Finance Committee on March 20th, 2007

[The Chair, Conservative, Brian Pallister]

No, that's not my understanding.

Monsieur St-Cyr, I will attempt to clarify Mr. Dykstra's question on your behalf.

I believe Mr. St-Cyr is accepting the premise that there be deductibility. He is simply trying to limit the amount of deductibility by proposing these numbers. The current RESP program, of course, does not allow for tax deductibility, but rather only for tax sheltering of the money in the child's name once contributed. What Mr. St-Cyr is attempting to do is not to alter the fundamental goal of Mr. McTeague's motion, which is to allow for tax deductibility, but simply to limit the annual amount that could be deducted.

Is that correct, Mr. St-Cyr?

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

Yes and moreover, the deferral mechanism for unused contributions has been eliminated, which means that if parents really want to save for their children's education, they must do so for a period of 18 to 20 years. One cannot accumulate $100,000 in unused contributions and use them all up in one year. That's my answer.

I have another comment. I mentioned wealthy individuals who stand to benefit from the bill as it is now worded. Let me use our own situations as an example. In light of our income, we surely are among the more fortunate members of our society. We have good working conditions and our employer contributes to a good pension fund. Most of us cannot contribute at all, or can only make very modest contributions, to an RRSP. Since I'm going to be a father in September, it would be wonderful if this bill passes. It would mean that I could contribute an additional $18,000. That money would in fact be tax exempt, not merely sheltered from tax, because my son or daughter will pay virtually no tax when the time comes to pursue an education. This measure would be very beneficial to me and to all of us seated here at this table. However, we need to be realistic. The middle class finds itself in an entirely different situation. There's no need for us to increase the limit this dramatically in order to make it interesting for people.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. St-Cyr.

I'm just warning you that I will now go to other speakers and give you an opportunity to wind up at the end, rather than bouncing back and forth.

We go to Mr. Thibault, now.

[Rick Dykstra, Conservative, St. Catharines, ON]

I'm not actually done yet.

[The Chair, Conservative, Brian Pallister]

I'm sorry, Mr. Dykstra. Please proceed.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you for that clarification. It's an understanding that the amendment would actually reduce the $18,500 suggested by Mr. McTeague to $5,000, as suggested by Mr. St-Cyr.

The only other issue is this. I guess Mr. St-Cyr is suggesting $5,000 a year per child for 20 years. That's what I heard when he was speaking.

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

No, I was merely using this as an example. It could be 10 years instead of 20 years. If you want to know why I'm proposing this amount, I would answer that the government contributes up to the current limit of $4,000. Over and above that amount, the government does not make any contributions. All we've done is indexed this amount to take into account inflation. Had the $4,000 limit been indexed to inflation since 1997, it would now stand at about $5,000. Paragraph 146.1(1)e) of our amendment follows this logic to its conclusion, bearing in mind inflation.

[Rick Dykstra, Conservative, St. Catharines, ON]

So the other—

[The Chair, Conservative, Brian Pallister]

I'm sorry, Mr. Dykstra, this raises a whole other sequence of discussion, frankly. The Finance official talked about the revenue impact of increasing deductibility; he hasn't talked about the increased dollars that would go to the grant program, up to $4,000 per year. This is a separate category of revenue impact that exists as well. The question of how the two interface, if in fact this committee wants to have the bill allow for a continuation of the grant program in addition to deductibility, is also a matter of some debate.

Mr. St-Cyr, if you will, I will try to leave the discussion focused, for this time, on the specific motion.

So we move now to Mr. Dykstra to conclude, but I will not accept any more questions to Mr. St-Cyr because—

[Rick Dykstra, Conservative, St. Catharines, ON]

No, I have clarification here. I appreciate that.

[The Chair, Conservative, Brian Pallister]

Our of respect for Mr. Watson, who is waiting here as well, I don't want to overly prolong the discussion.

Mr. Dykstra.

