This week the Globe and Mail Report on Business published five economists' thoughts on what today's federal budget could and should do.
I chose to focus on a measure that is virtually guaranteed to be in the budget, because the federal government has promised to do it since the last federal election in April 2011: double the annual contribution limits to the Tax Free Savings Account.
Distributional analysis by tax experts, particularly Kevin Milligan and Rhys Kesselman, shows that the program is most used by higher-income, older Canadians; those who least need the help of fiscal policy.
Fiscal analysis by the Parliamentary Budget Office notes that doubling annual contribution limits to the Tax-Free Savings Account will cost the public purse $14.7-billion federally and $7.6-billion provincially by 2060.
The TFSA has always been a "Contact-C™" policy measure, with the impact of the tax cut getting bigger over time. It's a time-released headache for the public treasury.
Making it a bigger problem, faster raises the question: Who is agitating for higher contribution limits? The only people constrained by the existing limits on TFSA and RRSP contributions have incomes over $150,000 -- roughly 3 per cent of tax filers.
The TFSA may benefit anyone who can save, but evidence shows it further advantages the already most advantaged.
Still, the program also helps lower-income Canadians who are able to save. It shouldn't be scrapped. It should be fixed. That means putting limits on the program.
Today's budget should include:
- A lifetime limit on contributions of $150,000, equal to roughly 25 years of contributions at the current annual maximum of $5,500. (The average annual contribution per TFSA holder has been falling every year since the program began, in 2009. As of the last count in 2012, the average annual amount contributed was $3,500.)
- A lifetime tax-exempt limit of $450,000 on each TFSA holder, allowing for a three-fold gain in value. That ceiling is 46 times higher than the median financial assets of Canadian households in 2012. There is no reason for Canadians with low or no savings to provide tax relief to those lucky enough to have set aside almost half a million in cash alone.
If the government pushes on the accelerator, it should at least make sure this thing also has brakes. If not, we'll end up in the fiscal ditch. Hopefully, that's not the point.
Armine Yalnizyan is Senior Economist at the Canadian Centre for Policy Alternatives. You can follow her on Twitter @ArmineYalnizyan.
Photo: Eric L/flickr
Thank you for reading this story…
More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.
rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.
So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.
And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.