Budget 1998
Canadian Opportunities Strategy - 4
- Table of Contents - Previous -

Archived - The Strategy

Encouraging Families to Save for Education

The best way to help ensure a child's future is to save for their education today. As part of the Canadian Opportunities Strategy, the government is introducing the Canada Education Savings Grant to make registered education savings plans (RESPs) even more attractive. The government will invest alongside parents who save for their children's education.

RESPs are education savings plans that grow tax free until the child is ready to go on to college or university full time. When the student begins to use the RESP for education, the income becomes taxable. However, because the student typically has little other income, he or she effectively pays little or no tax on RESP income.

The previous two budgets included measures to make RESPs more attractive by raising the annual contribution limit from $1,500 to $4,000 per child and the lifetime limit from $31,500 to $42,000. RESPs were also made more flexible by allowing contributors to transfer RESP income into their RRSPs if they have contribution room.

Virtually all full-time post-secondary education is eligible for assistance through RESPs.

This budget proposes significant additional assistance to encourage families to save for their children's education.

Canada Education Savings Grant

The introduction of the Canada Education Savings Grant will make RESPs among the most attractive savings vehicles available for a child's education. The government believes RESPs will soon come to be considered as essential in saving for education as RRSPs are in saving for retirement.

With the new Canada Education Savings Grant, RESPs represent one of the best things parents can do for their children, uncles and aunts can do for their nephews and nieces, and grandparents can do for their grandchildren.

The Challenge

• To encourage families to save early for their children's education.

The Action

• Beginning January 1, 1998 the government will provide a Canada Education Savings Grant of 20 per cent on the first $2,000 of annual contributions made to RESPs for children up to age 18. The maximum grant will be $400 per child per year.
• A family that has been unable to make contributions for one or more years may catch up in later years on missed contributions. In this case, the Canada Education Savings Grant will be paid on contributions up to $4,000 per year.
• The government will provide the Canada Education Savings Grant directly to the plan trustee chosen by the contributor, to be invested in the contributor's same plan. The grant itself is not included in calculating the annual and lifetime RESP contribution limits.
• The Canada Education Savings Grant and the investment income it generates will be paid to the student while he or she is enrolled in eligible full-time post-secondary education or training programs.
• If the child does not pursue education or training, the grant returns to the government. As is currently the case, investment income can be transferred to the contributor's RRSP under certain conditions.
• Contributions for children age 16 and 17 will receive a grant only if there have been regular contributions for those children for at least four years in the past, or if total previous contributions for the children have reached $4,000.

Who Benefits?

• If a family contributes $25 to an RESP every two weeks for their child's education -- a total of $650 a year -- their RESP receives a Canada Education Savings Grant of $130 (20 per cent of their total contributions).
• If the family contributes this amount every year over 15 years (assuming a 5-per-cent rate of return on their investment), their child would have $4,700 for each of four years of higher education. Of that amount, almost $800 a year would be the direct result of the Canada Education Savings Grant.

• In the same example, if a family saves outside an RESP -- assuming the interest is taxable -- their child would have only $3,300 for each of four years of higher education.

Benefits of investing in RESPs with the Canada Education Savings Grant

The chart below highlights the benefits of contributing to RESPs for children. A family saving $25 every two weeks in an RESP over a 15-year period will accumulate an education fund worth $18,790, assuming a market rate of return of 5 per cent.

Without the Canada Education Savings Grant, the fund would be worth about $3,100 less. Saving this amount outside an RESP, if income is taxable, could generate a fund that is $5,400 smaller ($13,304). With the Canada Education Savings Grant, saving inside an RESP can yield an education fund worth 40 per cent more than saving outside an RESP.

---

The Strategy

Supporting Youth Employment

Although the majority of Canada's youth are well equipped to participate in the economy, unemployment among young people remains significantly higher than for other Canadians. Those who lack a high school diploma are having the most difficulty in finding and keeping jobs. Without practical skills, they risk being left behind in today's economy.

