Mr. Speaker, I thank you for allowing that and being consistent in your ruling. I realize this will not be an easy bill but behind the bill comes the challenges, not only for the Department of Finance but, I suspect, for the entire economy.
Bill C-253 is an act to amend the Income Tax Act which will deal with the amendment to the Income Tax Act to allow contributions to registered education savings plans to be tax deductible. It would come as a surprise to many Canadians it currently is not the situation.
Is it any wonder today that students face the kind of debt situation that they are now seeing at a time when manufacturers and others around the world are demanding that Canada do better in order to provide a more skilled workforce and more vibrant economy to meet the challenges of a modernizing economy against a highly competitive world.
The bill provides a regulatory regime similar to that of RRSPs and it also has built in penalties and guidelines to prevent the RESP from being used as a tax shelter, as some will indicate, instead of its sole purpose of generating funds to be used to pay education costs.
I would like to speak about the rationale of this bill. Nothing is more important for the future prosperity of our great nation than having a highly educated workforce. However, the reality is that contrasted against the backdrop, with soaring tuition costs at universities and colleges, these are creating concern that post-secondary education may soon only become the purview of the wealthy.
This, in my view and I think in the view of most Canadians, indeed the constituents in my riding and ridings across Canada, is simply unacceptable as it would place Canada at a considerable economic disadvantage, both domestically and in the international marketplace.
It is very clear that it is not just students who know this and businesses. I would like to refer to some of the comments that were made today coming out of the industry committee's report which it tabled earlier today. It reflects on how manufacturers are responding to this.
According to a survey conducted by the Canadian Manufacturers and Exporters in 2003, more than 40% of manufacturers say that skill shortages are seriously constraining their ability to improve business performance and grow. About 17% of those surveyed indicated that skill shortages pose a major constraint on their ability to develop and commercialize new products. Finally, slightly more than 25% report that a lack of skilled and experienced personnel is a challenge that will fundamentally change the nature of their business over the next five to ten years.
It is clear that Canada must do more to motivate younger people and to provide Canadians with an opportunity where they can best meet that. We can talk about assistance for students who are at the very low end of the economic scale, through no fault of their own, who can get access to higher education to better themselves. We can talk about wealthy students for whom any education anywhere they want to go is no object.
We are dealing with a fairly large middle class in this country with a hodge-podge of programs that simply cannot make the grade. Many of them choose not to go to university or college, or to get a diploma, a certificate or a degree. As a result of that, the singular loss of an 18 or 19 year old and his or her r ability to get access to higher education is not just a loss for that individual but it is indeed a loss for our country. Our ability to attract investments and, most important, yes, for the finance department and the bean counters to generate revenue for the next 30 or 40 years, we want to look at it from a selfish point of view.
As I said earlier, this issue is not confined. It is simply a question of whether the finance department thinks it is a good idea or a bad idea and whether it is concerned about the loss of revenue. If we are going to navel gaze and look at today, I suggest that if we cannot plan 10 years from now and give our students an opportunity to get access to higher education and allow universities to bring people in to pay the kind of resources, to pay for the kind of personnel and to pay for the kind of expertise that will make our universities and colleges and our certificate granting institutions the best in the country, then this country will fail the next generation.
In the absence of a hodge-podge of programs that exist, this bill simply provides the best step forward with resources that are already available to all Canadians who pay taxes and who may want to direct to a loved one, a family member or their sons and daughters the opportunity to gain access to a better job through access to higher education.
To contrast the difficulty we currently have, 27% of Canadian families have an RESP to help pay for their children's education. One major reason for this relatively low percentage is the financial burden placed on families to maintain an RESP.
Regardless of the long term benefit, RESP contributions require after tax monthly family income. Some families are simply unable to afford the minimum monthly contribution, usually $100.
Making contributions tax deductible, as the bill proposes, offers families incentives and financial assistance to create and manage an RESP. In addition, making contributions tax deductible not only provides a means to help address educational costs, it will impact on lessening post-graduation debt which often is a debilitating financial drain on the graduate.
There is no doubt that the need for higher learning cannot be gainsaid. According to Statistics Canada, in today's labour market two out of three jobs require more than a high school education. Post-secondary graduates, according to the same institution, have a high employment rate, are less vulnerable to economic downturns and they receive higher incomes which, for the Department of Finance, which I am sure is listening today, also means generating more revenue.
I want to talk about measures for preventing the RESP from being a tax shelter. It has been raised by my hon. colleagues and I am sure others that this might somehow see itself as a shelter. Let me read into the record what the bill would do.
When contributions to an RESP are withdrawn either by the subscriber or the beneficiary, this is referred to as a “refund of payments”. Payments of investment income made out of an RESP to a student beneficiary are referred to as “education assistance payments”, EAPs. Payments of investment income made out of the RESP to the subscriber, in the event that a student does not, or is unable to, attend the post-secondary education are referred to as “accumulated income payments”.
At present, and this is a point that I made to the hon. House leader, EAPs and AIPs are taxed under section 146.1(7) and (7.1) of the Income Tax Act, but a refund of payments is not taxable under section 146.1 since contributions are made from after tax income.
