4

Building Canada

for the 21st Century --

The Canadian Opportunities Strategy

Highlights

The budget proposes a comprehensive Canadian Opportunities Strategy to expand access to the knowledge and skills needed for better job opportunities in the 21st century. The Strategy acts on seven fronts to:

▪	provide more than 100,000 students with Canada Millennium Scholarships averaging $3,000 per year and to 25,000 students who are in financial need and have children or other dependants with new Canada Study Grants;

▪	increase assistance for advanced research and for graduate students through increased funding for the three granting councils;

Highlights (cont'd)

▪	help graduates manage their student debt loads by providing tax relief for interest payments on student loans, and improving the Canada Student Loans Program to help individuals facing financial difficulties;

▪	help Canadians upgrade their skills throughout their working lives by allowing tax-free withdrawals of up to $10,000 per year from their registered retirement savings plan for lifelong learning, and by extending the education tax credit and the child care expense deduction to part-time students;

▪	ensure that families can better save for their children's future education by providing stronger incentives through the new Canada Education Savings Grant -- a grant of 20 per cent on the first $2,000 of contributions made each year to registered education savings plans;

▪	support youth employment by more than doubling funding for youth at risk who lack basic education and job skills, and by providing to employers an employment insurance premium holiday for additional young Canadians hired in 1999 and 2000; and

▪	increase funding for SchoolNet, the Community Access Program, and the Canadian Network for the Advancement of Research, Industry and Education (CANARIE) to help bring the benefits of the information age into more classrooms and communities across Canada.

Introduction

The challenge

In the past, Canada's economic prosperity was due, in large part, to our rich natural resource endowment. Now, and in the future, our economic prospects will depend more and more on the skills and strengths of our human resources. Canadians must have the knowledge and skills to participate in the changing economy. A productive and innovative workforce can give Canada the vital edge in competing in the future.

The key to growth and jobs in the years ahead is knowledge and skills. If Canadians are to enjoy prosperity and a high quality of life in the next century, they must be prepared for the jobs of tomorrow. That is why there can be no wiser investment in the future than investments in knowledge and skills. Preparing Canadians for the 21st century is the goal.

For individual Canadians, knowledge and skills offer hope and opportunity: the prospect of better employment, higher earnings and greater job security. The acquisition of knowledge and skills is the greatest equalizer of all.

Many Canadians are concerned about the rising costs of post-secondary education in Canada. Although the lion's share of higher education is financed by governments, tuition fees have more than doubled over the past decade and other costs have risen as well. Incomes have not kept pace. Consequently, many students are now graduating with higher debt loads.

For families with limited income, the increased cost of education and the prospect of taking on large debts represent a barrier to pursuing the acquisition of knowledge and skills.

The aim of the Canadian Opportunities Strategy is to help ensure that all Canadians -- especially those with low and middle incomes -- have an equal opportunity to participate in the changing labour market. This means reducing the financial barriers and other obstacles to acquiring skills and knowledge. By increasing access and opportunity, the Government of Canada is building a stronger economy and a more secure society.

Acting on shared goals

In December 1997, Canada's First Ministers agreed on the importance of lessening students' financial burden. Furthermore, it was agreed that the federal Minister of Finance and Minister of Human Resources Development would accelerate work in concert with provincial and territorial education ministers so that the Minister of Finance could take account of this work in this budget. First Ministers also committed to a youth employment action plan, one objective of which is to maintain and improve access to education and skills for Canada's young people.

Education is a matter of provincial jurisdiction: provinces manage educational institutions, establish education policies and set curricula. They also regulate apprenticeships and set the standards for occupational skills. Nine of the 10 provinces have signed agreements with the federal government to promote labour market development under the Employment Insurance Program.

Both the federal government and provincial governments have long-established roles in enhancing equality of opportunity for Canadians by assisting those who face financial barriers to learning. The federal role goes back to the post-war years when assistance was provided to veterans so that they could go on to post-secondary education -- as so many did -- providing the foundation for much of Canada's economic success in the second half of this century.

Creating opportunities for Canadians

The changes that are taking place in the economy are altering the way Canadians work and the skills they need to find better jobs and ensure a higher standard of living.

In a rapidly changing labour market, the knowledge and skills that Canadians need for employment will evolve through their working lives. Whether through the disappearance of old jobs or through personal choice, many Canadians will want, or need, to learn new skills.

Over the past two decades, job growth has been faster for those with higher skills. For persons with less than high school education, the number of jobs is shrinking rapidly: as a result, their unemployment rate is now much higher than that of persons with a university degree. Moreover, given the relatively weak demand for low-skilled workers, their employment earnings are falling behind those of more educated and skilled workers. The rising importance of knowledge and skills is only partly due to the creation of new "high-skill" jobs in "high-tech" industries. There has also been a steady increase in skill requirements in all sectors of the economy and in most types of jobs -- from machinists to warehouse workers, from farmers to loggers.

Some Canadians think of learning, especially post-secondary education, as something that takes place solely full time in a classroom and that is only for the young. In reality, it can take place almost anywhere and is important for Canadians of all ages.

Canadians learn at universities, but also at community colleges, CEGEPs, and vocational and technical institutions. They learn both full time and part time. Knowledge and skills are important for Canadians, be they nurses, engineers, sheetmetal workers, or data analysts. And this process does not stop at the classroom door. Gaining experience and on-the-job skills are vital ways of learning. For many people, this is the most effective way to acquire practical skills.

