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Don‘t you just love this?
The members of the House of Commons are in the midst of voting themselves a whopping pay raise ... motivated largely by pension implications (yet, when it comes to pensions for reservists, they have to study it to death ... and, please - don‘t confuse the separation gratuity with a REAL pension).
I could scream.
WARNING: newspaper article follows:
If it‘s good enough for Ottawa...
Raise RRSP limit to match MP‘s recent pay increase
Jonathan Chevreau
Financial Post
One of the side effects of MPs giving themselves a 20% raise was to almost double their ultimate pensions.
If the MPs applied the logic of their self-serving windfall to taxpayers constrained by the $13,500 contribution limit on registered retirement savings plans, they‘d have to double the limit immediately, as well as the equivalent limit in registered pension plans.
Even then, Canada would still have lower tax-assisted retirement savings limits than the U.S.
One of the Liberals‘ arguments against increasing RRSP room is it is a measure that supposedly benefits "only the rich." A senior Department of Finance official says there is no official definition of "wealthy. " Until the last budget, it clearly considered annual incomes of $65,000 to be rich. That‘s when the top tax bracket and "high-income" surtaxes kicked in.
Of course, MPs never experienced the surtaxes themselves since they had a base salary of $69,000 and handed themselves an additional $23,000 tax-free. That‘s why their pre-raise salary was equivalent to $109,000.
But that backfired, since their pensions were based only on the taxable amount. By moving to a fully taxable $131,400, as they are proposing, they effectively double their pensions.
Conveniently, the 5% federal surtax was phased out in January so they never did feel the sting of that tax.
The government will point to lower pension accrual rates of 3.0% announced with the MP pay hike, compared to the previous 4%. That‘s more smoke and mirrors once you crunch the numbers, which Walter Robinson, federal director of the Canadian Taxpayers Federation (CTF) did on my behalf.
Note that for ordinary mortals, the accrual rate is 2% up to a limit of $86,000 a year of salary. Anything above that is considered a taxable benefit, so few employers can afford to do so -- except of course the government. Not only do the MPs still get a higher accrual (3.0% instead of 2%) rate, but it‘s not limited to $86,000: it applies to the full $131,400.
Note that 3.0% of $130,000 is $3,900 or 2.3 times the $1,722 a year that can be accrued in RPPs for the rest of us. Furthermore, the CTF points out, these generous pensions are indexed to inflation and MPs can collect them at the tender age of 55 after as little as six years of service.
Based on the MPs‘ logic, we taxpayers who make their paycheques possible should be given an immediate 100% increase in RRSP/RPP contribution room.
As an interim step, the RRSP limit should immediately rise to the $18,000 advocated by the Canadian Alliance in the last election, or the $20,000 the Tories are calling for.
The Liberals would argue that either figure -- let alone the doubling to $27,000 the Investment Funds Institute of Canada is calling for -- would cost us too much darn money in the form of "tax expenditures." The Finance official says every $1,000 increase in RRSP contribution room "costs" the government $250-million.
But those arguments are bogus, says Alliance Finance critic Jason Kenney. "First they point out most people can‘t max out [their RRSPs] and it‘s to the exclusive advantage of the wealthy, and then in their tax expenditure estimates they overestimate the number that will max out. The numbers are pretty ridiculous."
If it‘s true most people don‘t use up the current contribution room then it‘s only a minority who would "cost" the government immediate tax revenues. A minority which, except for the fact they‘re self-employed or senior managers in the private sector, likely resemble the elite minority of the MPs themselves.
Clearly, it‘s a case of "do as we say, not what we do." The notion that higher RRSP room will cost a lot in lost revenue seems to me a red herring. The real motivation is of course political -- the fear of losing the votes of the lower-income majority because of the optics of "favouring" the rich.
Kenney and Robinson also point out that the "lost" tax revenue is not lost forever, it‘s only deferred until an RRSP generates taxable revenue in retirement. As University of Waterloo professor Rob Brown has demonstrated, allowing investors to save more now will mean more tax revenue to pay for the rising health costs of the Baby Boom generation.
Scott Brison, Tory finance critic, says higher RRSP limits would help stem the brain drain. And by raising the foreign content of this increased room to 50%, Canadians would be able to get more international growth out of the little RRSP room they are permitted.
The whole appalling exercise is rife with hypocrisy. On the one hand, taxpayers making more than $86,000 are considered "rich" and can‘t increase their retirement savings limits till 2004.
On the other, MPs making $110,000 are not "rich" and desperately need an immediate 20% raise and 100% more pension room. And instead of waiting for three years to get it, they‘re ramming the legislation through in two weeks.
