Mr. Speaker, in the short time we have left I would like to make a few remarks on this bill.
This private member's bill proposes to introduce an income tax deduction for interest payments for first time home buyers on the first $100,000 of a mortgage loan where the residence was purchased in 1995 or later.
The intent behind this proposal is certainly laudable. The intent is to make it easier for young Canadians to finance the purchase of their first home. However, we should not allow our sympathy in this regard to interfere with what I consider a sound judgment.
I put it to you, Mr. Speaker, and to my friends opposite that it is possible to laud the intent of an idea without supporting the idea itself. This proposal, despite its worthy aims, has flaws.
Let me begin by noting that the Income Tax Act already provides generous incentives for the prospective home buyer. The capital gains from the sale of a principal residence are not taxable to the home owner. In addition, the home buyers plan allows first time home buyers to withdraw up to $20,000 from registered retirement savings plans to use toward the purchase of a principal residence. These withdrawals are not subject to tax as long as the money is returned to the plan within a period of 15 years.
Another consideration crucial to sound tax policy is that taxpayers be treated fairly. This proposal would confer significant tax benefits upon Canadians purchasing a first home in 1995 or later. This proposal, however, would confer nothing upon Canadians who are renting or who purchased a first home in an earlier year. This proposal would also confer nothing upon young Canadians moving into another residence because their family is growing or because a change of employment requires them to move to another location.
I would find it difficult explaining to these taxpayers why they are not as deserving of tax relief as others.
The taxpayer's choice of accommodation is really a personal decision and the costs associated with it are personal expenses. The Canadian income tax system in general does not allow deductions or credits for personal expenses, and properly so. Personal expenses reflect to a great extent the pace and income levels of individuals. It is not fair for taxpayers at large to subsidize the personal expenditures of others.
Should this proposal be adopted, non-homeowners would find themselves subsidizing the home purchasing decisions of others.
The change proposed by the member of Parliament for Portage—Lisgar would primarily benefit higher income Canadians. Approximately 50% of families with over $80,000 of income have mortgages in Canada today. Compare this with only 10% of families with incomes under $30,000.
The great majority of benefits under the proposal would naturally accrue to higher income earners who are more likely to have larger mortgages. The result would be an increased taxation of all Canadians to pay for the accommodation of the more fortunate. I do not find this prospect a pleasing one.
I also feel this proposal would be sending out the wrong message by providing an incentive to enter into debt and maintain indebtedness. A rational homeowner benefiting from a tax deduction for mortgage interest would see little need to pay down the outstanding principal. By encouraging Canadians to carry larger mortgages for longer periods of time, we would be discouraging saving and financial independence. Surely, this is not the lesson we wish to pass on to young members of our society.
Finally, we come to the issue of cost. The Department of Finance estimates that the federal revenue loss associated with this proposal could reach $150 million in the year of introduction. Moreover, the cost would escalate in future years as more and more home buyers enter the market. Under a mature system the cost to the federal government could exceed $3 billion annually. If deductibility were extended to all homeowners, the cost would reach $6 billion annually. The provinces would also experience a substantial reduction in revenues. This is a very hefty price tag by any standard.
I also wish to emphasize that the lower interest rates resulting from the government's deficit reduction strategy have significantly reduced the cost of home ownership. One year mortgage rates today have declined by more than 400 basis points since January 1995, providing savings greater than $3,000 in terms of lower annual mortgage payments for a $100,000 mortgage.
In conclusion, I am sure that those present here today would join me in improving the spirit of this proposal. I would urge, however, that this spirit not sweep them along into supporting a measure that is not affordable, necessary or fair.