A more educated and skilled workforce is better at developing, diffusing and adopting advances in knowledge that are the key to economic growth. Businesses, educational institutions and governments must accommodate a wide range of learners of all ages. And governments must recognize the different ways, and different points of their lives, in which people learn.

Canadians have long recognized the value of learning. Young Canadians are enrolling in higher education at a record rate. Almost a million students are enrolled full time in post-secondary education and a further 430,000 part time. Twenty-five years ago, only 19 per cent of young people were enrolled in public post-secondary educational institutions. Now this has risen to 33 per cent.

Canada ranks first among industrialized countries in enrolment of youth age 18-21. However, among older groups, Canada's ranking is not as high. For those age 22-25, Canada ranks third; for those age 26-29, it ranks sixth.

Forty-six per cent of working-age Canadians have at least some post-secondary education. Canada places third among industrialized countries, behind the United States and the Netherlands, in the proportion of university-educated individuals. This is a notable achievement.

Canada, unfortunately, also has a higher proportion of persons of working age with less than high school education than do the United States and several other major industrial countries. This is especially prevalent among older workers, but it is most worrisome among the young.

In 1995, more than 160,000 young people between the ages of 22 and 24 had not completed high school. These young Canadians face difficult employment prospects and lower lifetime earnings than more educated and skilled youth.

Canadians are coming to recognize that learning is a lifelong pursuit. The number of adults returning to school full time has tripled in the last 20 years, with most of them returning to school for job-related reasons.

Canada needs to do a better job of ensuring that all Canadians have access to learning opportunities. Children from low-income families remain under-represented in universities. According to a 1995 survey, only 22 per cent of first-year university students came from families reporting incomes of less than $30,000, while 36 per cent of the population reported family income of less than $30,000 (Chart 4.1).

Chart 4.1 (See BP4-1E.WMF or .WPG)

Lower-income students, not surprisingly, rely more heavily on government loans than do higher income students. At the same time, lower-income students appear more cautious about taking on large debt loads, as reported by the Maritime Provinces Higher Education Commission.

Student debt levels are increasing. Between 1990 and 1998, for those who borrow, the average debt at graduation after a four-year program will rise from $13,000 to an expected $25,000. For low- and middle-income families, rising costs threaten access to higher education for their children. This clearly calls for further action by governments: to help to ensure that low- and middle-income Canadians are given greater opportunity to prosper in the knowledge society.

The Canadian Opportunities Strategy

This budget responds to the concerns of Canadians -- students now struggling to cope with rising costs, individuals facing growing student debt burdens and uncertain job prospects, adults looking to upgrade their job skills, children seeking to be brought in touch with the information age, youth at risk of being left behind by changing labour markets, and parents knowing the value of higher education and wanting to save for their children's future.

The budget reflects many important recommendations from the House of Commons Standing Committee on Finance, the Standing Committee on Human Resources Development and the Status of Persons with Disabilities, and the Report of the Special Senate Committee on Post-Secondary Education in Canada.

This budget builds on numerous measures taken in the 1996 and 1997 budgets to support Canadians in the acquisition of knowledge and skills (see summary below), especially through the creation of the Canada Foundation for Innovation. The government has invested $800 million in the Foundation to provide financial support to modernize research infrastructure at universities, colleges, research hospitals and other non-profit research institutions.

Actions Taken in the 1996 and 1997 Budgets

▪	Education tax credit amount increased from $80 to $200 a month.

▪	Tuition tax credit extended to include mandatory fees.

▪	Students allowed to carry forward the unused portions of the tuition and education tax credits.

▪	Interest relief extended for graduates experiencing hardship in repaying student loans.

▪	Registered education savings plans enriched and made more flexible.

▪	Funding for the National Literacy Secretariat increased.

▪	Canada Foundation for Innovation created.

▪	Networks of Centres of Excellence renewed.

▪	Funding for SchoolNet increased.

▪	Community Access Program expanded.

▪	Youth Employment Strategy strengthened.

The balance of this chapter describes the strategy proposed to expand access to opportunity as Canada enters the 21st century. The measures are outlined in Table 4.1.

Table 4.1

The Canadian Opportunities Strategy

1997-98 1998-99 1999-00 2000-01 (millions of dollars) Financial assistance to

students Canada Millennium Scholarship Foundation 2500 Canada Study Grants1 100 100 100 Total 2500 100 100 100 Support for advanced

research and graduate

students Granting councils 120 135 150 Helping students manage

debt Tax relief for interest on

student loans

80

130

145 Canada Student Loans Program improvements 50 145 150 Total 130 275 295 Helping Canadians upgrade

their skills Tax-free RRSP withdrawals

for lifelong learning

15

40

45 Tax relief for part-time

students

25

90

90 Total 40 130 135 Encouraging families to

save for education Canada Education Savings Grant 150 200 275 Supporting youth

employment EI premium holiday for

Youth employment

100

100 Youth at risk 50 75 100 Total 50 175 200 Connecting Canadians to

Information and knowledge SchoolNet/Community Access Program/CANARIE2 55 60 70 75 Total measures announced in

the budget

2555

650

1085

1230

1	Initiatives contained in Securing Our Future Together.

2	Includes Voluntary Sector Networks contained in Securing Our Future Together.

Financial assistance for students

Canada Millennium Scholarships

The Prime Minister stated in his September 24, 1997 speech to Parliament that there would be no better way to mark the new millennium than to help Canadians prepare for the knowledge society. To improve access to post-secondary education, he announced that a new arm's-length foundation would be created to provide Millennium Scholarships for thousands of Canadians.

