RESP Regressivity Gets Worse

The Registered Education Savings Plan has always been a regressive tax scheme. Simply put, under an RESP, savings can earn interest tax free until the child goes to college/university. The federal government kicks in money in the form of the Canada Education Savings Grant (for all Canadians) and Canada Learning Bond (for “modest earning” Canadians) as an incentive for saving.

But like all private social security mechanisms, RESPs are regressive as those that benefit the greatest are those that have the most to contribute. The Harper government has determined that the RESPs were not regressive enough. They eliminated the $4,000 per year contribution limit and increased the maximum total RESP contribution to $50,000 in their last budget. In examining optimal investment strategies given this change, Rob Carrick of the Globe and Mail found that it was a better move to save the $50,000 at once (e.g., when the child is born) rather than make installments and invest in other ways. Clearly, very few people in this country can do that! The forgone government revenue from this program would be better spent directly in our post-education system.

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