The bill inserts a refund of payments into one section, 146.1, and repeals 146 (7.2) which would l make a refund taxable when withdrawn. After Bill C-253, the EAPs and AIPs will continue to be taxable when withdrawn.
To ensure that the RESP is not used as a tax deferral vehicle, the AIPs are subject to part X.5 penalty tax under section 204.94 of the Income Tax Act. If the AIP is withdrawn by a subscriber in the event that the child does not attend the educational institution, the accumulated income payment will be subjected to a 20% tax in addition to the regular tax payable.
There is a lot here as to whether or not one can reasonably conclude this would be a tax deferral. In fact, it is an opportunity with some fairly strict guidelines and a substantial firewall.
The high cost of education, and again I will use Statistics Canada as a source, average undergraduate degrees almost doubled, from $2,023 in 1993-94 to $4,000 in 2003-04 and is expected to hit nearly $8,000 by 2012.
Increases in tuition fees are partly responsible for increases in student debt. The average amount owed to student loan programs by university graduates increased 76% between 1990 and 2000.
One-third of students who left before graduating in 2002 did so for financial reasons. That is the gap. That tells us exactly what is occurring right now because young people, students cannot make the grade. This financial barrier, notwithstanding all the programs that are there, federal and provincial, simply does not meet the test of ensuring that those who want an education and who have the means of obtaining a higher education cannot do it because there are financial impediments. It is important for us to understand this.
It is projected that by 2010 a four year degree could cost in excess of $100,000, in residence. In 2002, with only 50% of children under 19 having an average of $8,600 put aside for them by their parents for their entire education, this represents a significant savings shortfall. According to Statistics Canada, parents who expected their child to receive grants for post-secondary education based on financial need saved significantly less.
The interesting part of this is that almost one-third of all children who are 19 had parents who expected them to receive such assistance even though it is likely that many will not. With respect to saving for a child's education by others, grandparents and other relatives, few actually do so.
Under the existing program, notwithstanding the generosity of the 20% top up, in 2002 only 14% of children had savings plans established by persons other than parents.
Where does that leave us? It leaves us with a large question on student debt. These loads are rising. According to Statistics Canada, bachelor graduates in 2000, with student loans owed on average 76% more than their 1990 counterparts after adjusting for inflation. A similar increase in student debt over the same period was found for college graduates. I can go over the list of people. Only one out of five graduates, who owed money, was debt free two years after graduation. On average, of graduates still owing money, only 25% of their debt had been repaid.
We have talked a bit about the question of royal prerogative, and I will not debate that point. It was made abundantly clear by yourself, Mr. Speaker, that this matter was never signalled or flagged for that reason. What it does is it responds effectively to a number of foreign organizations that are concerned about the current status of education.
My province of Ontario has decided to lift the freeze on tuition fees. Students are going to find it very difficult, earning $8 or $9 an hour, to earn enough money to pay a $7,000 or $8,000 tuition base for five credits per year over four years, and that is if they are lucky enough to find a job for a three month period. They may have to live in residence and have other incidental costs. Notwithstanding the government's budget, which allocated a small credit for books, there will be a substantial shortfall.
Others have suggested that we need to do more, and that includes the Governor of the Bank of Canada. At Humber College on March 30, 2005, David Dodge suggested that we needed a system of incentives for continuous learning and upgrading of skills and an infrastructure that delivers the training. This has always been important, but as I mentioned earlier, it will be particularly important in the next two decades as the labour force growth in Canada slows.
We are on the precipice of a significant and dramatic change in our demographics, and this is clear. Right now about one in eight Canadians is aged 65 years or older and therefore drawing a pension. By 2026, in 20 short years or less, this ratio will be one in five.
We have a challenge ahead of ourselves and it must be met with a robust attempt by Parliament and, I hope, the government. I suspect it will not support this, if not for the fact that it is concerned about the short term loss of expenditure.
The Governor of the Bank of Canada went on to say, “The first step to improving skills is to build an excellent infrastructure for early childhood development, feeding into a school system that effectively teaches basic skills”. He went on to point out that Canada's concerns must be founded on three global trends: technological change, globalization and demographic shifts.
Contrast this with what manufacturers are saying and with the heavy debts that students are currently incurring, it appears to me, and I think to most reasonable onlookers, that the existing situation is not tenable.
To ask our students to take on a burden and to ask government to cover the costs of those burdens in terms of loans, when an existing facility exists right now through the income tax system, seems to me, and I think to most reasonable people, an opportunity not for the government to go out and spend money, but to review the programs it has and channel much of that effort toward depriving itself of a bit of revenue in order to achieve a long term objective. If we look at where we are going with this legislation, it provides us with ample opportunity to ensure that Canadians have what many others around the world seem to get.
Long before manufacturers decide to hop on a plane and make their future investments in China, or in Brazil or in India, because of the quality and level of education, it is incumbent for our future programs, for the prosperity that we have in this nation, that we at least give students a fighting chance. In the absence of no existing programs in our country to address the fundamental needs of so many students with a large level of debt, this is an important step toward ensuring that Canada has a vital, vibrant skilled workforce. To do that, let us give Canadians and their families the tools to do it. Let us support the bill.