(March 23, 2004) With this year’s federal budget the first one delivered by Ralph Goodale, some nerves were expected from the new finance minister. Few spending initiatives and income tax breaks and a focus on fiscal restraint — especially during an election year — were also expected. No surprises there, according to several financial services industry association heads, who each had their own budget wish lists.

Advocis, the largest professional membership association of financial advisors in Canada, had mixed reviews on the budget. The association had again called on the federal government to increase RRSP contribution limits to $27,000 a year, arguing that the current limits don’t allow Canadians to preserve the same level of income in retirement as they enjoy in their working lives. However, no new contribution limit increases were announced by Goodale.

“We wanted the federal government to encourage Canadians to save more, and we specifically said in our pre-budget submission that we presented to the finance committee in September that we wanted increases in RRSP contribution limits,” Beverly Brooks, vice-president of public affairs for Advocis, told Advisor.ca. “But they didn’t increase those limits and they didn’t decrease taxes, so there were no incentives in this budget for Canadians to increase their savings. I think [increased savings] is really important, especially given the demographics in Canada right now.”

Ottawa addressed RRSP contributions in its last budget by increasing limits to $14,500 for the 2003 tax year as part of a phased-in plan that will see contribution limits capped at $18,000 by 2006.

IFIC’s pre-budget paper expressed its wish to increase RRSP contribution limits, too. “[Current levels] do not begin to put people who are relying on RRSPs for their retirement savings anywhere near the position they would have been in had the limits not been rolled back in the early 1990s and had they been indexed to inflation,” said John Mountain, IFIC’s vice-president of regulation, when he presented IFIC’s paper last September.

On a more positive note, the IDA gave the fiscally prudent approach reflected in the budget two thumbs up, saying it was “pleased this year’s federal budget shows finances remaining on solid ground,” as it would allow future tax cuts.

“Controlling expenditures will allow the government to make future tax cuts needed to promote productivity and competitiveness,” said Joe Oliver, IDA president and CEO, in a press release.

Federal Budget

Oliver told Advisor.ca that he was also pleased that the government chose to re-evaluate the proposed change to interest deductibility on loans made for investment purposes, pushing the deadline for making a submission to the end of August. “The interest deductibility issue would be huge and obviously it’s a considerable relief that they’re not doing anything about that at this point because that would be big,” said Oliver. “The margin debt is around $8 billion in the country now… the deductibility of which would be jeopardized, and that could have an impact on retail investing, so it’s a very big issue. It isn’t in [Tuesday’s budget] and we’re pleased.”

However, Oliver wasn’t quite as happy with budget measures to restrict pension fund participation in the income trust sector. “The proposed limit on pension plan investing in income trusts could constrain future growth,” noted Oliver. “The pension funds haven’t been investing in that area because of the liability question, but that should soon be cleared up. I guess the federal government has wanted to put a cap on pension fund investing for fiscal reasons.”

While advisors can possibly draw a key lesson for their clients from the government’s prudent approach to responsible spending, including its reinstatement of $1 billion prudence reserve to ensure its books stay balanced, there isn’t much else of note in this year’s budget to discuss with the average client, according to Brooks. “There were some incentives related to education [for lower income families], but that was about it. I think in terms of the advisor sitting down with their client tomorrow, there’s really no [critical] information that he would be passing on in terms of the federal budget.”

What do you think about today’s federal budget? Share your thoughts about Goodale’s offering with your peers in the Talvest Town Hall on Advisor.ca.

Filed by Sheila Avari, Advisor’s Edge, sheila.avari@advisor.rogers.com, with files from John Craig, Advisor.ca, john.craig@advisor.rogers.com.


This Advisor.ca special report is sponsored by: