The State of Defined Benefit Pension Plans in Canada: An Update

Motivated by a continuous debate on pension plan shortfalls and a concern for the long-term viability of defined benefit pension plans, CGA-Canada saw a fit to update its estimate of the standing of defined benefit pension plans presented in its 2004 report titled "Addressing the Pensions Dilemma in Canada". Consistent with our initial findings, the issue of under-funded pension plans has become one of the most perplexing financial issues facing business executives, legislators and Canadian pensioners. Some 59% of Canadian defined benefit pension plans continue to be in deficit at December 31, 2004. If we provide for indexation of benefits, that number rises to 96%. It is estimated that the additional funding required to fully fund those deficit plans has grown from $160 billion at the end of 2003 to$190 billion at the end of 2004 (assuming indexation of accrued benefits). While pension underfunding is a challenge, it is more importantly a symptom of deeper problems rooted within the larger pension administration regime. Pension regulators must take a more proactive approach and monitor more closely pension plans that are in a deficit position.defined benefit pension plan, funding position of pension plans, household savings, retirement savings, retirement income, household finance, pension accounting

How Pressing is it to Revisit the Treatment of Capital Gains?

Lowering or eliminating the tax on capital gains may be a tempting undertaking for Canada's federal government facing electorate pressure. It may also be a tempting course of action for interest groups and public policy stakeholders. To analyse the merits of such a policy measure, this paper explores two queries. Fist, how the previous changes in capital gains taxation affected the level of realization of capital gains? And, second, do provincial differences in tax rates transpire into differences in the intensity of realizing capital gains? The analysis shows that only a relatively small number of Canadians report capital gains and a smaller proportion of them effectively pay taxes on capital gains. The changes in capital gains tax rate introduced in 2000 lead to only a temporary increase in intensity and volume of realized capital gains. Similarly, no significant increase in holdings of capital assets by households was observed. The analysis of provincial differences in tax rates levied on capital gains also does not conclusively show that lower tax rates lead to a higher turnover of investments.capital gains, taxation of capital gains

Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy

Increasing debt of Canadian households has been a subject of intense discussion for a good number of years. In the current economic situation, thought, the topic of household indebtedness is rapidly becoming a more critical area. This paper seeks to understand the extent to which the 2008 economic and financial crisis worsened financial positions of Canadian households. To that end, the paper imparts the key findings of the public opinion survey commissioned in 2008, considers changes in the main indicators of household indebtedness, and discusses the implications of the economic shocks on indebted households. The analysis shows that the measures of financial wellbeing of the household sector have deteriorated significantly over 2007 and particularly in 2008. Stagnant or even declining income, slow and lengthy process of rebuilding financial wealth and increasing real debt-service burden make the prospects of improving households’ financial situation in the near future low.household debt, household finances, savings, wealth, household spending, income shock, assets price shock

Carbon Revenue Recycling - Opportunities and Challenges

Environmental policy instruments that generate budget revenues may become an increasingly attractive policy option for Canada's federal government due to amplified fiscal pressures. If that is the case, revenue recycling is an essential element of pricing carbon. This paper present a brief overview of benefits of recycling carbon revenues and the challenges that may be encountered when choosing a specific option for revenue recycling. The analysis shows that the existing research leaves the open-ended question of which taxes should be used for revenue recycling unanswered; particularly in the Canadian context. Given this, the economic efficiency of different types of taxes could be used as a source of general guidance for revenue recycling. However, significant doubt exists that there is sufficient political will to recycle carbon revenue. Over the past two decades, the tax composition of the federal revenue continued shifting towards a higher reliance on economically distortive taxes instead of increasing use of more efficient taxes.carbon emission reduction, carbon revenue recycling, double dividend, carbon pricing

Where is the Money Now: The State of Canadian Household Debt as Conditions for Economic Recovery Emerge

In 2007, and then again in 2009, CGA-Canada set out to analyze the level of debt of Canadians, the risks associated with rising indebtedness, and the extent to which the recent financial and economic crises worsened the financial positions of Canadians. In the spring of 2010, CGA-Canada revisited the topic of household indebtedness aiming to identify perspectives of Canadians on the changing level of their indebtedness and wealth, and to examine these findings in the context of publicly available facts and figures. That was done by integrating the results of a public opinion survey commissioned by CGA-Canada with an analysis of available statistical information. The analysis shows that the measures of financial wellbeing of the household sector have deteriorated significantly over 2008 and 2009. Revolving credit has become a prevailing part of consumer credit and poses an increased risk of a debt spiral. The tremendous increase in the use of personal lines of credit was not supported by increasing equity in properties. Prospects of improving households’ financial situation in the near future remain unclear whereas regional perspectives are paramount to our understanding of the state of household finances.household debt, household finances, savings, wealth, household spending, income shock, assets price shock

51 and Counting - Is It Time to Remodel RRSPs?

