CANADA AT YPRES
Increasing Tax Free Savings Account doesn’t deserve wrath from opposition
In Flanders Fields
So, it has come to this: The Tax-Free Savings Account, the most versatile and effective savings vehicle this country has ever seen, is now the preferred whipping boy of class-baiting opposition members of Parliament who have little or nothing to offer in its place.
It has become increasingly clear that those members, sprinkled on the Liberal and New Democrat opposition benches, have no idea how to come at the problem of Canadian under-saving. Rather than inspire us with their own plan, one that could and should use the TFSA as the strong foundation of a lifelong savings strategy for citizens, they’ve chosen instead to paint the Conservatives’ proposed contribution limit hike as a dastardly tool of their preferred boogie man, the “wealthy person” archetype.
If they continue down that path, it will count as a huge missed opportunity. There are many ways either party could have committed to maintaining the $10,000 annual contribution limit on accounts that have been embraced by 11 million Canadians while still containing some of the downside for government revenues:
Call for the implementation of a generous, lifetime cap. Call for a modest Old Age Security clawback in some cases. Commit to paying for the TFSA boost by spiking the Tories’ income-splitting proposal, which is far too expensive for what it accomplishes. Or, if they wanted to keep things really simple, lower RRSP contribution limits to counterbalance the TFSA hike.
It’s odd that RRSPs have escaped the kind of smear campaign levelled against TFSAs, considering the maximum contribution limit last year was $24,270. Ideally, both programs would be maintained as-is, but if something has to be dialled back a bit, it should be the retirement plan.
Unfortunately, committing to a TFSA hike would also mean having to admit the accounts are excellent policy ( buried as they might be in the Tories’ goofy collection of other tax-cut baubles). Instead, both opposition parties immediately committed to rolling back the increase as a way to stick it to the evil rich. Said NDP leader and former lawyer Thomas Mulcair, whose salary comes in well above $200,000 per year: an enhanced TFSA is “great if you’re having trouble making your payments on your second BMW, but it does nothing for the middle class that is actually earning less than today than it was 30 years ago.”
Wealth, in the eyes of Mulcair’s NDP, is apparently yucky, to be achieved only by the most heartless Canadians (never mind that a BMW costs little more than a Honda Odyssey or Toyota Sienna — second vehicles many parents would presumably use to ferry their kids to the NDP leader’s heavily subsidized, ultimately unsustainable daycares at significant expense to every other tax-paying Canadian).
The problem with Mulcair’s narrative, however, is that it completely misrepresents what TFSAs are about, who uses them, and how much of an advantage they provide to the “rich.”
Whereas RRSPs are meant to serve as a retirement saving vehicle, TFSAs offer everyday Canadians an efficient way to save not only for retirement, but also for a home, a car, a university education, an emergency situation, or simply boost their salaries a bit with some investment income. As the government’s budget document pointed out, 80 per cent of those who’ve opened TFSAs have incomes under $80,000 per year, and those individuals owned 75 per cent of all assets held in the accounts. Furthermore, 60 per cent of individuals contributing the maximum amount had incomes of less than $60,000, so clearly there’s some room to grow.
The fact is, the new limit amounts to about 20 per cent of the average Canadian’s salary — not an outlandish or extravagant sum. Most financial advisors recommend saving 10 per cent of gross income, but note that 20 per cent should be the target in order to ensure a really comfortable, even affluent retirement. And that’s what government should be encouraging Canadians to pursue.
What no politician would ever dare say, but which is true in many cases, is that if the average Canadian can’t manage to set aside 20 per cent of his or her income, then the average Canadian has chosen other priorities for his or her life, whether it be having four kids instead of two, buying a bigger home, eating at restaurants four times a week, getting a boat or a cottage, paying for 500 gigs of data and 500 channels when 200 of each will do, taking expensive family vacations, drinking $6 coffees every morning, or paying too much interest to finance those life choices. That they’ve made those choices is no reason to shackle others who’ve made saving and investing a priority. That’s not meant to suggest, of course, that the plight of the poverty-stricken in this country is insignificant or should be dismissed — it’s just a different matter altogether.
While Mulcair’s BMW quip played into the worst stereotypes about the NDP, it wasn’t altogether unexpected. Liberal leader Justin Trudeau’s response was puzzling, however. While incomesplitting may have been an effective wedge, given how few people it will benefit and how expensive it is to implement, it makes little sense to attack the hugely popular TFSA.
And all this because some are worried about what might happen 65 years from now. That’s when, according to the Parliamentary Budget Office, the program will cost something like 0.57 per cent of GDP.
Everyone cried in mock horror this week when Finance Minister Joe Oliver suggested that was an issue for Stephen Harper’s granddaughter to worry about, but, for all intents and purposes, he was right (even if his delivery was clumsy). Predictions about what will happen six decades from now are likely to turn out like those describing underwater cities, the quick death of the “fad” known as horseless motorcars, or the fact there was no way in hell the Ottawa Senators were making the playoffs this season after the start they had (that last one was mine). The only predictions I’m sort of comfortable making on that timeline is that most of us will be dead by then (and even then, who knows what medical science will come up with?), and our descendants will still be paying taxes.
How much tax they’ll pay on savings could well be determined by their grandparents’ choices now. So far, there’s only one good option on offer.
It’s odd that RRSPs have escaped the kind of smear campaign levelled against TFSAs.