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A fairer way to lift student debt

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Tax-filing season is coming to a close. At a personal level, it's a close-up look at the web of taxes and credits that are relevant to me and my family. More broadly, it's good time to reflect on tax policies, their purposes and their fairness.

The cost of higher education is getting heavy scrutiny. At first blush, tuition tax credits and education savings plans are solutions to relieving the burden of expenses, but they can also be inequitable.

I have benefited from the Manitoba tuition-fee income tax rebate since graduating from university in 2007. For recent graduates in Manitoba who plan to stay here, the benefits are rich. If you earn enough to pay Manitoba tax, you can get a rebate of up to $25,000 spread over several years.

These benefits, however, should be questioned.

First, if the rebate is designed as an incentive to keep graduates in the province, the money is not being well-spent. Who decides where they are going to live based on a future tax credit? Jobs, families, friends -- these are the reasons people live where they do.

Second, the rebate is not truly progressive. The chief beneficiaries are graduates with good salaries who hit the gates running and maximize their rebate. The rebate pays no attention to household or individual income levels. In effect, those most able to pay back their debts in a timely manner are given the quickest leg up.

Finally, the rebate does not take into account individual circumstances from a student's time in school. Many factors could mean the difference between a person graduating with high or low debt. The rebate simply calculates the taxpayer's benefit by multiplying eligible tuition fees by 60 per cent. No consideration is given to whether that student received scholarships, bursaries, parental gifts, payouts from an RESP account, etc. No consideration is given to whether the student lived at home or, more likely for rural students, stayed in a student residence.

My tuition was almost entirely paid for through scholarships and bursaries. My outstanding student debt was minimal and paid for a year out of school. Yet, since 2007, even as a well-compensated lawyer and bureaucrat, I have received full tax credits. This is arguably inequitable when compared to stories of students crippled by debt and unable to find high-paid work in their field.

Another tax expenditure, this time at the federal level, provides me with another leg up on building savings for my son: registered education savings plans (RESPs).

The primary beneficiaries of savings-incentive schemes such as RESPs are families with the financial capacity to maximize those savings plans. Not every family can afford, with after-tax dollars, to contribute up to the maximum of $50,000 per child toward those plans. This amounts to over $2,700 per year (per child) if you contribute until your kid is 18. The bonus comes from government top-ups of 20 per cent of your contributions up to a lifetime maximum of $7,200 per child. As well, the savings grow tax-free.

The RESP scheme is a real success, but more equitable approaches should be examined. Currently, the federal government does increase their contribution for lower- and middle-income families. But this only changes the federal contribution to 40 per cent and 30 per cent respectively for the first $500 each year. An extra $100 a year per child is a good start, but can be improved (either by provincial or federal governments) at likely a low cost.

There is a lot of debate today on whether governments are doing enough to address the issue of student debt. But the better question is whether solutions or mitigation strategies are reaching those who need them most or simply entrenching existing wealth inequality.


Winnipegger Andrew Moreau specializes in board governance and regulatory compliance.

Republished from the Winnipeg Free Press print edition April 28, 2014 A9

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