Growing Gap

Our federal Parliament is considering a Bill that should be tossed right out the window.

The private member's Bill, by Liberal Dan McTeague, would help the most affluent of Canadians take even better advantage of the deeply flawed RESP program.

The RESP program is supposed to help Canadians save for their children's post-secondary education but, like the RRSP, it is yet another tax policy that widens the gap between the rich and the rest of us.

Savings through RESPs have grown from $4 billion in 1998 to $22 billion in 2006. But only a third of Canadian children have an RESP account in their name. At last count it supported 190,000 students currently engaged in post-secondary studies.

Put this in context: There are about 1.3 million full-time students currently studying at the post-secondary level.

The RESP is a tightly targeted incentive for those who can afford to tuck money away -- the most affluent among us.

The McTeague Bill would make RESP contributions tax deductible and raise the amount that can be contributed annually to $5K. The bill would mean those contributing to RESPs won't pay taxes on money going in or coming out of these accounts.

On top of that, the bill doesn't reference existing tax deductions for tuition. That leads to double-dipping tax breaks - deduct taxes as you save for education, deduct taxes when you pay the tuition.

Of course it's the parents that are getting the tax break, not the kids. And most of those parents are getting the tax break on the highest tax bracket. On an annual tuition of $5,000 that means up to $2,300 tax savings.

Here's the injustice of it: Say a high income earner contributed to an RESP only four years at $5,000, and then claimed the tax deduction on a $5,000 annual tuition for a four-year program. On the $20,000 that is put aside for post-secondary studies, that high income earner could get as much as $18,400 back in taxes by sending one kid to post-secondary for an undergraduate degree ($2,300 for four years going in, and $2,300 for four years for tuition expense deductions).

Somebody who couldn't put aside money in an RESP but came up with the $5,000 a year for tuition for four years and was in the lowest tax bracket would also get money back from the government for the $20,000 they spent for their degree, but they would receive no more than $5,000 over the course of their program, and as little as $3,750, depending on what province they lived in.

In this system, the richest Canadian families could have tax breaks offset 92% of their child's education, while the poorest students could get as little as 19% in tax-subsidized assistance.

As Canadians committed to making sure everyone has a fair shot at an education in life, this raises some serious questions:

Why does the child of a high-income earner deserve more help from the public purse to get post-secondary education than the child of a low-income earner, or a student struggling to put themselves through?

If you're going to give money back to people for sending their kids to college or university or trade school, shouldn't it be at least the same amount for everyone?

Some estimate the McTeague program could cost between $600 million to $2 billion every year. Most of these vast amounts of money will go to those who least need the financial help. And that is why this Bill should be stopped in its tracks.

-- Armine Yalnizyan

There are some eye-popping new factoids about Canadians coming out of today's release of labour census data by Statistics Canada.

Did you know that Canada has the fastest job growth in the entire G7?

Did you know Canada has the highest proportion of workers with a university or college degree among OECD nations? (60% of Canadians aged 25 to 64 have some form of post-secondary education).

Canadian women are also way more educated than Canadian men today: a third of women have a degree now, compared to quarter of men. A generation ago 16% of women in Canada held a degree, compared to 21% of men.

More than half of recent immigrants to Canada (those who arrived between 2001 and 2006) have a university degree. Compare that to 20% of Canadian born.

To sum up: Canada is attracting major job growth and Canadian workers are better educated than ever before. So why, given all this good news, is Canada's gap between the rich and the rest of us continuing to grow?

-- Armine Yalnizyan

There is a hidden, "crouching tiger" dimension to Canada's income inequality problem.

It is called household debt, and as a nation, we are rolling in it.

In his latest report released today, Vanier Institute's Roger Sauve warns a perfect storm may be brewing:

Canadian household incomes have been flatlined for decades (CCPA research shows average real wages have been stagnant for 30 long years) but the cost of living keeps rising. In fact, the cost of owning a home (and everything else) is putting a lot of Canadians into hawk up to their eyeballs.

Add a looming recession, and it could spell trouble. Sauve says: "... a lot of households couldn't keep up."

We used to be a nation of savers. Now we are a nation of nailbiters.
A mountain of debt has a funny way of doing that to you. See the CCPA's upcoming Alternative Federal Budget (released later this month) for suggested solutions to income inequality and poverty reduction.

-- Trish Hennessy