In 1995, over 15 per cent of young Canadians between the ages of 22 and 24 had not finished high school.

To help address this problem, the government launched a Youth Employment Strategy last February. The federal government has increased its funding for youth employment programs to $380 million in 1998-99 from $353 million in 1997-98. As part of the strategy, over two years, more than 120,000 summer career placements and over 50,000 internships are being created.

Youth Service Canada helps over 5,000 unemployed youth through community-based projects that provide work experience. Youth Internship Canada helps youth get ‘a foot in the door' with employers in growing industries.

Governments cannot solve the youth unemployment problem alone. The private sector must also give young people a chance. The government is introducing measures to support the private and voluntary sectors in what must become a nation-wide effort to deal head on with the problem of youth unemployment.

Employment Insurance Premium Holiday for Youth Employment

The Challenge

• To provide an additional incentive for employers to hire young Canadians.

The Action

• The budget proposes to give employers an employment insurance (EI) premium holiday for additional young Canadians hired in 1999 and 2000.
• With this measure, employers will pay no EI premiums for new jobs created for youth between the ages of 18 and 24.
• All firms will be eligible.

Who Benefits?

• The measure will reduce payroll costs for employers by about $100 million in 1999 and 2000.
• Youth between the ages of 18 and 24 will have more employment opportunities.

Youth at Risk

The Challenge

• The challenge of finding a job is toughest for those who have dropped out of school. For these young people, the need for skills is great, and on-the-job training is often the best way to develop them.

The Action

• Funding for youth at risk, especially through Youth Service Canada, will be more than doubled by investing a further $50 million in 1998-99, $75 million in 1999-2000, and $100 million a year thereafter.
• Wage subsidies of up to $10,000 will give young Canadians work experience in the private and voluntary sectors to prepare them for long-term employment and self-support.
• Young people will also receive career counselling, mentoring and, when required, literacy upgrading.

Who Benefits?

• The program will help unemployed young people prepare for today's labour market.
• Follow-up surveys have shown that one year after completing their Youth Service Canada work experience, about 85 per cent of participants either found employment -- mostly permanent, full-time jobs -- or returned to school.

---

The Strategy

Connecting Canadians to Information and Knowledge

Over the past five years, the government has actively encouraged Canadian schools, libraries and rural communities to join the information society. Access to networks, such as the Internet, provides new opportunities for Canadians to acquire knowledge and to participate in lifelong learning.

Industry Canada's SchoolNet program brings the Internet to students as a vital learning tool. As part of this, the Computers for Schools Program refurbishes surplus computers donated by governments and businesses for use in the classroom.

The Community Access Program is already establishing Internet access sites at 5,000 schools, libraries and community centres in rural and remote areas across Canada.

Expanding SchoolNet and the Community Access Program

The Challenge

• Canadians need to make the best use of the opportunities created by information technology and networks.

The Action

• The budget will provide an additional $205 million over three years to expand and extend SchoolNet and the Community Access Program. Through these programs, the federal government will work with provinces and the private sector to put computers in more classrooms and to create 5,000 Internet access sites in urban neighbourhoods, in addition to the 5,000 sites already being put in place in rural Canada.
• These funds will also establish Voluntary Sector Network Supports -- a program to enhance the capacity of voluntary organizations -- by providing access to computer equipment, the Internet, new information technologies, network supports and training.
• The government will provide $55 million this year to the Canadian Network for the Advancement of Research, Industry and Education (CANARIE) to support the development of high speed networks.

Who Benefits?

• Canadian children will have greater access to the learning opportunities provided by today's information technology.
• Through 10,000 network access sites, Canadians will have new opportunities for lifelong learning.

What the Strategy Means to Canadians

The Canadian Opportunities Strategy provides the tools that will help Canadians acquire the knowledge and skills that will prepare them for jobs and that will deliver a higher standard of living in the 21st century.

