RRSP changes will benefit well-to-do |
This week's federal budget raises the contribution limit for Registered Retirement Savings Plans (RRSPs) to $22,000 and removes the 30-per-cent foreign-content restriction. For 2005, Canadians will be allowed to contribute up to 18 per cent of earned income to RRSPs, up to a maximum of $16,500.
To hit this limit, one would need an annual earned income of $91,667. Raising the limit benefits only those making more than this amount. To take full advantage of the new $22,000 limit, one would have to make more than $122,222 per year. Contrary to the finance minister's rhetoric about "tax relief for low and middle-income Canadians," this tax cut benefits only the very well-off.
Before the budget, the Department of Finance projected that RRSPs would cost the federal government $9 billion in 2005. Since RRSPs are also exempt from provincial tax, they cost the provinces billions more. As Jim Stanford demonstrates in his book Paper Boom, about two-thirds of these tax subsidies flow to the richest one-tenth of Canadian taxpayers. Raising the maximum contribution limit will make RRSPs even more expensive and inequitable.
RRSPs are a mechanism through which the tax system subsidizes personal savings. A rationale for this approach was that at least 70 per cent of savings placed in RRSPs had to be invested in the Canadian economy. The federal government has erased this requirement. Taken together, its reforms provide further subsidies for Canada's richest citizens to invest more money outside the country.
When Finance Minister Ralph Goodale appeared on CBC's The National on Feb. 23, he explained that eliminating the foreign-content restriction would benefit "sophisticated investors." Presumably, he refers to the same upper crust that already collects most of the RRSP system's benefits and will gain the entire benefit of a higher contribution limit.
ERIN M. K. WEIR
Kingston