This budget provides further details on the scholarships and the foundation.

The government will provide an initial endowment of $2.5 billion to the Canada Millennium Scholarship Foundation. This constitutes the single largest investment ever made by a federal government to support access to knowledge and skills for all Canadians. It will provide more than 100,000 scholarships annually to Canadians from low- and middle-income families to prepare them for the knowledge-based economy of the 21st century. Awards will be available in 2000.

▪	Scholarships will be awarded to individuals who need help in financing their studies and demonstrate merit.

▪	Scholarships will average $3,000 per year for full-time study; scholarships for part-time study will be provided as well.

▪	The scholarships will be available for up to four academic years of study (32 months) towards undergraduate degrees, diplomas or certificates. Individuals can receive up to $15,000 over the course of their studies. This could reduce the debt load many students would otherwise incur by over half.

▪	The Foundation will have the discretion to adjust the average and cumulative amounts of the scholarships over time.

▪	Awards will help recipients of scholarships to study away from home and particularly outside their province, and support limited terms of study outside Canada.

▪	The scholarships will support a wide range of learning and skills acquisition and will be available to persons of all ages, studying full time or part time, in publicly funded universities, community colleges, CEGEPs and technical institutions.

Legislation will be introduced shortly to create the Canada Millennium Scholarship Foundation as a private independent body to manage the endowment and to award scholarships. The Foundation will be able to draw down this initial endowment over a 10-year period. This should provide about $325 million annually for scholarships. The Foundation will be required to invest the funds prudently. The Foundation will accept donations and bequests from third parties.

The Foundation will be managed by a board of directors made up of private citizens. A student will be among the private citizens on the board. The Council of Ministers of Education, Canada, representing provincial governments as well as the post-secondary education community, will have a role in identifying directors.

The Foundation will decide how best to design and deliver the new Canada Millennium Scholarships within the mandate given to it. In establishing its basic mandate, an advisory group, composed of individuals drawn from the academic community, was consulted, as were student groups.

The federal and provincial governments both play a role in enhancing equality of opportunity for those in financial need. Once established, the Foundation will consult closely with provincial governments and the post-secondary education community on the design and delivery of Canada Millennium Scholarships. The goal will be to award scholarships by the Foundation to individuals in a manner that avoids duplication in any province, to build on existing provincial needs assessment processes to complement existing provincial programs and, most importantly -- to significantly increase access to post-secondary education everywhere in Canada for low- and middle-income students. The legislation creating the Foundation will provide it with the administrative flexibility required to meet these partnership objectives.

In particular, the Foundation will have the authority, subject to mutually agreed needs, merit and mobility criteria, to contract with appropriate provincial authorities for the selection of those recipients in a province to whom the Foundation will award Canada Millennium Scholarships.

In carrying out its mandate, the Foundation will be asked to minimize administrative costs and overhead. The Foundation should be in a position to assess applications and award scholarships beginning in the year 2000.

Canada Study Grants

There are some Canadians whose financial needs and special circumstances cannot be fully met through scholarships and student loans. These include students with dependants, students with disabilities, and those with very limited income.

This recognition has led to the development of grants which provide opportunities for those with special needs.

Currently, the federal government provides $45 million in grants delivered as part of the Canada Student Loans Program to part-time students in financial need, students with disabilities, and women pursuing doctoral studies.

To complement other measures in this budget that improve access and affordability, and in keeping with the government's commitment in Securing Our Future Together, the federal government will introduce grants for students with dependants, effective 1998-99. The new grants will provide up to $3,000 per year to 25,000 needy students with dependants. The cost of this measure will be $100 million annually. This amount includes alternative payments of about $30 million to Quebec and the Northwest Territories, which do not participate in the Canada Student Loans Program, but are entitled to a payment under legislation if they have a measure which has substantially the same effect.

Support for advanced research

and graduate students

Nothing is more critical to determining economic success in the next century than a vigorous, broad-based research and development effort. All of the products, processes and services used today owe their origins to past innovation. Innovation is the cornerstone of job creation -- the more research and development that is done in Canada, the more jobs that will be created for Canadians.

Discoveries from basic research are the wellspring for innovative products, processes and services that fuel the growth of a knowledge-based economy and enrich our quality of life. Highly skilled researchers and workers are needed to make these discoveries and bring them to market at home and abroad.

The government therefore provided $800 million in the 1997 budget to create the Canada Foundation for Innovation. The Foundation will strengthen research infrastructure at universities and colleges, in research hospitals, and not-for-profit research institutions in the areas of health, environment, science and engineering. Funding will begin to flow in 1998.

For the past two decades, the government's contributions to the granting councils -- the Natural Sciences and Engineering Research Council of Canada, the Medical Research Council of Canada and the Social Sciences and Humanities Research Council of Canada -- have funded basic research and supported Canada's youth as they develop the leading-edge skills needed to participate in an increasingly knowledge-based economy. In 1997-98, the combined $766 million budget of the granting councils provided research grants, scholarships and fellowships for graduate and post-graduate students. These councils also administer the Networks of Centres of Excellence, which link talented researchers in the academic, public and private sectors.

As the deficit was brought down, many difficult choices were made. One of those was a reduction in funding for the granting councils. The improved fiscal situation means that the government can make some key investments in areas of prime importance to the knowledge-based economy.

▪	Effective 1998-99, the budgets of the granting councils will be restored to their 1994-95 levels. These budgets will grow further in the next two years. Indeed, by the end of 2000-01, these budgets will be at their highest level ever.

▪	Accordingly, this budget will make available increased funding of more than $400 million over the next three years to the granting councils -- $120 million in 1998-99, $135 million in 1999-2000 and $150 million in 2000-01.

▪	In addition to these increases, the total funding provided through the granting councils will increase further, over the next three years, as a result of the 1997 budget decision to renew the Networks of Centres of Excellence.

These new research and development resources will focus on two key areas:

▪	increased support to graduate students engaged in research, through scholarships, post-doctoral fellowships and project grants; and

▪	enhanced partnerships between universities and industry.

Table 4.2

Granting Council Funding

1994-95 1997-98 1998-99 1999-00 2000-01 (millions of dollars) Natural Sciences

and Engineering

Research Council

(NSERC) Increase

announced in

1998 budget

71

78

85 NSERC funding

level

493

434

494

495

501 Medical Research

Council (MRC) Increase

announced in

1998 budget

40

44

50 MRC funding

level

265

238

267

270

276 Social Sciences

and Humanities

Research Council

(SSHRC) Increase

announced in

1998 budget

9

13

15

SSHRC funding

level

101

94

101

101

103 Total granting councils Increase

announced in

1998 budget

120

135

150 Unallocated

Networks Of Centres of

Excellence

Funding

11

21

23 Total funding level

859

766

873

887

903

This funding will create new opportunities for Canada's youth to develop into highly skilled workers and to become the next generation of instructors. More researchers will be encouraged to develop their careers in Canada. It will also increase the commercialization of university research and assist more young Canadians to make the transition from the academic world to industry.

Helping manage student debt

The Canada Student Loans Program plays an important role in expanding access to post-secondary education. The program provides financial assistance to students to supplement their own and their families' savings and earnings. Since its inception in 1964, the program has provided more than $15 billion in loans to needy students to pursue a post-secondary education.

In 1997-98, more than 380,000 students (or about 30 per cent of students enrolled in universities, community colleges, and vocational and technical institutes) are supported by the Canada Student Loans Program at a cost of $530 million, plus $120 million in alternative payments to Quebec and the Northwest Territories, which do not participate in the program.

As the costs of education have increased, so too have student debt loads.

A large majority of individuals -- about 80 per cent -- have repaid their student loans in full. Rising student debt loads are, however, becoming a serious problem for some individuals facing difficulty in finding employment or in financial difficulty for other reasons.

For a typical person following a four-year program, debt loads which were $13,000 at the start of the decade are expected to increase to more than $25,000 in 1998. On average, about $15,000 of this is Canada Student Loans, and the remaining $10,000 is provincial loans.

In 1990, fewer than 8 per cent of graduates had debts exceeding $15,000. Now, more than 40 per cent of graduates have student debt in excess of $15,000.

For most graduates, higher education leads to employment and higher earnings. But others are less fortunate.

In November 1997, the Minister of Human Resources Development held a meeting with provinces, lenders, student groups, post-secondary educational institutions, and other organizations with an interest in student financial assistance. Following this, the National Roundtable -- a coalition of post-secondary education groups representing students, institutions of higher learning, and student financial aid administrators -- submitted several proposals to augment student assistance.

This budget proposes measures which will help all in repaying their student loans, as well as special measures to assist individuals in serious financial difficulty.

Tax relief for interest on student loans

This budget proposes to allow individuals repaying student loans to claim a tax credit on the interest portion of the amount paid. The credit will further recognize for tax purposes the value of investment in higher education, and provide significant assistance to more than one million individuals.

The credit will apply to payments of interest on loans approved under federal or provincial student loan programs.

This measure will be effective for 1998, and is expected to cost about $130 million in 1999-2000.

Example

A graduate is repaying total student loan debt of $25,000. Total payments this year are $3,800, of which $2,125 is interest. The combined federal and provincial value of the tax credit would be about $530 in the first year of payment, and up to $3,200 over the 10 years during which the loan is paid off.

Canada Student Loans Program improvement

Under the Canada Student Loans Program (CSLP), the government pays interest on the loan while a student is in school and all payments are deferred until the completion of studies. For six months after graduation, interest accrues but the graduate is not required to make payments.

After this six-month grace period, the graduate is then responsible for paying off the loan, usually over the next 91/2 years. For those facing financial hardship (determined on the basis of a schedule that compares loan payments to income), the federal government pays all interest costs for up to 30 months over the five years after the student has left school. This 30-month interest relief period was extended from 18 months in the 1997 budget.

The measures in this budget will further help individuals who are encountering difficulty in repaying their student loans. The purpose of the measures is twofold: to help individuals who are encountering temporary difficulties in the transition from school to work and, where the individual's income continues to be low for some time, to bring student debt down to a level where it can be repaid. This assistance will be targeted to those in greatest need, based on their financial circumstances.

Five measures under the CSLP are proposed to help individuals in financial hardship. These measures extend interest relief to more individuals, lengthen the repayment period for those in financial hardship and, finally, reduce the principal on loans to affordable levels for those in severe financial hardship.

Interest relief

▪	First, effective April 1998, changes will be made so a person can earn more and still be eligible for interest relief. This will be done by raising the income threshold used for interest relief by 9 per cent (e.g., for an individual with no children and annual CSLP payments of $2,350, the threshold will increase from $20,460 to $22,300; for an individual with a family of two and annual CSLP loan payments of $2,100, the threshold will increase to $32,880 from $30,170).

