What I want to see in coming federal budgets

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The households of the nation well know the challenges the federal Liberals face in writing their first budget. Big plans, tight finances. Can there be an effective compromise between aspirations and reality? Here are some things I'd like to see the government do in this or the next budget to improve its finances and make some positive changes.

Raise the GST back to 7 per cent …

This is how we keep the country's personal finances more or less in line. A weak economy means the Ottawa is spending more than it takes in through tax revenue. The government wants to spend to juice the economy, but that means a bigger deficit. By raising the GST, we get that government stimulus while containing the deficit.

When the previous Conservative government lowered the goods and services tax, first to 6 per cent in 2006 and then to 5 per cent in 2008, it was estimated that the cost to the federal government was $14-billion. That amount would be enough to nearly halve the $30-billion deficit that has been projected for this year as a result of weak economic growth and Liberal spending to meet election promises.

The GST is a tax on consumption, which means those who pay the most are buying the most expensive things. Increasing GST tax credits would offset any negative impact on lower income people.

… while also eliminating GST on investment funds

GST and HST are a small but noteworthy component of the fees associated with owning mutual funds and exchange-traded funds (returns are always shown on an after-fee basis). These are not elite investments of the rich. Together, mutual funds and ETFs account for about $1.3-trillion in investments that people of all income levels are using in tax-free savings accounts, registered retirement accounts and elsewhere.

Eliminating sales tax on investment funds would mean just modestly higher returns over time, but that's important. Interest rates are expected to remain low in the years ahead, and there's a widely held view that stock market returns will be lower than in previous decades. In this tougher investing environment, let's not have sales taxes nibbling away at the returns people need to meet their goals for retirement and other goals.

Show progress on expanding the CPP

Prime Minister Justin Trudeau has already said the budget will keep the age of eligibility for Old Age Security benefits at 65, rather than gradually increasing it over time to 67. But that's an aspect of tweaking the country's retirement system. More important is expanding the Canada Pension Plan so that it pays out a larger amount in retirement.

The current annual maximum is $13,110, while the average is $7,552. Old Age Security tops up those amounts by $6,846.24, which still leaves people short in retirement unless they can save enough on their own.

A huge factor in retirement savings success seems to be access to a company pension of some sort. Statistics Canada says the percentage of people covered by a registered pension plan was 37.9 per cent in 2013 (the most recent year for which there's data), down from 38.5 per cent the year before.

Young workers particularly need a bigger CPP. Many work part-time or in temporary jobs, which means they don't get the benefit of a pension even when they work at a company that offers one for full-time employees.

Wind down the federal Home Buyers' Plan

This is a follow-on to the bigger CPP in reflecting a more serious emphasis on ensuring people are saving enough for retirement. The HBP allows people to remove up to $25,000 from a registered retirement savings plan to buy a first home, and the Liberals have promised to expand the program for use by people who are divorcing, relocating for work or dealing with the death of a spouse. The housing industry had this measure served up at its request back in 1992 and it's now an important factor in helping people afford house down payments.

The problem with the HBP is that it promotes a financial overemphasis on housing that is unhealthy in a lot of different ways. One is the idea that wealth generated by housing is more legitimate than owning investments like stocks, bonds and funds. The smart approach is to own both. The government can help people to achieve this balance by setting an end date for the HBP and reminding people they can very effectively save for a home in a tax-free savings account.

Carrick on Money

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