RESPs for all
National Post – opinion/editorial
Published: Saturday, March 08, 2008
We’re puzzled by the federal Conservatives’ apparent opposition to a Liberal private member’s bill that would permit Canadian parents to deduct from their taxable income up to $5,000 a year per child in contributions to Registered Education Savings Plans (RESPs). Sure, the bill is costly, depriving the federal treasury of perhaps as much as $900-million a year, thereby throwing the Tories’ budget into disarray — a bit. But the measure, introduced by Liberal MP Dan McTeague, seems a very (small-c) conservative type of initiative, not unlike the Tories’ popular $100-a-month early childhood care payments. Rather than attempting to use the Senate to block its final passage, the Conservatives should welcome the family-friendly measure and find the money to fund it from some Liberal sacred-cow program.
As RESPs are current structured, they disproportionately benefit the wealthy: Only about 30% of eligible families have RESPs. As University of British Columbia economist Kevin Milligan has pointed out, RESP-participating taxpayers are “concentrated among high-income, high parental-education households.”
This pattern makes sense: Parents who themselves completed post-secondary studies are more likely to contribute because they just naturally assume their children will follow in their footsteps. But the disproportionate use of RESPs by high-income families is also a function of the way the program works. Contributions have to be made from after-tax income — unlike retirement savings plans, whereby contributions may be deducted from taxable income. Only high-income and middle-income families have the kind of disposable income needed to participate.
Mr. McTeague’s plan would change this by making the first $5,000 in annual contributions per child tax-deductible in much the same way RRSPs are. He also disputes the government’s contention that his RESP reforms would cost the federal government $900-million a year in lost tax revenue and cost the provinces another $450-million. A year ago, when he asked the Finance department to cost out his idea, they told him it would cost between $600-million and $700-million, a figure Mr. McTeague says could be offset by eliminating a feature of the current program whereby Ottawa matches 20% of annual parental contributions.
We have an even better idea. The Conservatives should allow the private member’s bill to receive royal assent. They should make the first $5,000 in RESP savings tax deductable, and keep the 20% matching grants, as well. Assure the provinces that Ottawa will make up whatever monies they lose and take the entire $900-million to $1.3-billion out of useless holdover Liberal initiatives such as multicultural grants, status-of-women funding, the gun registry and Kyoto measures.
Like the Conservatives’ own monthly child-care payments, RESPs permit parents greater choice in deciding where and how their sons and daughters are educated than is possible under government loan programs and scholarships. Any measure that takes such decisions out of the hands of bureaucrats and returns them to parents should be welcomed by the Tories. And when the predictable complaints arise from the usual interest groups about slashed spending to pet Liberal projects, the Tories can respond: “It’s not our fault. Dan McTeague made us do it.”
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