▪	Second, beginning in 1999, systems will be put in place to extend interest relief further up the income scale for graduates facing financial hardship. Below the basic income threshold, the government will continue to cover 100 per cent of interest. Above the basic threshold, the government will pay partial interest relief (75 per cent, 50 per cent or 25 per cent of interest), depending on the individual's income, up to a limit where the borrower remains solely responsible for loan payments.

▪	These two interest relief measures will now be available throughout the life of the loan and will assist up to 100,000 additional people. (See interest relief illustration.)

Repayment period

▪	Third, for individuals who have exhausted 30 months of interest relief, lenders will be asked to extend the repayment period of the loan from 10 to 15 years, thereby lowering monthly payments by nearly 25 per cent at current interest rates. This will enable more graduates to repay their loans over an extended period.

Extension of interest relief

▪	Fourth, if after the extension of the repayment period to 15 years, an individual remains in financial hardship, interest relief will be extended from 30 months to up to 54 months during the five years after leaving school.

Example 1: Interest Relief

A graduate with no children has a total loan of $25,000. The federal portion of the loan is $15,000 with annual federal loan payments of $2,350.

Interest relief eligibility: income thresholds

Full interest relief	less than $20,460	less than $22,300

Partial interest relief	none	$22,300 to $28,300

1. Currently, if annual income is $22,000, the individual is not entitled to interest relief because income is above the $20,460 threshold.

2. Starting April 1998, with expanded interest relief, the individual is entitled to full interest relief because income is below the new $22,300 threshold.

3. With graduated interest relief beginning in 1999-00, the individual will receive partial interest relief up to income of $28,300. For example:

▪	If income is $24,000, the government will pay 75 per cent of the interest on the loan.

▪	If income is $26,000, the government will pay 50 per cent of the interest on the loan.

▪	If income is $28,000, the government will pay 25 per cent of the interest on the loan.

(Note: Income thresholds for interest relief vary with the size of the loan and the number of dependants in the individual's family.)

Example 2: Debt Reduction

A graduate has exhausted interest relief and the repayment period has been extended to 15 years.

Five years have passed since graduation and the individual is in financial difficulty with gross annual income of $17,000. The principal on the Canada Student Loan will be reduced from $15,000 to $7,500.

If the income was $22,000, the principal would be reduced by $3,820 to $11,180.

If the individual's income was above $25,970, there would be no principal reduction.

(Note: This assistance will be available five years after graduation.)

Debt reduction

▪	Fifth, for the small minority of individuals who still remain in financial difficulty, the government will reduce the loan principal so that payments are more affordable. To qualify, five years must have passed since the completion of studies, and the individual must have exhausted interest relief. The principal will be reduced if annual payments, on average, exceed 15 per cent of the individual's income. The maximum amount of assistance will be the lesser of 50 per cent of the loan amount, or $10,000.

The extension of the repayment period, extension of interest relief, and debt reduction measures will be effective April 1998. (See debt reduction illustration.)

The total cost of these measures is estimated to be $50 million in 1998-99, rising to $150 million in 2000-01. This amount includes alternative payments of $30 million to be provided to Quebec and the Northwest Territories, which do not participate in the Canada Student Loans Program, but are entitled to a payment under the legislation if they have a measure which has substantially the same effect.

Performance and accountability

The federal government will also take a number of steps to improve the performance and accountability of the Canada Student Loans Program.

▪	Measures will be put in place to deal with the situation of students with a history of severe credit abuse.

▪	Changes to bankruptcy legislation will be proposed so that student loans survive bankruptcy for 10 years following the completion of studies. This reflects the new measures that are being put in place to help graduates in financial hardship.

▪	The criteria for eligibility of educational institutions will be strengthened, in consultation with the provinces.

▪	Steps will be taken to improve communications with student borrowers.

The provinces play an important role in the delivery of the Canada Student Loans Program. They assess students' financial need on behalf of the federal government and they supplement the federal program with their own student assistance programs. The Government of Canada is working with the provinces to achieve agreements on a greater degree of harmonization between the Canada Student Loans Program and provincial student financial assistance programs. Greater harmonization will result in a single loan product for student borrowers in participating provinces.

The Minister of Human Resources Development will continue to consult with his provincial counterparts, students, educational institutions, lenders and other stakeholders on the implementation of these changes.

Helping Canadians upgrade their skills

Tax-free RRSP withdrawals for lifelong learning

Throughout their working lives, Canadians increasingly need to upgrade their skills to retain their jobs, or to obtain new ones. They often have limited access to adequate resources when the need or opportunity for skills upgrading occurs.

For many Canadians, the most readily available source of funds may be their registered retirement savings plan (RRSP). Given the importance of saving for retirement, the current tax treatment of RRSPs discourages premature withdrawals under most circumstances, in order to protect retirement income. However, few circumstances are more crucial to preserving people's retirement income than keeping their job, or finding a new one if they are laid off. Retraining or further education is often a key factor in preserving future employment income and hence retirement income.

To give Canadians greater access to funds for retraining, the budget proposes to allow individuals to make tax-free RRSP withdrawals for lifelong learning, subject to certain conditions. To ensure that the role of RRSPs in providing funds for retirement is not compromised, individuals will have to repay the amount they withdraw over a fixed period of time. In many ways, this program parallels the Home Buyers' Plan.

