Liberal MP Dan McTeague thinks so. His bill, passed by the House of Commons last week, will provide an up-front tax deduction if you contribute to a registered education savings plan.
Right now, you get an up-front tax deduction only if you contribute to a registered retirement savings plan.
Parents might welcome a tax refund to use for spending or paying off debt. But would they save more if they received more tax breaks?
It's debatable, since education saving is already subsidized in several ways:
- The RESP, introduced in 1974, allows contributions to grow tax-free until the children go to college or university.
- Withdrawals are added to students' income once they attend college or university. But most don't earn enough from part-time jobs to pay tax.
- The Canada Education Savings Grant, launched in 1998, gives a 20 per cent rebate (up to $400 a year) on the first $2,000 contributed to an RESP.
- An enhanced grant for low-income families – a rebate of 30 to 40 per cent on the first $500 contributed to an RESP – was introduced in 2004.
- The Canada Learning Bond, also introduced in 2004, is a $500 gift – increased by $100 a year for 15 years – to babies born into low-income families.
- Parents get another tax break since they can claim tuition, education and textbook credits that post-secondary students can't use because their income is too low.
RESPs exploded in popularity a decade ago when Ottawa came up with matching grants. Parents can get up to $7,200 in free money if they contribute at least $2,000 for 17 years. Nowhere else can you get a risk-free 20 per cent return on your money. RESPs are irresistible to rational parents.
It's no coincidence that the Liberal private member's bill was passed right after the Conservative government brought down its last budget.
The budget proposed a tax break for those contributing up to $5,000 a year to a tax-free savings account – actually the reverse of an RRSP. You put in money that has already been taxed and you face no tax bite when you take it out.
Naturally, the Conservatives are angry that the Liberals managed to get an expensive new tax measure passed in Parliament.
On Friday, finance parliamentary secretary Ted Menzies said he was confident the government could persuade the Liberal-dominated Senate to reject the bill that would cost the government $900 million a year.
"It's tax policy nonsense," says Finn Poschman, director of research at the C.D. Howe Institute, about the idea of sweetening tax breaks for education saving.
Here's why he thinks RESPs don't need to be beefed up:
- Middle-income parents already use the grants available for RESP contributions.
- Low-income parents won't save any more in RESPs because of up-front tax deductions.
- There's no evidence of an affordability issue in Canada for post-secondary education or a failure that needs reform.
In 2002, the C.D. Howe Institute published a paper that said the RESP added needless complexity to Canada's tax system.
Author Kevin Milligan said the matching grants ended up disproportionately in high-income households and were "a poorly targeted use of public money."
I agree that another tax break for education savings would be too rich – and I hope the Senate blocks the bill for further study.
Ellen Roseman's column appears Wednesday, Saturday and Sunday. You can reach her by writing Business c/o Toronto Star, 1 Yonge St., Toronto M5E 1E6; by phone at 416-945-8687; by fax at 416-865-3630; or at eroseman@thestar.ca by email.
