RRSP increase disappoints industry associations; anti-fraud initiative garners praise

(February 18, 2003) Facing an emotionless opposition, Finance Minister John Manley strayed from his prepared budget speech at one point and asked, “Some of this you must like?” Besides a few laughs, there was nothing. Reaction from the country’s industry association leaders was a bit more animated, however. RRSPs, debt reduction and capital taxes turned heads as did initiatives to curb white-collar crime.

The increase to the RRSP contribution limits was expected, but most were disappointed the government didn’t go further than it did. In 2006, contribution limits will reach $18,000, not nearly the $27,000 some groups including Advocis called for.

“We were hoping to see more and we were hoping to see it sooner,” says Steve Howard, president of Advocis. “One of the governing principles of the RRSP is that Canadians can preserve the same level of income in retirement as they enjoy in their working lives. The current limits on the RRSP just simply don’t allow enough Canadians to do that.”

The Retirement Income Coalition has also lobbied for a $27,000 RRSP contribution limit. Coalition spokesperson Charlie Pielsticker says Canada trails significantly compared to international RRSP contribution levels.

“Canadians really do need more incentives to retire especially when you look at the U.S. where the yearly limit now is $61,000 for contributions for similar plans,” he says. “The U.K. allows contributions from anywhere between $39,000 to $90,000 a year. We have so far to go.”

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An increase in the contribution limit won’t necessarily result in more RRSP savings. Despite recent Statistics Canada research that pegs Canadians median registered account balances at a mere $20,000, Pielsticker says the RRSP remains an important retirement savings tool for the middle-income earner. “There are teachers, superintendents, detectives and nurses who are in tax brackets where they are being confined to the $13,500 limit,” he says. “People here should not be so significantly hindered in saving for their own retirement.”

The Canadian Bankers Association echoed other groups in welcoming the RRSP contribution limit increase. The CBA also commended the federal government for its move to phase out capital taxes. The CBA encouraged other provinces to follow suit. “We encourage the provinces who still have capital taxes in place — every province except Alberta — to eliminate them as quickly as possible,” says Raymond Protti, president and CEO of the CBA.

White-collar crime and investor confidence

The budget picked up on sentiments expressed in the Speech from the Throne about the government’s commitment to improve regulations and strengthen investor confidence by beefing up enforcement against securities and corporate fraud.

The budget provides up to $30 million a year for a new national enforcement effort aimed at strengthening the investigation and prosecution of corporate and market-related fraud. “It’s a positive thing that the federal government is taking action on this,” Investment Dealers Association president Joe Oliver says. “You can’t always prevent all this kind of activity, but you can punish it. You have to have rigorous enforcement.” He adds the IDA has been lobbying the government for precisely this kind of action.

The plan calls for integrated teams of investigators, forensic accountants and lawyers to be established in the key financial centres across Canada. These teams, run by the RCMP and partner agencies, will work closely with securities regulators and provincial and local police.

Oliver says the IDA is ready to do its part. “What you need is a lot of co-operation. The IDA is volunteering to help,” he said. “We can second some of our enforcement people into the effort.” Oliver says the plan will help boost investor confidence, which has taken hits in recent years following numerous corporate accounting scandals and market illegalities.

As well, the government says in the coming months it will propose actions to strengthen the corporate governance standards in the Canada Business Corporations Act and financial institutions statutes. It promises to coordinate its efforts with provincial governments, securities commissions and stock exchanges, as well as the Senate Committee on Banking, Trade and Commerce.

Filed by Sheila Avari and Darin Diehl, with files from Opal Patel, ADVISOR Group.

(02/18/03)