.

[Dean Del Mastro, Conservative, Peterborough, ON]

I suppose I'd like to start with Mr. McTeague. I think I understand the intent of the bill, which is to help students and assist with post-secondary education. That said, there are a number of ways to do that. This is one vehicle of many.

We know that RESPs have risen to about seven times their value of nine years ago, now sitting at roughly $18 billion. It would seem that this vehicle is working. In your view, why do we need to look at changing this program? It appears to be working well.

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

Mr. Del Mastro, it's perception. I can look at the glass as one-third full or two-thirds empty. I prefer to call it two-thirds empty. I think we've come some way, but I'm going to let Mr. Lewis tell you about the challenges we face with people who can't even make the $100 contribution.

If only one-third, or less than one-third, are making the gain and then only with an incentive, which is a revenue commitment by governments of $575 million a year, versus the potential of only $565 million, we're not talking about the contribution ending, but I suspect that what we're seeing here is a policy that could do much better by using the instruments that are there.

If you ask most Canadians who are anticipating to contribute, many of them are not aware of the fact that it's after-income moneys, and so many middle-class-income, hardworking families, the kinds of families that you represent and I represent, can't make up the amount. So it's not so much the failure of the families to be able to save. God knows, they work hard enough. It is the fact that so many recognize that if their children are not successful, the economy will suffer down the road, certainly with the demographics that are there.

It strikes me that when we have so many students who can't make it because of the lack of programs or because there is not the ability to save in advance...you know, it's hard to get engineers in Canada to serve some of the large industries. Our industry committee has just come out with a wonderful report on manufacturing. If you can get 30 engineers in an area, you're pretty lucky. China can get 3,000, just like that. They are beating us at the education game, and that's where the pressures of globalization dictate that we have highly advanced skilled labour. I know you know that because of the work you've done with Sir Sandford Fleming College and with Trent University, and I compliment you for that.

But I think Mr. Lewis may have something to add to that to that, Mr. Del Mastro.

[Dean Del Mastro, Conservative, Peterborough, ON]

Okay. I'd just like to move on to a second question, if I could, or just follow up to that and agree.

First of all, I agree with you on the need to support post-secondary education. I'm just talking about this particular vehicle.

As to one of the big criticisms of this, I did speak to Bonnie Patterson, who's the president of Trent University, and she indicated to me that about 53% of students graduating from Trent have no debt whatsoever, indicating that those students are being funded either by their parents or through savings.

I'm concerned that what we have right now may well be an access problem for lower-income families, and I don't see how they could take advantage of this type of program. We know and we've heard talk of the potential financial hit to the federal reserves overall. That would seem to me to potentially weaken the amount of support that government could lend to lower-income families, to allow for access for low-income families.

How would you respond to this potential distortion that this could create, whereby it would really benefit middle- and high-income families and really move to further limit access for low-income families?

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

Mr. Del Mastro, we are looking at the fact that 68% or more of students are not able to take advantage of the current regime. That includes middle-income and poor students, students who are not well off.

Let me read something: “According to Statistics Canada, bachelor graduates in 2000 with student loans owed, on average, 76% more than their 1990's counterparts after adjusting for inflation. A similar increase in student debt over the same period was found for college graduates.” Also, from the Library of Parliament: “For some observers, rising student debt has become an access issue, especially in terms of students from low-income families.”

I'm not suggesting that this bill is going to cover 100%, but I can sure tell you that we will do a lot better than 32%.

[Peter Lewis, Vice-President, Administration, Canadian Scholarship Trust, Canadian Association of Not-for-Profit RESP Dealers]

I think it's important to realize that the Canada education savings grant program has been successful in driving participation in the RESP. Nonetheless, we still only have a third of Canadians with this type of savings program. There's still a huge opportunity and a huge gap, and I would suggest that with the introduction of the Canada learning bond, you are in fact starting to address some of the concerns of the lower-income families. This measure provides the greatest benefit to the group in the middle tier, the middle-income families that do find it a struggle to find room within their budget, their after-tax dollars, to make contributions into these important programs.

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

On that, Mr. Del Mastro, it is a $45 million contribution right now.

[Dean Del Mastro, Conservative, Peterborough, ON]

Thank you.