Madam Speaker, I appreciate the opportunity to speak about this Bloc proposal.
Bill C-290 proposes a costly refundable tax credit related to pension income at an estimated cost of about $10 billion per year. Such a costly measure would be untenable at any time, but it is particularly unsupportable in the current fiscal context. However, the cost of this proposal is not its only problem. It also raises serious issues, such as serving as a disincentive for employers in financial difficulty to properly manage their pension plans to control risks.
Clearly, having adequate retirement savings is important to all Canadians. While Canada's retirement income system is strong, with a balanced mix of public and private retirement savings programs, with both compulsory and voluntary components, our government has sought, and will continue to seek, improvements.
Indeed, our Conservative government has introduced a litany of tax-cutting measures to provide much needed relief to seniors and those saving for retirement.
We doubled the amount of eligible income that can be claimed under the pension income tax credit to $2,000. It is the first time the credit amount has been increased since it was introduced in 1975.
To improve work and savings incentives, we increased the maximum age to 71 by which Canadians must convert their RRSPs to registered retirement income funds and begin receiving pension payments.
We brought in tax changes to permit employers to offer more flexible phased retirement programs in order to retain older experienced workers and ease succession planning measures.
We introduced the landmark pension income splitting, a move that Cynthia Kett of Stewart and Kett Financial Advisors Inc. called “a huge gift from the government that more and more senior Canadians are taking into consideration in their financial and retirement planning”. And we increased the age credit by $2,000.
Our Conservative government's tax-cutting agenda since we formed government in 2006 has provided nearly $2 billion in tax relief every year for Canadian pensioners and seniors.
Additionally, we provided a 25% one-time reduction in the required minimum withdrawal amount for registered retirement income funds for 2008. This will provide approximately $200 million in tax relief to RRIF holders, while allowing retirees to keep more of their savings in their RRIFs sheltered during an extraordinary drop in market conditions.
We also recognize that Canadians need stronger incentives to help meet ongoing savings needs. As a recent HSBC Insurance Agency survey indicated, almost half of Canadians think, “The best way the government can support aging people planning for their retirement is to give them tax breaks and to allow them to look after themselves”.
This is one of the many reasons our government introduced the historic tax-free savings account, or TFSA. The TFSA is a flexible savings vehicle that complements existing registered savings plans by allowing Canadians to earn tax-free investment income to more easily meet their lifetime savings needs.
Starting this year, Canadians 18 or older can contribute up to $5,000 annually to a TFSA, with unused room being carried forward. While contributions to a TFSA are not tax deductible, all investment income, including capital gains, earned in the account will be tax-free even when withdrawn.
Important TFSA features for retirees include the fact that TFSAs have no upper age limit and that neither investment income earned in a TFSA nor withdrawals affect a senior's eligibility for federal income tested benefits, such as OAS or GIS. It is little wonder then that renowned financial author Gordon Pape has proclaimed that TFSAs are “a welcome tax shelter for Canadian seniors”.
Clearly, our Conservative government has worked aggressively to ensure that the retirement income system is responsive to the needs of savers, pensioners and seniors. We will continue to build upon and enhance the system in a way that supports its objectives, consistent with sound pension and economic policy principles.
This brings us to the Bloc's flawed proposal outlined in Bill C-290.
The measure proposed here would go far beyond its stated intent. Not only would it provide a refundable tax credit in respect of shortfalls and pension income, but it would also effectively provide a refundable credit on the full amount of pension benefits received by most retirees. This is because, as drafted, the proposed credit would be based on the difference between the pension benefits payable to an individual from a registered pension plan and the amount of benefits received by the individual from a retirement compensation arrangement.
As a result, the proposed credit would cost approximately $10 billion per year. This represents a major and ongoing cost, and one that is clearly irresponsible in the current fiscal context. For this reason alone, I submit that the proposal should not be supported.
Regardless of whether the bill has been drafted properly to achieve its intended result, its objective is to provide a partial government-backed guarantee for pension benefits. Such a guarantee would reduce the incentive for employers to properly fund and manage their pension plans to control financial risks. This is because sponsors may exercise less due diligence with respect to prudential goals, knowing that benefits are backstopped to some degree by the government.
The fact that pension plan sponsors would not be required to contribute anything whatsoever to cover the cost of this refundable credit would exacerbate this effect.
Moreover, this proposal would place on the federal government's shoulders the responsibility for providing compensation in respect of all pension plans that reduce pension benefits. It is important to note that the federal government is only responsible for pension benefit standards for plans sponsored by federally regulated employers. Indeed, nearly 10% of all pension plan members participate in federally regulated plans.
Since provinces are responsible for the protection of pension benefits for plans sponsored by provincially regulated employers, the onus placed on the federal government for such compensation would be unjustified.
Furthermore, the best way of ensuring that promised pension benefits are secure is to have healthy plans with good supervision.
At the federal level, pension plans are regulated under the Pension Benefits Standards Act, which sets forth a number of requirements in respect of the funding and administration of pension plans.
Providing any kind of guarantee or compensation for pension benefits, whether through the tax system or otherwise, would be extremely costly for taxpayers. It also raises issues of fairness, since the costs would be borne by all taxpayers while the benefits would accrue only to a minority of those participating in pension plans.
A refundable tax credit in respect of shortfalls of pension income would not be the best way to promote the security of pension benefits. It would create undesirable economic incentives for pension plan sponsors and be an improper use of the tax system. It would also be costly and unfair.
Therefore, I strongly urge members not to support this proposal as drafted.