• For children, it means bringing them in touch with the information age through SchoolNet.
• For post-secondary students, particularly those from low- and middle-income families, it means access and opportunity through scholarships, study grants and tax relief.
• For graduate students and researchers, it means increased support through the granting councils.
• For individuals coping with student loan debt, it means tax relief on interest payments and additional loan relief for those in financial difficulty.
• For youth facing difficulty in finding a job, it means work experience, supported by wage subsidies and services, as well as an EI premium holiday to employers to hire more young Canadians.
• For adults seeking to renew their labour market skills -- whether through university, community colleges or vocational and technical institutes -- it means the opportunity to draw on their RRSPs through tax-free withdrawals, and to benefit from tax relief for part-time study.
• For parents and grandparents, it means a Canada Education Savings Grant that will make RESPs the best way to save for a child's future education.
• For communities and schools across Canada, it means connecting them to the knowledge society by expanding access to the Internet.

Acting on Shared Goals

The National Roundtable on Student Financial Assistance, whose members represent students, universities and colleges as well as faculty and student financial aid administrators, made a number of recommendations to the government in November, 1997.

The Canadian Opportunities Strategy addresses almost all these recommendations. The following chart compares the recommendations of the National Roundtable with the Canadian Opportunities Strategy.

National Roundtable on Student Financial Assistance Association of Universities and Colleges of Canada Association of Canadian Community Colleges Canadian Alliance of Student Associations Canadian Association of Student Financial Aid Administrators Canadian Association of University Teachers Canadian Federation of Students Canadian Graduate Council
National Roundtable on Student Financial Assistance Recommendation	The Canadian Opportunities Strategy
Introduce a system of grants for high need students or focus the Millennium Fund on needs of low- and moderate-income students.	Canada Millennium Scholarships for over 100,000 low- and middle-income Canadians averaging $3,000 a year -- see page 20.
Implement special grants for needy students with dependants.	Canada Study Grants of up to $3,000 a year for needy students with children or other dependants -- see page 22.
Allow people with student loans the option of suspending principal payments, provide some borrowers with reformed and graduated interest relief during a 3- to 5-year transition period.	Improvements to the Canada Student Loans Program that raise the basic thresholds for interest relief and provide graduated interest relief further up the income scale, supporting 100,000 additional individuals -- see page 26.
Provide for borrowers who demonstrate significant difficulties in repaying their debt after the transition period with some form of debt reduction, taking into account both the individual's ability to pay and the level of debt.	For graduates in serious financial difficulty, the loan amortization period is extended in order to lower monthly payments and, if required, debt is reduced based on the person's income and debt load -- see page 28.
Make student loan payments tax deductible or convert interest paid into a tax credit.	Tax relief for interest on student loans -- see page 26.
Allow individuals to withdraw RRSP funds without a tax penalty for their own education.	Tax-free withdrawals from RRSPs for lifelong learning -- see page 30.
Make contributions to RESPs tax deductible.	A new Canada Education Savings Grant of 20 per cent on the first $2,000 of annual contributions to an RESP -- see page 34.
Introduce a work-study program to allow students to earn while they learn.	Increases assistance for advanced research and graduate students through increased funding for the three granting councils -- see page 23. Extends education tax credit and child care expense deduction to part-time students -- see pages 31, 32. Supports youth employment by more than doubling funding for youth at risk and by providing employers with an EI premium holiday for additional young Canadians hired in 1999 and 2000 -- see pages 39, 38. Increases funding for SchoolNet, Community Access Program and CANARIE to bring information technology into more schools and communities -- see page 40.

Copies of this booklet and other information regarding the Canadian Opportunities Strategy will be available at post-secondary institutions across Canada.

Copies of this brochure and other budget papers can also be obtained from:

Distribution Centre
Department of Finance
300 Laurier Ave. West
Ottawa, Ontario
K1A 0G5

Tel.: (613) 995-2855
Fax: (613) 996-0518

- Table of Contents - Previous -