The Regressive Conservatives
'Regressive’ TFSA plan would cost Ottawa billions
Parliamentary Budget Officer Jean-Denis Fréchette says the Conservative government’s plan to double the contribution limit for tax-free savings accounts would cost Ottawa and the provinces billions in revenue.
In a new report released Tuesday, the PBO notes that if the current annual limit of $5,500 is doubled to $11,000, Ottawa would lose $14.7-billion a year in federal revenue by 2060 and the provinces would lose $7.6-billion a year.
The PBO also notes that doubling the contribution rate would primarily benefit well-off Canadians, making the tax break “much more regressive.”
“By 2060, gains for high wealth households project to be twice the median and ten times that of low-wealth households,” the report states.
The PBO report comes on the same day as a similar report from Simon Fraser University Professor Rhys Kesselman, who also noted that while the program’s cost in terms of lost revenue is relatively small for now, it will grow significantly over time.
“Like a little baby who looks cuddly and cute, this proposed initiative would grow up to be the hulking teenager who eats everyone out of house and home,” Dr. Kesselman’s report for the SFU School of Public Policy states.
A TFSA allows Canadians to earn interest and investment income tax free, and money can be withdrawn without a penalty. Unlike a registered retirement savings plan – which defers tax on contributions until they are withdrawn – contributions to a TFSA have already been taxed.
Doubling the annual TFSA contribution limit and launching an adult fitness tax credit are the two remaining tax cut promises from the 2011 Conservative election platform that have not been implemented.
The TFSA was launched in 2009 and the contribution limit was $5,000 when the promise to double it was made. It is not clear what the new limit would be or even if the Conservatives will act on the promise.
Finance Minister Joe Oliver’s office released a statement Tuesday that did not indicate whether the government is planning to deliver on its doubling promise.
The statement listed quotes from several organizations praising the existing TFSA, including the Canadian Bankers Association and University of Calgary School of Public Policy director Jack Mintz.
However those comments are in reference to the existing program and not the proposed doubling. Neither the PBO report nor Dr. Kesselman’s report are particularly critical of the existing program.
Both reports argue that because unused room can be carried forward, it is primarily high-income earners who can afford to contribute the existing maximum each year. Both reports argue that it would largely be the most well-off who could benefit from a new maximum annual contribution of $11,000.
Another key policy consideration raised in both reports is the impact on federal and provincial programs that are income tested, such as Old Age Security, the Guaranteed Income Supplement and provincial programs like disability or drug benefits.
Income from a TFSA is not counted as income for the purposes of qualifying, meaning more people will qualify for the programs – or for more generous benefits – than they would have otherwise.
Provincial revenue would also be affected because many provinces have harmonized their definition of taxable income with Ottawa.
Dr. Kesselman’s report says this imposes a significant change on provincial finances without their input.
“The creation of TFSAs and their prospective doubling exert drains on provincial revenues that the individual provinces have not consciously chosen,” the SFU paper states. “They also reduce the progressivity of provincial income taxes in ways that the provinces have not chosen.”
The PBO report notes that because the TFSA is listed as a “tax expenditure,” rather than direct program spending or a transfer program, it will not receive regular parliamentary scrutiny.
“Thus, the TFSA program projects to undergo tenfold growth under existing program rules without planned parliamentary review or approval over tax expenditure amounts or an assessment of progress toward the program’s policy objectives,” the report states.
Tories’ ‘regressive’ TFSA plan would cost Ottawa billions, watchdog says - The Globe and Mail
'Regressive’ TFSA plan would cost Ottawa billions
Parliamentary Budget Officer Jean-Denis Fréchette says the Conservative government’s plan to double the contribution limit for tax-free savings accounts would cost Ottawa and the provinces billions in revenue.
In a new report released Tuesday, the PBO notes that if the current annual limit of $5,500 is doubled to $11,000, Ottawa would lose $14.7-billion a year in federal revenue by 2060 and the provinces would lose $7.6-billion a year.
The PBO also notes that doubling the contribution rate would primarily benefit well-off Canadians, making the tax break “much more regressive.”
“By 2060, gains for high wealth households project to be twice the median and ten times that of low-wealth households,” the report states.
The PBO report comes on the same day as a similar report from Simon Fraser University Professor Rhys Kesselman, who also noted that while the program’s cost in terms of lost revenue is relatively small for now, it will grow significantly over time.
“Like a little baby who looks cuddly and cute, this proposed initiative would grow up to be the hulking teenager who eats everyone out of house and home,” Dr. Kesselman’s report for the SFU School of Public Policy states.
A TFSA allows Canadians to earn interest and investment income tax free, and money can be withdrawn without a penalty. Unlike a registered retirement savings plan – which defers tax on contributions until they are withdrawn – contributions to a TFSA have already been taxed.
Doubling the annual TFSA contribution limit and launching an adult fitness tax credit are the two remaining tax cut promises from the 2011 Conservative election platform that have not been implemented.
The TFSA was launched in 2009 and the contribution limit was $5,000 when the promise to double it was made. It is not clear what the new limit would be or even if the Conservatives will act on the promise.
Finance Minister Joe Oliver’s office released a statement Tuesday that did not indicate whether the government is planning to deliver on its doubling promise.
The statement listed quotes from several organizations praising the existing TFSA, including the Canadian Bankers Association and University of Calgary School of Public Policy director Jack Mintz.
However those comments are in reference to the existing program and not the proposed doubling. Neither the PBO report nor Dr. Kesselman’s report are particularly critical of the existing program.
Both reports argue that because unused room can be carried forward, it is primarily high-income earners who can afford to contribute the existing maximum each year. Both reports argue that it would largely be the most well-off who could benefit from a new maximum annual contribution of $11,000.
Another key policy consideration raised in both reports is the impact on federal and provincial programs that are income tested, such as Old Age Security, the Guaranteed Income Supplement and provincial programs like disability or drug benefits.
Income from a TFSA is not counted as income for the purposes of qualifying, meaning more people will qualify for the programs – or for more generous benefits – than they would have otherwise.
Provincial revenue would also be affected because many provinces have harmonized their definition of taxable income with Ottawa.
Dr. Kesselman’s report says this imposes a significant change on provincial finances without their input.
“The creation of TFSAs and their prospective doubling exert drains on provincial revenues that the individual provinces have not consciously chosen,” the SFU paper states. “They also reduce the progressivity of provincial income taxes in ways that the provinces have not chosen.”
The PBO report notes that because the TFSA is listed as a “tax expenditure,” rather than direct program spending or a transfer program, it will not receive regular parliamentary scrutiny.
“Thus, the TFSA program projects to undergo tenfold growth under existing program rules without planned parliamentary review or approval over tax expenditure amounts or an assessment of progress toward the program’s policy objectives,” the report states.
Tories’ ‘regressive’ TFSA plan would cost Ottawa billions, watchdog says - The Globe and Mail
