Mr. Speaker, I am pleased to speak to bill, sponsored by the hon. member for Pickering—Scarborough East. I want to applaud his concern and his actions with respect to affordable education.
It is important and I agree with his comments about our need to ensure we continue to have a very strong knowledge based workforce and affordable education. I only wish the member had been as passionate back when his government sharply cut back funding for post-secondary education and started us down the path of high tuition and increasing student debt. Here we are today. We need to examine the provisions of this suggestion and whether this is the right way to go.
The bill proposes major changes to provide a more favourable tax treatment to registered education savings plans, RESPs. More specific, the bill would make RESP contributions deductible, in addition to very low taxation of the growth of the RESP on the other end. It would increase limits on contributions as well to the same level as those applying to RRSPs. We have looked at these measures very carefully. The goal is the same, to have affordable post-secondary education and the lowest possible student debt.
The examinations suggest that these measures are really not the best policy direction at this time, given the assistance that is already in place for this purpose. In fact, there really is no evidence, and the member did not bring forth any evidence, to suggest that existing measures in support of post-secondary education savings are inadequate. In fact, he pointed out that nearly one-third of Canadian parents already were accessing the RESP for the benefit of their children. I think most parents find that very adequate.
I want to explain how the current RESP regime works for Canadians watching this debate. It already provides considerable assistance to parents and grandparents to save for their children and grandchildren's post-secondary education.
Currently, up to $4,000 can be contributed annually to RESPs for each beneficiary. I did not hear the member explain why ordinary families could, under any circumstances, contribute more than $4,000 a year. That is a lot of money to almost every family in the country. The amount of $4,000 can be contributed each year, to a lifetime maximum of $42,000 per beneficiary.
These contributions are not deductible, but there is no tax payable when the contributions are withdrawn for the beneficiary's post-secondary education.
The amounts invested in RESPs grow tax free. As a result, the assets grow much faster than if they had been saved outside an RESP. When the investment is taken out, it is taxed in the student's hands rather than the contributor's hands. This means that savings in an RESP results not only in deferral of tax on the investment income, but when the income is taxed, it will be taxed almost always at a very low rate, since full time students generally pay little or, more common, no income tax.
In addition to this generous tax treatment, the government provides the Canada Education Savings Grant, which is an additional contribution by the taxpayers of Canada to each and every RESP. It makes registered education savings plans even more attractive. Under this grant, the government provides 20% of the grant up to $2,000 of contributions for a child under the age of 18. That grant is annual. There is a lifetime maximum grant of $7,200.
In addition, to help promote more saving by low and middle income families, this grant on the first $500 of savings is 40% for families with incomes below $36,000 and 30% for families with incomes between $36,000 and about $73,000. This gives extra incentive to the broad base of Canadian families for savings in an RESP.
This grant grows tax free within the education savings plan. It is not lost. Even if a family for some reason cannot contribute in a particular year, there is flexibility so that families can catch up on missed contributions but still receive the yearly grant.
Taking into account the tax deferral, the Canada education savings grant and the fact that most students pay little or no tax, saving in an RESP often earns a higher rate of return than saving for retirement in an RRSP.
This tax assistance for education savings plans costs the Government of Canada about $130 million a year in forgone revenue and about half of that amount to the provinces. In addition to the $130 million in forgone revenue, over $440 million is provided for the grants that I spoke about. That was in the year 2005. The federal government already provides over $570 million per year in savings assistance for post-secondary education just through this program alone. There are many other programs as well. There is over half a billion dollars already in this plan.
This bill proposes to make contributions to RESPs tax deductible in the future. The contributions would be taxed in the hands of the contributor when they are withdrawn rather than be tax free to the contributor as is currently the case. The Canada education savings grant would still provide the grants on the first $2,000 in contributions. The contribution limits would be raised to be the same as RRSPs. Under this bill contributions could be up to 18% of earned income or up to $18,000 in 2006.
There are three main concerns with this proposal and I would like to go through each of them. First, there is really no evidence that the current plan is not working well for Canadians. If one reads the bill, one would be tempted to believe that the existing plan is not very generous and that Canadian parents are not saving enough for their children's post-secondary education. It is quite the contrary.
With the current education savings plan's limit, saving $2,000 annually in a child's RESP means that almost $75,000 could be available for that child's post-secondary education by age 18. About $95,000 would be available if a parent contributed the current $4,000 limit annually until the $42,000 lifetime limit was reached. That is a considerable amount of money for each child's education.
To put things in perspective, this is more than the annual cost of a typical undergraduate program today, including tuition, books and living expenses for someone studying away from home. Right now the cost is about $18,000 a year, or $72,000 for a four year program. This means that existing RESP limits are adequate and do not need to be raised.
Are parents saving for their children's post-secondary education? I am happy to confirm to members of the House that contributions to RESPs have tripled since 1998. In 2005 the total contributions to RESPs were roughly $2.4 billion. In fact, total assets held in RESPs have skyrocketed to seven times their value nine years ago. It is very clear that the RESP regime is working.
It is also a concern that parents and grandparents on pension or investment income would no longer be able to make a contribution.
In addition, there are the technical problems that I talked about. Someone who has only one child can save as much as someone with five children. Someone with more children cannot save any more under this plan.
We need to continue with the measures that governments have brought in and that we brought in in the last budget to assist students. There are problems with the member's proposal and I have outlined them. I would ask my colleagues in the House to consider very carefully following the government's lead in not supporting this bill.