Investors create a budget wish list

Over the years, the Conservative government has thrown investors the occasional bone—the biggest being the introduction of the tax-free savings account in the 2008 budget—but since then it’s done little more than tinker when it comes to helping the plight of Canadian savers. And in the lead-up to the 2013 budget, Ian Russell, president and CEO of the Investment Industry Association of Canada, doesn’t expect the government to suddenly shift course. “They’ve brought down seven budgets so far and they’ve been very careful and cautious in terms of new proposals,” he says. “Everything has been quite modest, so I wouldn’t expect a lot.”

There are always rumours of some grand gesture to investors, such as increasing the TFSA limit to $10,000 (it’s currently $5,500), raising RSP contribution room or lowering capital gains taxes, but with the government still trying to wrestle its deficit under control, Russell says not to expect any measure that threatens its tax haul.

Still, there are some more minor changes investors could at least hope to see. In the 2011 budget, the government introduced the Pooled Registered Pension Plan (PRPP), which was supposed give small-business employees access to a low-cost pension plan. Two years later, and the PRPP hasn’t gotten off the ground. Like many in the industry, Russell doesn’t know when the program will get regulatory approval, but in the meantime he’d like the government to give business owners a tax deduction on EI and CPP for contributions they make to a group RSP. Under the proposed PRPP, owners would get a tax deduction if they match contributions to those types of savings plans, but they don’t get it with a group RSP plan. A deduction would encourage owners to match contributions and therefore boost employee savings.

He’d also like to see the government either reduce capital-gains taxes or offer other incentives to invest in small-cap companies outside the resource sector. This part of the market, typically made up of small technology and biotech companies, often struggles to attract investors because people prefer the safety of owning shares in larger companies. Russell proposes what’s called a rollover plan, which would allow investors to sell existing investments and avoid paying taxes on any gains, so long as the proceeds are reinvested in specific small-cap-heavy sectors. Doing that would help grow smaller industries and, as a result, diversify the market beyond sectors like financial services and resources, which dominate the Canadian stock landscape. Russell has pitched this idea to the government before, and so far nothing has happened.

While the government may not do anything specific for investors, Russell does say that its commitment to lowering business tax rates and creating a more business-friendly climate helps companies grow earnings, which should then, theoretically, boost stock prices.

Ultimately, people shouldn’t get too hopeful for any major budget announcements, at least until the government’s balance sheet improves.