Madam Speaker, I rise in reference to a question I posed on April 1 to the Minister of Finance regarding his position on recommendations made by the Senate banking committee that the proposed CPP investment board be allowed to increase its foreign property rule from 20% to 30% over a five year period. This would allow the board to invest in foreign securities as opposed to domestic ones and would bring that component up to 30%.
My objection to this recommendation is twofold. First, much consideration has been given not to tie the hands of pension managers who need better investment vehicles to enhance the return on investments of pension funds. I would like to draw the attention of the House to the fact that the vast majority of mutual funds now operated by these same managers cannot even perform at the average of the growth in Canadian stock exchange prices.
In other words most managers underperform even in terms of the averages of a TSE 300 composite index. Their inability to achieve even average returns in Canada should give us a clue to allowing them to expand investments in volatile foreign markets with CPP beneficiaries' money.
This volatility would include foreign exchange fluctuations as well as the general uncertainties of unknown regulatory environments. We only have to think of southeast Asia to believe that is one of those markets.
Can it be demonstrated that the current 20% rule diminishes potential returns in Canada regardless of the limit? For instance, the United States has an unrestricted limit for pension funds, but historically and currently only 10% of these funds are invested in foreign investments.
I refer to Japan which similarly has an unresticted rule but only invests 19%. Australia, which allows its pension managers full discretion of total foreign investment, only invests 16%. In other words it would appear that the norm in the world is under the 20% rule in any case. Why the necessity of changing it? There seems quite frankly to be no empirical evidence for increasing the limit.
My second concern is what I call the cascade effect. If the foreign property rule is increased for the Canada pension plan investment board, it follows that it should also be increased by their pensions, not the least of which is registered retirement savings plans.
Investors are free in this country to invest in foreign assets. The question is do we want to provide an income tax subsidy to do so. Needless to say those who maximize their RRSP contribution limits and take full advantage of the existing foreign component are also the highest income earners. I suggest it is inappropriate to provide them with further tax deferrals with Canadian taxpayers money simply so they can make foreign investments. Quite frankly they are already free to do so with tax paid money.
The minister stated that he would study this with his provincial counterparts. I wonder if the minister could not be more definitive in saying that he opposes this move at this time.