Under this initiative, individuals can withdraw up to $10,000 per year from an RRSP, provided they are enrolled in full-time training or higher education for at least three months during the year. Disabled students can qualify for this program whether or not they are studying on a full-time basis. More than one withdrawal can be made in any particular year as long as the annual limit is not exceeded. Further withdrawals are permitted for a period up to four years, provided that the total amount withdrawn does not exceed $20,000.

RRSP withdrawals will be repayable to the individual's RRSP in equal instalments over a 10-year period. The first repayment must be made in the year following the last year in which the student was enrolled on a full-time basis, or in the sixth year following the first withdrawal for retraining, whichever comes first. Any amounts not repaid on time will be included in the individual's income in that year for tax purposes. Individuals may choose to repay more than the scheduled amount in any year. If they decide not to proceed with their retraining, they must repay the full amount withdrawn during the same year. As under the Home Buyers' Plan, all repayments are without interest, and cannot be deducted from income.

Individuals may participate in this program on one or more occasions over their lifetime. However, when individuals are in the repayment portion of the program, they are not allowed to make further withdrawals, or begin another cycle, until all repayments under the previous cycle have been completed. Contributions made to an RRSP less than 90 days before a withdrawal are not eligible under the plan.

Example

An individual loses his job in 1999 and decides to take a one-year, full-time computer programming course. To finance his studies, he withdraws $5,000 from his RRSP, tax free. He obtains a new job in 2000. He must repay $500 into his RRSP for each of the 10 years starting in 2001, although he can repay more rapidly at any time.

To permit the necessary administrative arrangements to be made, this measure will be effective on January 1, 1999.

Education credit for part-time study

Tax assistance to help current students is primarily delivered through the tuition and education credits. The education tax credit assists students with regard to non-tuition costs such as books, living expenses, etc. Among other measures, the last two budgets broadened the coverage of the tuition credit to include most ancillary fees, and increased the amount on which the education credit is based from $80 per month to $200 per month. For the typical university student, the education amount is about $1,600 per year, for an annual tax saving of about $400. When the education credit is combined with the tuition credit, the average post-secondary education student will receive roughly $1,200 in combined federal and provincial tax assistance each year.

At present, the tuition credit is generally available to both full- and part-time students, whereas the education credit is restricted to full-time students. In the new economy, however, many students are upgrading their skills on a part-time basis. Therefore, this budget proposes to allow part-time students enrolled in eligible programs to have access to the education credit.

Beginning in 1998, part-time students will be allowed to claim an education amount of $60 for each month during which they were enrolled in a course lasting at least three weeks and involving a minimum of 12 hours of course work each month. An eligible student may claim either one part-time or one full-time credit in respect of a particular month, but not both.

Example

A part-time student enrolled in two eligible courses for eight months during a year could be eligible for an education amount of $480 (i.e. eight months at $60 per month). This would result in an average combined federal-provincial tax saving of about $120. If the student's tuition is $1,200, the tuition and education credits together would be worth about $420 in tax relief.

This measure will provide additional assistance to about 250,000 part-time students.

Child care expense deduction for part-time study

The 1996 budget broadened eligibility for the child care expense deduction (CCED) by allowing single parents in full-time attendance at school to claim the CCED against all types of income. This measure was also applied to two-parent families where both are full-time students. This budget proposes to provide further assistance to part-time students by allowing single parents to claim a deduction in respect of child care expenses for periods during which they are enrolled in part-time course work. In a two-parent family, the higher-income spouse will be allowed to claim expenses arising out of the part-time education of the other spouse.

For two-parent families, the deduction would be equal to the lesser of (1) actual expenses, (2) two-thirds of earned income for the year, and (3) for each month for which a part-time education credit is claimed, $175 per child under age 7, and $100 per child age 7 to 16.

As indicated in Chapter 5, the limits on the child care expense deduction in respect of earned income are also being increased.

Example

As in the previous example, a single parent with two children age 8 and 6, is a part-time student for eight months of the year. She claims an education amount of $480, for a tax saving of $120. In addition, she will now be eligible to also claim all her child care expenses up to $2,200, for an additional tax saving of $550. Together, these measures provide tax savings of $670.

If her tuition is $1,200, she currently gets a tax reduction of $300. Under the current system, that is the total tax relief she receives with respect to her education expenses. With this budget's two new measures for part-time students, the tax assistance for her education will triple to $970.

About 50,000 part-time students with children will benefit from this measure.

Encouraging families to save for education

Canada Education Savings Grant

The previous measures provide increased assistance to today's students. The government is also taking steps to ensure that tomorrow's students will have access to affordable higher education.

The best way of ensuring access to higher learning is to help parents and grandparents to save for children's education. This will mean that more resources will be available to students in the future.

At present, Canadians save for their children's education in a number of ways. One way in which the government assists Canadians in saving for higher education is by supporting registered education savings plans (RESPs). Contributions to RESPs grow tax free.

The two previous budgets included several measures to make registered education savings plans more effective. The annual contribution limits to RESPs were raised from $1,500 to $4,000, and the lifetime contribution limits from $31,500 to $42,000. These changes allow a greater accumulation of savings for higher education, and more flexibility in saving if a family is unable to save for a number of years.