In Canada, the increasing need for private pension savings, a high level of awareness of the Registered Retirement Savings Plan (RRSP) program and yet relatively low and declining use of RRSPs may suggest that the core element of the RRSP program – the tax incentives – are no longer shaping individuals’ behaviour to the desired extent. In assessing this assumption, the paper considers the recent trends in RRSP contributions and the changing levels of tax incentives associated with RRSPs. The analysis shows that the decline in RRSP contribution and participation rates over the past decade occurred despite the positive changes in certain socio-economic factors that could have been a strong driving force for boosting RRSP investment. At the same time, the tax benefits of participating in RRSP has noticeably decreased over the past decade, particularly so for middle and high income Canadians. Moreover, the tax incentives do not seem to be strong enough for households to use the RRSP savings vehicle more extensively than non-pension financial assets.household savings, household finance, retirement, tax incentives

Tax-Free Savings Accounts - Shifting Opportunity

In 2009, Canada's federal government introduced a new saving instrument for individuals – the Tax-Free Savings Account (TFSA). This paper reviews the TFSA focusing on how it may benefit individuals at different income levels. To that end, the paper presents advantages and disadvantages of the TFSA and considers international experience in introducing TFSA-like instruments. The paper also discusses the challenges and opportunities offered by TFSA to such groups as individuals, employers and the government. The analysis shows that introduction of TFSA necessitates greater decision-making attention of Canadians in choosing among different tax-proffered saving options. The shift away from using Registered Retirement Savings Plans (RRSP) in favour of using TFSA may, in turn, result in some revenues foregone by the government.household savings, household finance, tax incentives

Public Underwriting of Private Debt: The Prospect of Industry Targeting

This paper ascertains the nature and foreseeable effectiveness of some of stimulus measures introduced by Canada's federal government to stem the 2008 financial crisis. To that end, the paper considers three distinct elements which form one logical continuum. Starting with the identification of components of the overall economic stimulus package, the consideration then shifts to the least invulnerable stimulus measure, i.e. support to the auto industry. This is followed with a discussion of the possible implications of stimulus measures and other selected factors on the level of federal debt. The analysis shows that there is reason to doubt that the financial support to the auto industry was commensurate with its relative size or its comparative importance to the Canadian economy. Moreover, the combination of economic uncertainty and the already existing fiscal pressures of an aging population may exacerbate significantly the actual levels of federal deficit and debt. As such, a balanced approach to planned federal deficit reduction and federal debt stabilization may once again be desirable.national budget, budget deficit, national debt, automobile industry, economic crisis, stimulus measures, industry targeting

Where Does the Money Go: The Increasing Reliance on Household Debt in Canada

Recent studies show that Canadians are increasingly worried about their financial wellbeing at retirement and into the golden years. Counter-intuitive as it may seem however, the household savings rate continues to plunge as Canadians take on more and more debt. This paper analyzes the level of debt of Canadian households and the risks associated with the rising level of the debt burden. To this end, the paper integrates the results of a public opinion survey with an analysis of available statistical information. The analysis shows that the financial situation of least wealthy households may be deteriorating more aggressively than that of the overall household sector. Such groups as single parents, unattached individuals, self-employed, and individuals with modest wealth may be particularly sensitive to income instability, increasing interest rates and changes in the housing market. The gradual but steady switch from defined-benefit to defined-contribution pension plans shifts the burden of responsibility for accumulating sufficient retirement funds to households. However, this is not accompanied by an increase in either passive or active household savings.household debt, household finances, savings, wealth, household spending, income shock, assets price shock

Is Cutting the GST the Best Approach?

The government of Canada has reduced the Goods and Services Tax (GST) rate by 2-percentage points over the past several years. This tax measure seems to be welcomed by the public and some public policy observers; however, it is also associated with certain economic and social costs. This paper aims to assess the rightness of the GST reduction. To that end, the paper summarizes research findings regarding economic costs and levels of distortion associated with alternate tax measures. The paper also contrasts Canada’s reliance on consumption taxes with general trends prevailing in other industrialized countries. The analysis shows that taxing consumption is one of the most economically effective methods of generating government revenues, whereas the reduction of consumption taxes yields the least optimal economic pay-off compared to other tax measures. The growing importance of value-added taxation is the clearest tax policy trend in the OECD countries, whereas reducing the GST rate will further diminish the importance of consumption taxes in Canada with no noticeable dollar value savings for households.consumption taxes, GST, Goods and Services Tax, composition of government revenue