[Rick Dykstra, Conservative, St. Catharines, ON]

The one concern or question I had for the representative from the finance department revolves around the fact that no one has made a suggestion.... Maybe this further complicates things, and I certainly don't intend to do that, but we talk about the fact that the contribution will be made by the parent and withdrawn by the child/student. Part of the solution to this, I would think—and maybe it's been considered—is why wouldn't the income as withdrawn at the time by the child/student not be attributed against the parents' income when it's withdrawn? That's how an RSP works.

Don't even worry about it. Don't even answer it.

I have one final point, and that is— Sorry, I know you want to rush me along here, Mr. Chair—

[The Chair, Conservative, Brian Pallister]

No, Mr. Dykstra. I absolutely do not want to rush the discussion at all, but I do want to try to keep it somewhat focused.

[Rick Dykstra, Conservative, St. Catharines, ON]

The second part is the difficulty I have is this. One of the questions I had was how this was going to impact the federal government's contribution towards the obviously inflated contributions that we would all make on behalf of our children. It seems to me that two streams of revenue are going to impact the taxpayer. One is the $565 million we talked about; then the increased level of contributions that parents would make would obviously mean that the federal contribution towards each one of the categories, each one of the children, would increase.

I know you want to keep those issues separate, Mr. Chair, but I don't know how we do that without at least having a clear understanding of the financial....

We're talking about over half a billion dollars now, if things stay the way they are; we're not talking about the additional contribution the federal government would have to make based on an increase in contributions. I see this thing as being extremely expensive in terms of implementation.

[The Chair, Conservative, Brian Pallister]

Thank you.

Mr. Thibault is next.

[Robert Thibault, Liberal, West Nova, NS]

Merci, monsieur le président.

I want to give Mr. McTeague a chance to comment. I agree with the principle of Mr. McTeague's bill, but I do also agree with this amendment. I agree with the principle that we encourage parents to have the opportunity to contribute, that we use the tax system to make the contributions so that they prepare for their children's future, and that we improve the system we have now. It is quite a good system, but if we can improve on it with tax deductibility, I'm all for it.

The ones that concern me out there aren't the children of the wealthy; it's the children of the less wealthy and the working class who will have real trouble financing post-secondary education. I agree with Mr. St-Cyr's contention that this is balancing in favour of the wealthier, and you could even say that the less wealthy are subsidizing the wealthier because of the half-billion-dollar cost of this program in the tax sense. From that point of view, I would support Mr. St-Cyr's amendment.

I ask Mr. McTeague if he's had a chance to consider whether the bill as it would be amended by Mr. St-Cyr would still meet the great principles that he's advancing and putting forward with this good bill.

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

Thank you for that, Mr. Thibault.

The spirit of this was to make sure it's consistent with RRSPs and that it would have the same benefits to encourage a greater of number of students to come in and take up—Granted, we're not going to get everybody, but we're going to do a lot better than the 27% who are currently taking advantage of this. The purpose is really to get more students into post-secondary education and then tax them down the road when they finish with that kind of higher education, which will be a boon for the treasury, no doubt, in years to come.

Something that could be considered—and I'm in no position with this bill, nor could I be without being blocked in Parliament—is to make a decision tactically on a question of budget to remove the incentive. I understand from our previous finance department that if you were to remove that 20% incentive, which might not even be necessary in most circumstances, it would in fact be revenue-neutral.

The government currently is putting $575 million out as the plan exists now. Mr. Gingras can confirm that. What this would cost in forgone revenue—and “forgone” is important since it's not cost but forgone revenue—is $565 million, by the looks of it, if that 20% were to be taken away, which is not the purpose of this bill, but it could obviously be rendered null and void, or unnecessary, considering what this would do.

Specifically to Mr. St-Cyr's comments and to his recommendation, I have no problems with the $5,000 except for one thing. He is looking at the issue of CPI; I'm interested in looking very clearly in his province, in my province, and across the country as to the level of education and the rise in tuition fees. I can guarantee you, Mr. Thibault, they are rising a lot more quickly than the index of inflation and the consumer price index—which is why, if he's uncomfortable with $18,000 and has postulated a theory that would go from $4,000 to $5,000, we're still going to wind up with a lot of students who are going to be short, and a lot of people in this country who can barely make the $100 a month and who may not even be able to take advantage of it.