Although the vast majority of RESP beneficiaries do pursue higher education, the 1997 budget addressed the concerns of parents who were unsure if their children would go on to post-secondary education. As a result of the budget, individuals winding up an RESP are now allowed to transfer all or part of their RESP income into their registered retirement savings plan (RRSP), if they have contribution room. Alternatively, individuals without RRSP room, or who do not wish to make RRSP contributions, may receive the investment income directly, subject to an appropriate tax.

This budget proposes significant additional assistance to parents who save for their children's education.

Beginning immediately, 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 beneficiaries up to age 18. This grant, and the investment income accumulating on the grant over time, will be paid to the student when they enrol in eligible full-time post-secondary education or training programs. If the beneficiary does not pursue education or training, the grant will be returned to the government.

Beginning January 1, 1998, each child under 18 will accumulate grant contribution room of $2,000 per year until they are 18. Contributions by parents and other individuals will attract a grant up to the amount of that cumulative room, or $4,000 per year, whichever is less. This will allow a family which has been unable to make contributions for one or more years to catch up in later years for missed contributions.

The government will provide the Canada Education Savings Grant directly to the plan trustee chosen by the parent or other contributor, to be invested in the same plan chosen by the contributor. The grant itself is not included in calculating the annual and lifetime RESP contribution limits.

Chart 4.2 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 return of 5 per cent. Without the grant, the fund would be worth about $3,100 less. Saving this amount outside an RESP, if income is taxable, could generate an education 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 Canada Education Savings Grant will make RESPs among the most attractive savings vehicles available for a child's education. They could become as essential in saving for education as registered retirement savings plans are in saving for retirement.

Chart 4.2 (See BP4-2E.WMF or .WPG)

Example 1 : How the Canada Education Savings Grant (CESG) works

A family with a three-year-old child in 1998 saves $25 every two weeks (about $650 per year) in an RESP. As a result of the grant, the child could have an additional $783 available for each of four years of higher education (assuming a 5-per-cent rate of return on investment). If the family doubled the amount of contributions to the RESP, the value of the CESG would also double.

Total RESP contributions per year	$650

CESG rate	20 per cent

Number of years of contributions	15

Total contributions -- principal	$9,750

Total CESG	$1,950

Total investment income	$7,090

Total value of RESP	$18,790

Total available to student for each of four years:

From contributions	$3,914

From CESG	$783

Total each year	$4,697

Example 2: Illustration of carry-forward

Unused grant room is carried forward for use in future years.

CESG room "earned" each year by a child under 18	$2,000

Contributions for a child in 1998	$650

CESG for 1998	$130

Unused CESG room carried forward to 1999	$1,350

Cumulative CESG room available in 1999	$3,350

Value of potential CESG in 1999	$670

Example 3: Importance of saving early

While the carry-forward allows parents to receive the CESG as they catch up, the effects of compounding make it much more advantageous to begin saving early.

Ages of child when contributions made	3 to 17	10 to 17

Number of years of contributions	15	71/2

Annual contributions to an RESP	$650	$1,300

Total contributions	$9,750	$9,750

Total CESG	$1,950	$1,950

Total investment income	$7,090	$3,540

Total value of RESP	$18,790	$15,240

To discourage activities that do nothing to increase the stock of savings for education, only net new contributions for a beneficiary will receive a grant. Therefore, where contributions to RESPs made before the budget are subsequently withdrawn, contributions for the remainder of the year and for the two subsequent years will not receive the grant. The beneficiary will also lose the grant contribution room that would ordinarily accrue during those years. Contributions for children age 16 and 17 will receive a grant only if there have been RESP contributions for those children for at least four years in the past, or if total previous contributions for the children have reached $4,000.

The grant will apply to eligible contributions to RESPs made after January 1, 1998. The Department of Human Resources Development will administer the grant. The government and the RESP industry will put in place the necessary administrative systems as soon as possible. In the interim, eligible contributions received by RESP trustees will be tracked and when administrative arrangements are complete, grants will be turned over to the plans themselves. Thereafter, the government will transfer grant funds to the plans on a regular and ongoing basis.

The Canada Education Savings Grant, as well as several other measures which form part of the Canada Opportunities Strategy, will increase pressure on the definition of education and training programs eligible for assistance. To ensure the integrity of the system, additional resources will be provided to the Department of Human Resources Development to administer the grant and in particular to improve the process of determining the eligibility of institutions. Revenue Canada will be provided with additional resources to ensure that credits are claimed in respect of bona fide courses of study.

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.

Some young people have difficulty breaking into the job market because they have not acquired the skills required or because they lack work experience.

Of the approximately 400,000 youth who are unemployed today, many will obtain jobs from continued strong economic growth. For others, however, the problem is different. Of particular concern are those who dropped out of high school. They are at risk of being left behind in today's economy.

Governments have a responsibility to help youth acquire the tools to integrate into the labour market.

In February 1997, the government announced details of its Youth Employment Strategy. The strategy helps young Canadians find the critical first job that bridges the gap between school and work.

For 1998-99, the federal government has committed $380 million for youth employment programming, up from $353 million in 1997-98. About 100,000 young Canadians will be assisted in 1998-99.

▪	Youth Service Canada helps more than 5,000 unemployed youth through community-based projects that provide work experience in the local community. This has been successful in improving the employment prospects of unemployed youth lacking job skills.

▪	Youth Internship Canada helps approximately 15,000 young Canadians get a foot in the door with employers in growing industries. An additional 10,000 internships have been created through three new internship streams with government and private employers -- for science and technology; for international business; and for aboriginals on reserves and Inuit in their communities.