Priorities, priorities.
The members of the House of Commons are in the midst of voting themselves a whopping pay raise ... motivated largely by pension implications (yet, when it comes to pensions for reservists, they have to study it to death ... and, please - don‘t confuse the separation gratuity with a REAL pension).
I could scream.
WARNING: newspaper article follows:
If it‘s good enough for Ottawa...
Raise RRSP limit to match MP‘s recent pay increase
Jonathan Chevreau
Financial Post
One of the side effects of MPs giving themselves a 20% raise was to almost double their ultimate pensions.
If the MPs applied the logic of their self-serving windfall to taxpayers constrained by the $13,500 contribution limit on registered retirement savings plans, they‘d have to double the limit immediately, as well as the equivalent limit in registered pension plans.
Even then, Canada would still have lower tax-assisted retirement savings limits than the U.S.
One of the Liberals‘ arguments against increasing RRSP room is it is a measure that supposedly benefits "only the rich." A senior Department of Finance official says there is no official definition of "wealthy. " Until the last budget, it clearly considered annual incomes of $65,000 to be rich. That‘s when the top tax bracket and "high-income" surtaxes kicked in.
Of course, MPs never experienced the surtaxes themselves since they had a base salary of $69,000 and handed themselves an additional $23,000 tax-free. That‘s why their pre-raise salary was equivalent to $109,000.
But that backfired, since their pensions were based only on the taxable amount. By moving to a fully taxable $131,400, as they are proposing, they effectively double their pensions.
Conveniently, the 5% federal surtax was phased out in January so they never did feel the sting of that tax.
The government will point to lower pension accrual rates of 3.0% announced with the MP pay hike, compared to the previous 4%. That‘s more smoke and mirrors once you crunch the numbers, which Walter Robinson, federal director of the Canadian Taxpayers Federation (CTF) did on my behalf.
Note that for ordinary mortals, the accrual rate is 2% up to a limit of $86,000 a year of salary. Anything above that is considered a taxable benefit, so few employers can afford to do so -- except of course the government. Not only do the MPs still get a higher accrual (3.0% instead of 2%) rate, but it‘s not limited to $86,000: it applies to the full $131,400.
Note that 3.0% of $130,000 is $3,900 or 2.3 times the $1,722 a year that can be accrued in RPPs for the rest of us. Furthermore, the CTF points out, these generous pensions are indexed to inflation and MPs can collect them at the tender age of 55 after as little as six years of service.
Based on the MPs‘ logic, we taxpayers who make their paycheques possible should be given an immediate 100% increase in RRSP/RPP contribution room.
As an interim step, the RRSP limit should immediately rise to the $18,000 advocated by the Canadian Alliance in the last election, or the $20,000 the Tories are calling for.
The Liberals would argue that either figure -- let alone the doubling to $27,000 the Investment Funds Institute of Canada is calling for -- would cost us too much darn money in the form of "tax expenditures." The Finance official says every $1,000 increase in RRSP contribution room "costs" the government $250-million.
But those arguments are bogus, says Alliance Finance critic Jason Kenney. "First they point out most people can‘t max out [their RRSPs] and it‘s to the exclusive advantage of the wealthy, and then in their tax expenditure estimates they overestimate the number that will max out. The numbers are pretty ridiculous."
If it‘s true most people don‘t use up the current contribution room then it‘s only a minority who would "cost" the government immediate tax revenues. A minority which, except for the fact they‘re self-employed or senior managers in the private sector, likely resemble the elite minority of the MPs themselves.
Clearly, it‘s a case of "do as we say, not what we do." The notion that higher RRSP room will cost a lot in lost revenue seems to me a red herring. The real motivation is of course political -- the fear of losing the votes of the lower-income majority because of the optics of "favouring" the rich.
Kenney and Robinson also point out that the "lost" tax revenue is not lost forever, it‘s only deferred until an RRSP generates taxable revenue in retirement. As University of Waterloo professor Rob Brown has demonstrated, allowing investors to save more now will mean more tax revenue to pay for the rising health costs of the Baby Boom generation.
Scott Brison, Tory finance critic, says higher RRSP limits would help stem the brain drain. And by raising the foreign content of this increased room to 50%, Canadians would be able to get more international growth out of the little RRSP room they are permitted.
The whole appalling exercise is rife with hypocrisy. On the one hand, taxpayers making more than $86,000 are considered "rich" and can‘t increase their retirement savings limits till 2004.
On the other, MPs making $110,000 are not "rich" and desperately need an immediate 20% raise and 100% more pension room. And instead of waiting for three years to get it, they‘re ramming the legislation through in two weeks.
Priorities, priorities.