Imagine the Federal Government floating a proposal to cut the pensions of all of its employees by 25%. Federal civil servants, it might say, have defined benefit pension plans which are now very rare in the private sector. Those pensions are mostly indexed to inflation, another feature now as scarce as four leaf clovers outside the halls of government. Why, they might ask, should the hard-working taxpayers of Canada continue to foot the bill for these extravagant benefits?
After the shouting subsides, the answer would be obvious. Because a deal is a deal. Those pensions were offered and accepted in good faith. To change the rules of the game after the fact can only foster distrust of government by its employees, and by others. Quite simply, it would not be fair. We know the government would never dare do this. But what is different about the proposed changes to income tax rules affecting small business owners and professionals?
Most of our clients do not have company pensions. They are typically doctors, lawyers, accountants and small business owners. They have to save for their retirements themselves, which requires discipline, planning and knowledge of the rules. Good investment advice helps too. Many of our clients have worked hard to build up their savings to finance their retirements. They have, quite naturally and entirely legally, structured their affairs so as to pay the least amount of taxes possible. They have paid thousands to put legal and well-thought-out plans into place. The tax laws they follow were not created by them. They were put in place by successive governments, and form an implied bargain with taxpayers: Obey the rules and we will leave you alone.
Building savings to a level that will allow a dignified retirement without a pension plan is hard work. Annual RRSP limits are less generous than the amounts that go into many pension accounts. TFSA limits are so small, and came so late in the life of many of our clients, that they will never really make a difference. After a top marginal tax rate of 53% and after consumption taxes of 13% on what is spent, even well-paid professionals find it hard to save at a meaningful level.
Now the government wants to change the rules and make saving even harder for workers without pensions. Maybe that’s fair. Maybe that’s what the people of Canada voted for when they elected the current government. We don’t think it’s fair or reasonable. We continue to think that a deal is a deal.
September 13, 2017