▪	Summer career placements have been doubled allowing about 65,000 more students to gain experience and help to finance their education.

The government will also bring forward measures to strengthen networks among Canadians and to increase knowledge and understanding of Canada among Canadians; these measures will include enhanced exchange programs for young Canadians.

Encouraging employers to hire young Canadians

Many private sector employers are ready to help respond to the challenge of youth unemployment and to give young people a chance. The private sector Career Edge initiative, placing young people with a first employer after their education, is one very positive response. Another successful approach which has been taken by the private sector is Careers: The Next Generation, providing on-the-job experience to students at all levels of education. More is needed.

To encourage employers to hire young Canadians, this budget proposes to give employers an employment insurance (EI) premium holiday for additional young Canadians, between the ages of 18 and 24, hired in 1999 and 2000. As with the New Hires Program, in operation in 1997 and 1998, employers will be allowed to stop paying premiums when they reach the 1998 level of payroll, or they can claim a rebate when filing their tax forms. Unlike New Hires, however, there will be no minimum threshold and all firms will be eligible without limitation on size. This measure will start in 1999 when the New Hires Program ends.

This will reduce payroll costs for employers by about $100 million a year in 1999 and 2000.

Youth at risk

For too many young Canadians, traditional classroom education has not worked well. For these youth at risk, alternative approaches, such as programs based on on-the-job learning, offer another chance.

Youth Service Canada (YSC) currently supports youth at risk. Follow-up surveys show that one year after completing their YSC work experience, about 85 per cent of participants either found employment -- mostly in permanent full-time jobs -- or returned to school.

First Ministers have tasked their ministers of labour market development to develop a youth employment action plan. In support of this effort, the Government of Canada intends to build upon the success of Youth Service Canada.

By investing a further $50 million in 1998-99, $75 million in 1999-00, and $100 million a year thereafter, the government will more than double funding for youth at risk. The principal focus will be on assisting youth who have not completed high school.

The expanded programming will help young people prepare for today's labour market. Wage subsidies of up to $10,000 will be provided to give youth work experience in the private and voluntary sectors that will prepare them for long-term employment and self-support.

Along with on-the-job training, youth will be given career counselling, mentoring and, when required, literacy upgrading through partnership with employers' organizations and non-profit groups.

Connecting Canadians to

information and knowledge

The emergence of the information society is changing the way people work and learn, resulting in both opportunities and challenges for Canadians. Access to networks, such as the Internet, provides new opportunities for Canadians to acquire knowledge and to participate in lifelong learning.

Computer skills are becoming one of the basics of learning -- joining reading and writing and arithmetic. Having access to a computer puts the world literally at the fingertips of our students -- and it provides them with a skill that is essential in many jobs.

SchoolNet and the Community Access Program

Over the past five years the government has taken steps to encourage Canadian schools, libraries and rural communities to join the information society through Industry Canada's SchoolNet and the Community Access Program.

SchoolNet brings the Internet to students and into the classroom as a vital learning tool by developing on-line resources and applications. The Computers for Schools component of SchoolNet refurbishes surplus computers donated by governments and businesses and makes these computers available to schools. The Community Access Program is bringing rural Canada on-line by establishing 5,000 Internet access sites in Canada's rural and remote communities to provide access to these learning opportunities.

▪	This budget will make available an additional $205 million over three years, beginning in 1998-99, for SchoolNet and the Community Access Program. These funds will expand and extend the SchoolNet program to enable children to continue to benefit from the learning opportunities made possible by today's information technology. SchoolNet will continue to support Computers for Schools, link First Nations classrooms and communities to the Internet, and support the development of multimedia learning-ware.

▪	These funds will also be used to expand the Community Access Program to a total of 10,000 access sites across Canada by creating an additional 5,000 access sites in urban neighbourhoods. These sites give Canadians the tools to make best use of the learning opportunities that information technology provides.

Through SchoolNet and the Community Access Program, the federal government will continue to work with provinces and the private sector to bring the benefits of the information highway into classrooms, neighbourhoods and communities to help prepare Canadians for the information society of the future.

Canadian Network for the Advancement of Research, Industry and Education (CANARIE)

While the private sector is building Canada's information infrastructure, the federal government has been playing a role through support to the Canadian Network for the Advancement of Research, Industry and Education (CANARIE). A non-profit corporation funded by the private sector, CANARIE has helped to propel Canadian technology to the forefront by supporting research and development into a broad range of new technologies and applications for the information highway. Federal support of $20 million annually for Phase 2 of CANARIE's activities is due to end in March 1999.

▪	In order for CANARIE to begin Phase 3 of its activities and create the next generation of high speed network backbone across Canada, the federal government will provide a one-time contribution of $55 million in this fiscal year. This contribution, together with significant support from CANARIE's private sector partners, will create the test bed required for future research into information technologies and applications. The work that CANARIE has done over the past several years has demonstrated that world-class efforts can attract widespread support from the private sector. CANARIE is expected to move toward a more self-supporting basis through the development of a cost-recovery plan.

Conclusion

The measures announced in this budget will enhance access and opportunity for Canadians throughout their lives:

▪	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 for interest payments on student loans and additional loan relief for those in financial hardship.

▪	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 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.

By fostering a culture of innovation, creativity and lifelong learning, we can build a Canada of equal opportunity. Through the Canadian Opportunities Strategy, the government is helping Canadians increase their opportunities and standard of living as they make their way in the 21st century.