I'm suggesting that perhaps somehow, in some way, someone might want to consider the $5,000 a little bit more than that. I'm not tied to $18,000, and if that's what it takes to have Mr. St-Cyr and other parties agree with it, I'm prepared to do it.

Overall, my biggest concern is that neither I nor anyone here could have predicted what happened yesterday, and I understand the Bloc Québécois will be supporting the measure of $50,000 as a complete lifetime amount. That's something they'll have to resolve. In terms of getting this bill forward, if that's what it takes, then let's do it.

[The Chair, Conservative, Brian Pallister]

Merci.

Mr. Thibault, since you have nothing supplementary, we'll go over to Madame Savoie.

[Denise Savoie, NDP, Victoria, BC]

Thank you very much.

First of all, the NDP has always been a supporter of RESPs and considers them to be one way in which families can help their children pursue an education.

Perhaps I move in different circles, but the parents to whom I've spoken are having trouble contributing the maximum amount currently allowed.

From what I understand of the CESG limit and judging from the government's own statistics, Canadian families are not using the total ceiling they would have access to.

We have an understanding from the financial analyst on the cost of this proposal. It was a concern that we had because it seemed to disproportionately benefit those who were already making use of this system. Is there any way he could give an assessment on what the cost would be, given the amendment that is being proposed?

I'm still concerned that we're providing a system that disproportionately benefits certain families who can already afford this. Given that there is a limit to how much we can help students, I think we should consider how much we're going to provide to those who are already saving, for example, in comparison to students who are going to university this fall and who will have no help at all in dealing with those tuition fees. We're not looking at a grant system that would apply to students when they need it, instead of 20 years later, as this whole system seems to be focused on.

Can we get an assessment on what the financial implications are in order to know what the revenue that we're forgoing is?

[The Chair, Conservative, Brian Pallister]

Madam Savoie, earlier we had a comment from Monsieur Gingras with respect to an estimate of annual reduced revenue, assuming contribution levels remain at the present levels of over $565 million.

[Denise Savoie, NDP, Victoria, BC]

I understood it was the amount of Mr. McTeague's proposal, if Mr. McTeague's proposal were accepted, not the amount of this motion if it were amended in the way that is being proposed.

[The Chair, Conservative, Brian Pallister]

That's a good question. Thank you, Ms. Savoie.

Mr. Gingras.

[Yves Gingras]

Mr. McTeague's bill proposes to do away with the annual limit and replace it with the limit that applies to RRSPs, while maintaining the deduction applied to contributions. This measure would cost $565 million annually.

Moreover, as I understand it, the plan would be amended with contributions continuing to be tax deductible. Since our starting premise is that people do not contribute the maximum allowable amount as it is, there would not be any changes in contribution levels. Therefore, from a fiscal standpoint, our costs would be the same, that is $565 million would be diverted from the state's coffers each year. Contribution patterns will not change, even though the limit on contributions will. Since most people do not contribute the maximum amount as it is, this limit is non restrictive.

[The Chair, Conservative, Brian Pallister]

Mr. McTeague.

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

It is really important for people to understand the subtle difference. It's an important difference, and there's the question of how the committee will have to try to address it.

The current regime will clearly allow a certain number of people to take 100% advantage of it, and that's obviously very few. But before tax, we all have contributors within our ridings who pay taxes, so the number notionally and intuitively would have to be much higher. It's important for the committee to bear in mind that if you do it before tax, the number of people who are paying taxes and have children who could potentially be in university or post-secondary education would naturally have to be higher.

It's probably not an answer the finance department can give, but it's extremely important for us to understand that this difference pre-tax or post-tax will mean there'll be a hell of a lot more people taking advantage of this.