My question is for Dr. Lee. He was speaking about the economic and financial challenges associated with a massive wave of retirements—the “grey tsunami”, as he called it. I want to ask him about what I believe is an accounting problem, one for which I don't have a solution but one that I believe incentivizes governments to make short-term financial decisions at long-term costs.
Let me give you one example. We have a rule in our registered retirement savings plans that requires that retired people convert their RRSPs into RRIFs—income funds—and that they begin withdrawing funds at a fairly precipitous pace out of their RRIF so that they can have it as income and it can be taxed. There is no long-term financial benefit to the government in requiring these withdrawals, because the money will be taxed later anyway. If the person kept that money until they turned 85 and then took it all out, well, they would be taxed all in that 85th year of their life. By virtue of the fact that they're forced to take it out at 71, they are taxed earlier, it is true, but they are not taxed more.
Now, why do governments do this? This answer is that if a government today were to get rid of the mandatory withdrawal rule, that government would have to take all of the revenue loss. Some future government would get a revenue gain. Ten years down the road, people would start to take that money out, and it would be taxed in some future government. No present-day government would want to accept the revenue loss of allowing that deferral to go on. Even though there's no long-term cost to the crown, there is a short-term cost to the political government of the day.
When it comes to expenses and obligations that governments accept, let's say the government were to settle a lawsuit to pay out millions of dollars over three decades. Under our accounting system, the full cost of that decision is actually borne in the year the decision is made, not in the year the money is paid out. That's to ensure that a present-day government has to account for the financial costs of the future obligations it decides to take on.
Is there some way that principle, which applies to expenditures and obligations, could be embedded in the accounting of tax revenue?