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moneysense.ca, 21/11/06
Tax Cuts and Other Topics
Finance Minister Jim Flaherty will present the fiscal update to Parliament on Thursday and there is intense speculation about what tax cuts are planned in the next and future budgets. Mr. Flaherty has hinted that he is considering income splitting for couples, cuts to the capital gains tax and income tax and a further 1% reduction in the GST. Can you tell that we will soon be heading to the polls yet again?
The blogger behind Canadian Financial Stuff seems to be following the Liberal leadership race and one of the policy recommendations the party is going to debate is a requirement for employers who do not provide defined-benefit plans to match contributions by an employee to a Registered Retirement Savings Plan (RRSP) on a two for one basis. I think it is an idea worth pursuing. The idea could also be taken one step further requiring employers to enroll new employees in a RRSP by default and providing an option to opt out as they have legislated in the United States.
moneysense.ca, 21/11/06
I really dislike the Liberal policy idea on forcing 2:1 contributions to RRSP if no defined-benefit (DB) plan exists. I disagree with this for a number of reasons, but primarily that it may push employers to implement DB plans since they will likely be cheaper than the 2:1 RRSPs, and I want nothing to do with a DB plan. In my opinion, DB plans handcuff employees from moving to jobs with other organizations since it is difficult to transfer service or the ‘true’ DB value.
This idea appears to be a socialist concept from the left wing of the Liberal party that pushes responsibility for funding retirement primarily to employers. Don’t we already have a retirement plan with required funding from both employers and employees? I think it is called the CPP.
I am sure the voters will think it is a great idea but legislating employers to match their employees RSP contributions would be a very bad idea.
It is basic economics. Canadian firms have to compete globally with firms from other countries that do not have the same burden imposed on them…and Canadian jobs will be directly an permanently lost by such a measure.
Additionally, Canadian firms will obviously have to raise their prices to cover this expense so everything the Cdn employee would normally buy costs more…the net effect, one is no farther ahead, and really much farther behind when you think about it.
One can look at GM trying to compete with the likes of KIA or Toyota. It costs an extra $1,000-$1,500 PER CAR for GM to provide their unionized workers and retirees with health benefits. This is a major problem for GM now and their workers/retirees aren’t getting any younger. GM will likely fail at some point or require massive government support.
I have a novel idea: How about the government stop spending other people’s money and simply reduce the size of their own bureaucracy. (Sad that this sounds so revolutionary, but it still exists as a possible option.)
Simply endeavouring to lower taxes will truly provide the most meaningful help to workers with respect to providing for their retirement.
The Liberal government could just as easily propose a two dollar tax break for every one dollar in those RSP contributions made by employees who do not have a pension adjustment figure on their T4 slip.
It would do exactly the same thing without raising prices or making us less competitive on a global scale… but somehow I doubt the Liberals will table my version.
I’m with the chorus… bad idea. Let’s just stick with income tax cuts for a while, that’s not what lost Paul Martin the election…
I personally like the idea of the income splitting for couples. The wife and I have always had a huge gap between our incomes, so getting rid of a grand or two in tax per year would be a nice present for the holidays.
CD
I am as much as a Libertarian as most of you, so the reason I liked the idea had to do with personal experience. I’ve worked in many companies with no RRSP match and my guess is participation in a RRSP was very low. My current employer provides a modest match and according to HR, almost everyone takes advantage of it.
The match could be set at a modest level of 1%-3% and it doesn’t have to be something expensive. Most self-directed RRSPs already offer monthly contributions which could be used for matching programs.
Of course, like many of you rightly point out, in anything the government involves itself, the cure is likely to be worse than the disease.
Income splitting is a good thing. Single income families have been the brunt of a bad joke in the taxation system for FAR too long. Woe be tide any political party that argues against this, because the “traditional” family with 1 income, and those non-traditional ones (common law, same sex, etc.,) will also fight for this too!
Bring it on Jim!!! -C8j
I’m a big fan of income splitting, we need to encourage family members(either mom or dad) to stay at home and raise the kid(s). This is just an extention of the conservative $100 a month payment to parents.
As for RRSP matching, I think its great also. I already have a plan at work that matches my contributions dollar for dollar so I won’t benefit I just think everyone should see a similar benefit. What the libs are proposing is if you deposit 12% of your gross your employer matches with 6% bringing you to the 18% limit of RRSP’s. This is a very forward thinking idea I think. Paying off in a generation when everyone has a fully funded RRSP, and no one has to scrimp in retirement.
Income splitting is a bad idea. Canada has an extremely tight labour market right now, and it would be foolish to provide incentives for people to take themselves out of the labour market. Ask all the businesses in Alberta that had to close because they can’t find anyone to hire. It’s an especially bad idea with the legions of baby boomers who are about to retire.
It means less tax revenue for government, both because incomes can be evened out, and because there should be fewer people working. The implication, of course, is that the burden increases for everyone else. It also dampens the incentive for people to seek out training, etc.
For the estimated $6B+ it’s going to cost, the government could lower personal or corporate income taxes and generate wealth for everyone – imagine that. It’s not the 1950s anymore.
Al, how about spliting income only if both spouses are working and put a lower income limit, say the personal exemption, as a requirement.
Any Idea what the small m in the MER value means? for example [MER= %2.0m].
Thanks.
Abe: I am not sure I’ve ever seen a m after the MER. So, not sure what it means. Could it be a printing error?
I don’t know exactly what the little m represents, but I have seen it before, usually in reference to a fund which has a very small total net asset value. When you look into the prospectus, you can see that a 3.5%m equates to about 13.5% MER. This notation is also common for Labour Sponsored Investment Funds. From what I have seen, my educated guess is that is added because the computer won’t allow the Globe & Mail to enter an MER that is larger than one digit to the left of the decimal. So, they stick in an “m” to indicate that there is a 1 in front of the 3.5% to make 13.5%.
The income splitting scheme means absolutely nothing to me. I am single. One thing that I have done which is income splitting-like is that I have incorporated my investment portfolio. So, my investment portfolio only pays income tax at the corporate rate (roughly 20%) instead of at the personal rate that I am taxed (roughly 40%).
I think they did this to somehow make up for the billions that they have destroyed from the income trust debacle. They chopped off your arm and gave you some bandaids.