Tax Free Savings: Who Pays the Price?

And you thought Tory finance gurus couldn’t come up with a more bone-headed idea than income splitting.

Today, both Canada’s Parliamentary Budget Office and the Broadbent Institute released detailed reports about the financial “ticking time bomb” to double the contribution limits on an already expensive tax free savings account scheme.

Their assessment was blunt.

“There is absolutely no case – on either economic or equity grounds – for the doubling of TFSA contribution limits. The great majority of Canadians would enjoy no significant benefits. In fact, they would bear the burdens of an expanded TFSA by enduring reduced public services or bearing the increased taxes needed to offset the lost revenues, says Rhys Kesselman, the author of the Broadbent report.

The MIT-educated economist knows this topic well. He did the research on study which the Conservatives based their TFSA plans in 2009.

Kesselman’s concerns are echoed by Canada’s Parliamentary Budget Officer who called the plan “regressive.” “Benefits skew to higher income, higher wealth and older households,” says Jean-Denis Frechette in his report. His comments were based on data that show low-income households’ benefits are less than half and often less than 25 per cent of the median range.

“This is breathtakingly bad fiscal stewardship,” says Dennis Howlett, executive director of Canadians for Tax Fairness. “These decisions should be made on sound financial data. Instead we are seeing the Prime Minister and the Minister of Finance playing politics with our money.

Howlett points out that these decisions will also affect already strapped provincial budgets. In fact, provinces will take a $430 million revenue shortfall this year. That number will increase exponentially in coming decades.

How much money do you have in a TFSA? Only 16 per cent of Canadians under the age of 60 max out their $5,500 contribution. So you have to ask – who is this designed to serve?