Vamp until ready: An opinion on the 2005 federal budget

(February 23, 2005) Your lead singer hasn’t shown up yet, but the house is packed and waiting to be entertained. Do you tell them that you don’t know where he is and that they’ve shown up for nothing? Of course not. "Vamp until ready," you shout to the band.

To vamp, for those unfamiliar with the phrase, is a musical term for playing the same few bars over and over again, stalling, giving the audience the impression that something is about to happen. Vamping is the best way I can describe the Liberal’s approach to retirement savings over the last decade, and I’m sick of it.

Feds scrap foreign content rule, raise RRSP limits Goodale surprises with something for everyone Going global: Investment community welcomes the elimination of the foreign property rule Opportunities abound: Advisors say latest budget leaves plenty to discuss with clients Changes cheered: Industry associations applaud budget initiatives Outstanding issues: What’s not in the budget Vamp until ready: An opinion on the 2005 federal budget To Clients/Prospects: The 2005 federal budget and your financial plan Back to main

While the finance ministers have changed from year to year, the band in Ottawa keeps cranking out the same tired tune — another budget, and another increase in RRSP contribution limits.

Sure, it makes for a good sound bite or maybe a chart showing how numbers will increase over the next five years. When asked what they’ve done to help Canadians save for their retirement, Liberal MPs can point to the budget and tell reporters and constituents that their government has increased RRSP limits again. That’s all very nice, but don’t make the mistake of confusing activity with ingenuity. These ever-increasing limits have not, and will not, do a damned bit of good for the majority of people in this country.

In his speech earlier today, Finance Minister Ralph Goodale said that raising the limits on RRSPs to $22,000 by 2010 will "help Canadians save more for their retirement" and "be of particular benefit to entrepreneurs, the self-employed and small business owners." Oh come on, Ralph. There’s only one group of people this increase is going to help, and that’s the wealthy. If you’re going to rip off the average Canadian, you might as well be honest about it.

After-tax family income in this country has been stagnant for the last decade. Data compiled by Statistics Canada shows that, adjusted for inflation, median family income before taxes remained essentially unchanged at $55,000 between 1990 and 2000. While RRSP contribution limits may have gone up, that 18% has remained exactly the same. It doesn’t make a bit of difference if you’re an entrepreneur or small business owner — 18% of $55,000 was $9,900 in 1990, and it’s still $9,900 today. These wonderful RRSP limit increases have been nothing but hot air for more than half of country’s population.

And how many families are really contributing to RRSPs anyway? After paying a mortgage, taxes, food and utilities (never mind saving for the kids’ post secondary education) that $55,000 family is probably lucky if it can afford dinner out once a month. The sad truth is that average Canadian isn’t even using his or her RRSP.

In an attempt to refute this argument, government supporters might point to a study released by Statistics Canada late last year, saying that we contributed $27.6 billion to our RRSPs in 2003, up 1.8% from 2002. That’s true, but if you read that same release a little closer, you’ll find that the median contribution was a paltry $2,600. Note that’s median, not average — meaning half of all contributors saved even smaller amounts. That 1.8% increase in contributions came from the wealthy, who must be overjoyed every time the Liberals tell them they can fill their pockets by another couple grand. How ridiculous that people who already earn $100,000 should receive an extra tax break — it’s like distributing alms to the nobility.

You know, I’d almost expect more from a Liberal. After all, it was Walter Harris, the finance minister in Louis St. Laurent’s government, who first brought RRSPs to life. I wonder what he’d think if he knew that, 50 years later, they had become a way for the country’s leaders to siphon money out of the tax system and into the pockets of the rich. If it were me, I’d be spinning in my grave.

Andrew Rickard, CFP, is a freelance writer covering the financial services industry. He can be found online at www.andrewrickard.ca

(02/23/05)

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