Most people who take voting seriously pay close attention to party platforms. There’s no guarantee the winner will keep its promises, but those stances provide the only clear insight into what a majority government would do with Parliamentary carte blanche.
We asked two industry experts to analyze key aspects of the Conservatives’ policies, such as CPP expansion and TFSAs: Graham Westmacott, portfolio manager at PWL Capital in Waterloo, Ont. and Linda Yule, portfolio manager at Conacher Yule Investment Partners | Richardson GMP in Toronto.
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Issue #1: National securities regulator
Party Platform: Supports Cooperative Capital Markets Regulatory System as a step toward a national securities regulator.
Reaction: Yule says a national regulator would be a welcome development, as it would bring consistency to the rules. Other positives: “It would definitely assist our global image and probably reduce the bureaucracy and costs we incur now.”
Issue #2: RESPs
Party Platform: Would increase the federal RESP grant to low- and middle-income families. Families earning up to $44,000 would get $200 for the first $500 saved in the RESP each year. Families that earn up to $88,000 would get $100 on the first $500 each year.
Reaction: “The good news is it’s additional money for lower-income families who are using or intend to use the RESP structure,” says Westmacott. But “statistics show RESP uptake is pretty highly skewed toward […] high-income families. So what the Conservatives are proposing doesn’t broaden the base of RESP usage. Currently only 35% of eligible children receive the additional Canadian Education Savings Grant.”
Based on analysis in his Continuing Education course on RESP investment strategies, Westmacott says a couple starting to save now for their child’s university education would need about $68,000 in today’s dollars. “Even a perfect investor using current expected market returns would be very lucky to achieve that. With a full contribution every year, securing the additional grant the Conservatives are proposing, it would, over 20 years, amount to an additional $2,250, which is only about 3% of that $68,000.”
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Westmacott adds: “It’s a modest uptick and it’s directed at people who historically haven’t had a lot of RESP uptake. It’s a lot harder for poorer families with less disposable income to find the matching contributions to make this work.”
Issue #3: Income splitting
Party Platform: Through the Family Tax Cut, continue to allow couples with children under 18 to split their income (up to $50,000) and reduce tax by up to $2,000.
Reaction: “Any tax cut is always good,” says Yule, “because it’s designed to incent savings and investment.” The family tax cut “would primarily benefit middle- or lower-income Canadians. But lower- and middle-income people are eventually wealthy people, and they will become wealthy if they are allowed to save money, which would probably be a result of paying less tax.”
Issue #4: Small business tax
Party Platform: Reduce small business tax from 11% to 9% by 2019.
Reaction: “Small business is the engine of the economy—it creates the majority of jobs,” says Yule. “Any policy that allows small businesses to keep more of their own money and reinvest it as they see fit has got to be good for job creation and the economy.”
Issue #5: TFSAs
Party Platform: Maintain $10,000 contribution limit.
Reaction: “It’s a really powerful incentive for Canadians to save for retirement,” says Yule. “That’s where I see that money going.” She adds that while every client’s different, for the most part, you want to put the biggest gainers in the TFSA, and that means stocks.
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Westmacott’s reaction is mixed. “The TFSA is a great structure, so the more the better.” But for a higher-net-worth client, whether the limit stays at $10,000, gets pulled back to $5,500, or lands somewhere in between, “it’s lost in the weeds in terms of […] personal planning. It doesn’t make a material difference to decisions we make with clients about their investment strategies.”
Issue #6: RRIF withdrawal rates
Party Platform: Maintain reduced withdrawal minimums.
Reaction: Yule says the lower minimums are a definite plus for clients. “People are living longer and they need this money to last longer. Most of my clients who are upwards of 85 or 90 or older are still capable of travelling and managing their own affairs. So it’s to their benefit to leave it as long as possible.”
Issue #7: Voluntary CPP contributions
Party Platform: Announced consultations with individuals, financial sector and retirement income experts, and other stakeholders on options for a voluntary supplement to CPP.
Reaction: Westmacott notes the key question is whether people would be able to later withdraw contributions voluntarily made. If so, they’ll tend to pull money out when times are tough, and add money when times are good. This “would put new stress on the CPP fund management process. It’s going to mean they’re going to have to keep higher levels of cash and invest in the shorter term. The consequence will be lower rates of return.”
What if the CPPIB stuck to its current approach, but sectioned off voluntary contributions into a separate pool, investing those funds in shorter-term, more liquid vehicles? “It’s plausible, but you’d have to be careful about the messaging. If it’s truly going to remain a defined-benefit plan, how do the CPP actuaries figure out what future benefits they can commit to when they don’t know what the fund flows are going to be?”
Read: Voluntary CPP expansion wouldn’t change the way Canadians save
Westmacott adds that any voluntary contribution proposal will likely face pushback from the investment industry, since those voluntary contribution dollars would mean less AUM for advisors and fund managers.
Issue #8: Mineral exploration tax credit
Party Platform: Extend the credit for 3 years (15% tax credit for investors in flow-through shares of mineral exploration companies), and introduce enhanced credit (25%) for projects in remote areas.
Reaction: “The tax cut for exploration and development has always worked in the past,” says Yule. “We need to continue to invest in those parts of the market.”
A version of this story originally appeared on the site of our sister publication Advisor.