Two studies warn against increasing TFSA contribution limits

Two studies on tax-free savings accounts sound alarm bells about their long-term fiscal impact if the Conservative government keeps a 2011 campaign promise to allow people to park almost twice as much money in the popular savings vehicles.

OTTAWA — Two studies on tax-free savings accounts sound alarm bells about their long-term fiscal impact if the Conservative government keeps a 2011 campaign promise to allow people to park almost twice as much money in the popular savings vehicles.

The report from the left-leaning Broadbent Institute says a pledge to up the TFSA contribution limit to $10,000 from the current $5,500 would ultimately cost billions in lost tax revenue while primarily lining the pockets of the wealthy.

The majority of Canadians, the report says, would bear the burden of reduced public services or higher taxes to offset the lost revenues.

The study was written by Jonathan Rhys Kesselman, an economist whose research on tax-free savings laid the groundwork for the government’s initial introduction of TFSAs in 2009.

The parliamentary budget office also weighed in Tuesday on TFSAs, calling them regressive.

The PBO report projects the fiscal impact of the TFSA program this year to be $1.3 billion, or 0.06 per cent of GDP. Two-thirds of the cost — or $860 million — is borne by the federal government, the report says. The remaining $430 million is borne by the provinces.

The impact on public finances in the early years is relatively minimal, Mostafa Askari, assistant parliamentary budget officer, told a media briefing on the report. But by 2080, costs will increase ten-fold, reaching 0.57 per cent of GDP.

Tax-free savings accounts primarily benefit the well-to-do, Askari said.

“Certainly the middle-to-higher income groups will benefit the most and the lower to low-middle income groups will benefit the least,” Askari said.

Kesselman’s report also found that those taking advantage of the accounts already earn high incomes, a trend that would be “accentuated and accelerated by a doubling of the contribution limits.”

Finance Minister Joe Oliver defended TFSAs in a statement.

“Today, nearly 11 million Canadians of all ages and income levels have a TFSA, with the vast majority of accounts belonging to low and middle-income earners,” he said.

Oliver’s office didn’t say, however, whether he intends to keep the government’s 2011 promise to raise the contribution limit now that he’s facing a shrinking surplus due to sliding oil prices. Nor would it say if there are plans in place to offset the loss in tax revenue in the future.

TFSAs complement existing retirement savings tools such as RRSPs by allowing investment income to grow tax-free and unused contribution room can be carried forward into future years. Unlike RRSPs, however, the contributions themselves are not tax-deductible.

Because income derived from TFSAs isn’t claimed on tax returns, it isn’t factored in when calculating income supports for the elderly such as Old Age Security or the guaranteed income supplement.

The Broadbent report found that by the time the existing TFSA framework matures in 40 or 50 years, it will cost the federal government as much as $15.5 billion annually.

It also predicts that the accounts will eventually cost the provinces as much as $9 billion annually — a figure sure to grow should contribution limits be doubled.

Economists have long warned that higher TFSA limits would have the greatest impact on public finances years from now, making them attractive election promises since future governments will face the bill.

Kesselman calls the proposal to expand contribution limits a “ticking time bomb.”

Just Posted

Pro-pipelines rally draws crowd to City Hall

Canadian Taxpayers Federation says Canada missing out on billions in revenue

Red Deer Hospice celebrates hitting fundraising halfway mark

Red Deer Hospice Society in middle of $5.2-million expansion

Separate events raised funds for Alzheimer’s and cancer

Nearly half of Canadians will be diagnosed with a form of cancer in their lifetimes.

No business case for Trans Mountain expansion, says former environment minister

VANCOUVER — A former Liberal environment minister is urging Prime Minister Justin… Continue reading

School bus driver charged with drunk driving

THE CANADIAN PRESS EDMONTON — Three impaired driving-related charges have been laid… Continue reading

Canadians in Hong Kong worried for neighbours as protests roil former colony

As mass protests in Hong Kong grab headlines around the world, expatriate… Continue reading

To hit environment goals, feds should create ‘super’ tax credit, report says

OTTAWA — A government-struck expert panel is calling for new “super-deduction” tax… Continue reading

Calgary’s Michael Klukas to live childhood ambition in Stampeders opener

CALGARY — The dream never died for Michael Klukas. Born and raised… Continue reading

Thompson sustains torn left ACL in Warriors’ Game 6 loss

OAKLAND, Calif. — Klay Thompson sustained a torn ACL in his left… Continue reading

Championship timeline: Reliving the Toronto Raptors’ road to the NBA title

The Toronto Raptors captured their first NBA championship in franchise history on… Continue reading

Top 20 Global Concert Tours from Pollstar

The Top 20 Global Concert Tours ranks artists by average box office… Continue reading

Swift calls out homophobes on new song, announces 7th album

NEW YORK — Taylor Swift’s latest song has a new target: homophobes.… Continue reading

Blue Jays hit 3 HRs, notch 17 hits in 12-3 rout of Orioles

Blue Jays 12, Orioles 3 BALTIMORE — Lourdes Gurriel Jr. homered to… Continue reading

Most Read