Reduce RRSP limits, says think tank

(March 17, 2004) The Canadian Centre for Policy Alternatives wants the federal government to cut RRSP contribution limits by 16%, a move the Ottawa-based think tank says will raise tax revenues by $1.5 billion.

In its alternative federal budget released yesterday, the CCPA recommended that RRSP limits be set at 18% of twice the average industrial wage, or $13,000 for 2004.

RRSP limits are currently set at 18% of earned income, to a maximum of $15,500 in 2004, rising to $18,000 by 2006.

“The tax expenditures for RRSPs and RPPs are among the largest in the personal income tax system,” the alternative budget says. “They are also regressive. Tax filers with individual incomes above $60,000 accounted for 48% of total contributions to RRSPs and RPPs while they accounted for only 11% of all tax filers in 2001.”

“Recent increases in RRSP contribution limits do nothing to help the majority of Canadians who cannot contribute to RRSPs because their low incomes leave them no spare cash to make such contributions,” the CCPA adds.

The CCPA also wants Ottawa to implement new measures to ensure seniors have adequate income in retirement, such as increasing the Old Age Security benefit and abolishing clawbacks.

The alternative budget proposes the introduction of a number of new wealth taxes, such as a flat 25% tax on intergenerational transfers above $1 million and a new 32.5% tax rate for individuals earning more than $250,000 in annual income.

In addition, the centre suggests increasing the tax rate on capital gains to 75% from 50%.

The tax reforms are among dozens of amendments suggested by the CCPA, which argues that Ottawa can afford to bump up social spending, despite the government’s assertion that the cupboard is bare.

“The federal government’s coffers, contrary to what [Prime Minister Paul Martin] and his new finance minister have been telling Canadians, are very healthy at this point in our history.”

The centre projects an $8.3 billion surplus for fiscal 2003-’04, money it says could be spent on health care, education and job training.

“We’re addressing 10 years of erosion, reinvesting in Canadians while maintaining a balanced budget, decreasing the debt burden, and toughening up accountability measures for public spending,” says CCPA economist Ellen Russell. “It provides a real alternative to a decade of Paul Martin budget cuts.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com