Replace RRSPs, tax expert urges

April 01, 2004, vol. 29, no. 7
By Howard Fluxgold



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If tax specialist Jonathan Kesselman had his way, RRSPs would be a thing of the past.

Kesselman, himself only about seven years from retirement, is proposing to replace registered retirement savings plans with “a tax prepaid savings plan. People could make contributions to their plan up to some amount related to labour earnings,” he explains. “They would not get a tax deduction for it. When they withdrew the funds they would not be taxable on it, nor on the increase in value from the accumulated investment earnings. It works the opposite of the plans we have now but it is similarly favourable to savings.”

Kesselman, who joined SFU in January after more than 31 years teaching at UBC, is a professor and holds the Canada Research Chair in public finance. The winner of the Canadian Tax Foundation's distinguished research award in 2002, he teaches in SFU's masters in public policy program at Harbour Centre.

In March, he published the results of a study for the Montreal-based Institute for Research on Public Policy called Tax Design for a Northern Tiger in which he proposed placing a greater emphasis on taxing consumption rather than income.

To create a northern tiger, he explains, “The crucial thing in tax policy is not the tax level, contrary to what some of my fellow economists say, it is the design, or the mix and structure of the taxes. Tax economists find that it would be better if we were to emphasize consumption more as the basis for taxes and income, particularly capital income, less. When we say consumption as a base that doesn't necessarily mean much bigger sales taxes or GST. We can have a consumption base in our personal tax by excluding savings, like RRSP or pension plans or my proposed tax prepaid plans, and still have a progressive system.”

Kesselman's recommendations have caught the attention of politicians and finance officials in Ottawa. The 2003 federal budget promised consultation on tax prepaid savings plans. That happened last fall, but no decision has been announced.

In the meantime, Kesselman, an economist who directed UBC's centre for research on economic and social policy, is settling into his new downtown surroundings at Harbour Centre. He says he chose to move after a long career at UBC, in order to teach in the new public policy program at SFU.

“From a teaching standpoint it is exciting to have students who are tuned into policy and the application of various scholarly methods to understanding and researching policy,” he notes. As well, the Canada Research Chair “did have a big impact on my decision. It gives me the freedom and resources to do a good deal of research.”

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