Conservatives vow to kill RESP tax break bill

The Tories are vowing to kill a private member's bill that would give tax cuts to parents who save for their children's post-secondary education.

The bill, which quietly passed in the Commons earlier this week, would treat Canada's Registered Education Savings Plan more like RRSPs. If the Senate passes the proposal it would allow parents to contribute up to $5,000 annually to an RESP for each child -- and deduct the amount contributed from their income taxes.

So for contributors who pay taxes at a rate of 35 per cent, a $5,000 RESP contribution would save them $1,750 on taxes. That has Conservatives concerned the national budget could go into the red in the years ahead, and they say they won't let the bill become law.

Ted Menzies, the parliamentary secretary for Finance Minister Jim Flaherty, said he believes the bill won't pass in the Liberal-controlled Senate. He added, even if it manages to survive a Senate vote, the Tories have other options.

"There is always a plan B," Menzies said. "My assumption right now is that we have reasonable-minded senators who can do the math, and they won't do that (pass the bill)."

Menzies wouldn't elaborate on what the government's "plan B" entails.

Under the bill, contributions would eventually be taxed -- when they are withdrawn. But they would be taxed at the student's income tax rate, not the contributors', which should make the tax paid minimal.

Should the money be withdrawn for any reason other than education, or by the person who contributed, much higher tax penalties would apply.

Under current RESP rules, Canadians can contribute to education savings plans and have the money grow tax free. The federal government also matches 20 per cent of contributions, up to $7,500, through a program called the Canada Education Savings Grant (CESG). But that tops out at $500 annually, per child.

Liberal MP Dan McTeague, who first introduced the bill, says the difference with the new plan is that it would allow Canadians to contribute pre-tax income to the savings plan.

"This would go a long way to address the shortage of students who are not capable of being funded by the RESP," McTeague said on CTV Newsnet's Mike Duffy Live.

There is a $50,000 lifetime contribution limit, which would remain the same under the bill.

The chance to avoid paying income tax on up to $5,000 per year, per child, should make the program more enticing to Canadians, McTeague says.

"Only 30 per cent of parents are taking advantage of the existing system, which penalizes those who are middle-income families. This vehicle helps Canadians achieve the dream of ensuring that your children get higher education," he told CTV Newsnet earlier on Friday.

The bill was supported by all three opposition parties, along with independent MPs, and passed easily late Wednesday by a margin of 156-122.

But the Conservatives voted en masse against the bill, arguing that it will cost too much and could put the country's finances in a perilous state. With the economy expected by many to slow in the coming year and with a recent federal budget that predicts relatively small surpluses, the Conservatives say now is not the time to change RESP rules.

Menzies says if the government could have afforded the move, it would have included the measure in last month's budget. He added that the bill will cost the government about $900 million. But McTeague disputes those numbers.

He notes that the current CESG program is already costing the Treasury more than $750 million a year, and there may be no further need for the grant program with the new rules proposed in the bill.

McTeague notes that in March of last year, when the bill was first debated at a Commons committee, finance department officials estimated it could cost the treasury between $600 million and $700 million a year in lost revenue, depending on how much Canadians contributed to RESPs.

"So I think they're dreaming these numbers up. But the reality is this is really about investing in Canada's future, and ensuring that a large number of children whose parents are trying to save up for their educations but cannot, can in fact do just that."

McTeague says he expects the bill to pass the Senate. But he noted that he is willing to compromise on the limit that can be deducted. He also said on Mike Duffy Live that there was broad support for his bill when it passed in the Commons, even among some Conservatives.

"I have to tell you Mike, on second reading, I had several Conservative members who support this in principle. They like the idea, but they were whipped (and) told not to do this because (the Tories) somehow believed that this is going to be a net cost to the bottom line and push us into deficit territory," he said.

The bill is also getting passing marks from some student advocacy groups. Zach Churchill, the National Director of the Canadian Alliance of Student Associations, said the bill would help students left out of the current plan.

"If this is an issue about creating opportunities for more students who currently are not participating in the post-secondary system, then more really needs to be done," he told Mike Duffy.