Mintz argues for tax overhaul

Financial advisors may have added flexibility in arranging some of their clients’ registered and non-registered investment products and their clients may retain more of their savings if Jack Mintz can sell some of his proposals to the Conservative government.

In a presentation clearly designed to influence the upcoming federal budget, the Executive Director and Palmer Chair in Public Policy at the University of Calgary made a case for reducing investors’ taxes and increasing their manoeuvring room with products such as RRSPs and TFSAs.

“In my view, in terms of reducing the tax on savings it’s not a matter of encouraging saving,” he said. “Even if saving…doesn’t change it’s a fact that taxation erodes how quickly you can accumulate wealth for your retirement purposes by reducing the yield on your savings. It makes a really big difference.”

Mintz suggested four main measures to leave more savings in the hands of investors and he maintained that added savings will mean increased investment capital.

Removing what he called the “tax discrimination against group RRSP’s” would remove a penalty indirectly imposed on employers. When a business creates a group RRSP and makes employer contributions to match employee contributions, those payments do not reduce the payroll tax base for purposes of calculating items such as Employment Insurance and Worker Compensation.

Employer contributions to defined contribution pension plans and defined benefit pension plans do reduce the payroll tax base for these calculations.

“Effectively there is a penalty imposed on group RRSP’s relative to defined benefit and defined contribution pension plans,” he said. “I don’t see any reason why we should have that kind of discrimination.”

Reducing value-added taxes on financial services would indirectly make more money available for savings.

“HST (harmonized sales tax) does apply to financial services (which) allow people to develop their portfolios and their savings and you could make an economic argument that what you’re doing is taxing savings when you put a tax on financial services, because people are spending money to arrange their financial portfolios,” he said, adding that some provinces also maintain retail taxes on insurance. “If you put a tax on financial services then you’re also taxing savings indirectly.”

In the future, value-added taxes will become proportionately more important as a source of government revenues, he pointed out, given reductions in corporate tax rates and constraints on raising individual income taxes.

Contribution limits on RRSP’s also should be relaxed, he argued. This would also mean examining the earned income limitation for RRSP’s since the current threshold is hurtful to middle income individuals. He suggested the limit be raised to 25% from its current 18%.

Mintz also called for changes to the age limit for contributions, perhaps allowing contributions as late as age 73.

Changing the limits on TFSA’s in certain circumstances would assist some individuals, especially older Canadians, since they have fewer years to accumulate savings in this product. One possibility would be a $25,000 one-time limit that would use five years worth of contributions, thereby allowing older Canadians to shelter more money in a TFSA.

Proposals such as relaxing age limits and the earned income limitation have not attracted much resistance, he said. “It just becomes a revenue issue for governments.”

Mintz’s presentation this morning marks the latest step in his campaign for change in Canada’s personal taxation regime with a clear emphasis on middle class individuals. While aimed at influencing the March 22 federal budget in the short-term, these proposals come at a time when Canadians are increasing questioning established retirement norms, driven partly by changing boomer attitudes and lifestyle and partly by the need to reinforce portfolios battered by the financial crisis.

Al Emid, a Toronto-based financial journalist, covers insurance, investing and banking.