Bring back the $10,000 TFSA

Opinion: Politicians have come to see taxpayers as sheep to be shorn, writes Mark Milke. Canadians can reverse that by demanding a return of the $10,000 annual limit for TFSAs


 
Federal Finance Minister Bill Morneau, left, with Prime Minister Justin Trudeau (Jake Wright/CP)

Federal Finance Minister Bill Morneau, left, with Prime Minister Justin Trudeau (Jake Wright/CP)

For those who pay attention to what politicians are up to on taxes, consider that since 2015, the focus has mostly been on raising them. From Atlantic Canada to Alberta, British Columbia and federally, new brackets were invented and other rates raised; in addition, new and higher taxes are still to come, including a federal carbon tax.

Even the new Progressive Conservative government of Brian Pallister in Manitoba, elected last year on opposition to a sales tax increase by the previous government, is toying with new taxes, including a carbon tax and higher taxes on insurance products.

One rare exception to this flurry of higher tax activity came in 2016, when the federal government dropped the rate for one middle income bracket, to 20.5 per cent from 22 per cent.

Middle-class Canada takes a hit

Regrettably, as the Fraser Institute discovered last week, that change wasn’t enough to offset the removal of many boutique tax credits. The net result was that 81 per cent of middle-class taxpayers saw their taxes rise, and on average pay $840 more annually. Couples with children will pay $919 more, every year, on average.

This tax-the-middle-class-more reality contrasts with the political rhetoric we hear from federal and provincial politicians, who have talked up their fealty to middle-class finances.

READ: The Trudeau government’s policies reward dependence, not hard work

So how can Canadians reverse this assumption, widely held on the part of the political class, that raising taxes is a safe policy? Answer: Press for the return of the $10,000 annual contribution to the Tax Free Savings Account, and do so in a high-profile way that politicians can’t ignore.

On the TFSA, recall that in 2016 the new Liberal government in Ottawa dropped the annual amount Canadians could invest in their TFSAs to just $5,500 (where the limit remains now) from $10,000.

There was little reason for the Grinch approach to personal and family savings. It was especially egregious given that the new government also committed to raise Canada Pension Plan premiums. In other words, Prime Minister Justin Trudeau and Finance Minister Bill Morneau were happy to force Canadians to save more for retirement through the CPP, but not allow us to do so through the freedom of our TFSAs.

Remember MTV’s ‘I want my…’?

This contradiction needs to be challenged. It’s time for advocacy groups, think tanks, opposition parties and taxpaying Canadians to borrow from that 1980s-era slogan for MTV and tell their elected leaders, clearly and forcefully: “I want my $10,000 TSFA (back)!”

An obvious choice to lead this type of national campaign is the Canadian Taxpayers Federation, which regularly spars with governments on tax matters. Another organization, the C.D. Howe Institute, avoids outright advocacy, but it would be a natural fit to repeatedly and publicly raise the idea of a return to the $10,000 TFSA. It was, after all, the C.D. Howe Institute that first came up with the TFSA concept and, critically, Morneau was once a board chair of that same think tank.

READ: Calculate your TFSA contribution room

But whether it’s a taxpayer advocacy group, a policy institute, a coalition akin to the one now fighting proposed changes to private corporations, opposition Conservatives and New Democrats, or even a more tax-reduction friendly government such as Quebec, the idea of a $10,000 TFSA should be a positive rallying point for many reasons.

For one, total taxes as a percentage of Canada’s economy are higher now than they were in the 1970s, the last time a Trudeau was in office. Back then, total taxes and fees as a percentage of GDP never rose above 38.1 per cent of the economy. At one point, early in Pierre Trudeau’s reign, that figure was 35.2 per cent.

In contrast, in 2015, the most recent year for which statistics are available, the figure was 38.6 per cent. Given the multiple tax hikes in 2016 and 2017 and perhaps even more to come in 2018, I suspect that percentage will grow. As will tax fatigue and a desire for taxpayer-friendly policies.

That statistical reality and the apparent political presumption that Canadians—whether high income or middle income—are potential sheep to be sheared, means a campaign to revive the  $10,000 TFSA might be popular.

Arguments against a $10,000 TFSA limit are weak

Two objections will be raised to a $10,000 TFSA limit.

One is that not every Canadian will take advantage of the $10,000 contribution. But this matters less than the possibility that some Canadians will use such room; that allows those individuals and families to better save for retirement or other expenses. That makes their lives easier, which should be the ostensible goal of politicians across the political spectrum.

Another counter-argument will be that in an era of massive deficits, governments cannot afford to lose any tax revenue. This was one claim advanced by the Parliamentary Budget Office ahead of the original decision by the Stephen Harper government to raise the TFSA limit to $10,000 in the first place.

COUNTERPOINT: Why TFSA doubling exacerbates income inequality

The logic of that objection is weak. The “loss” of tax revenue from non-taxable capital gains won’t show up for years and decades in any substantial way.

The PBO’s 2015-era estimate of the revenue loss to governments (or better stated, the gain for taxpayers) from a $10,000 TFSA was $550 million by 2020, rising to an extra $3.1 billion by 2030. Governments have plenty of time to balance their books to prepare for such “losses”. Start with cuts to corporate welfare and reform of compensation of government employees. After that, there will be room aplenty for minor revenue “losses” from non-taxable TFSA gains in years ahead.

Ultimately, those who object to a $10,000 TFSA place the responsibility on the wrong people: taxpayers in general, who are expected to fund any and all politically desired expenditures. Instead, the obligation should be on politicians to more carefully control their spending: With apologies to MTV, I want my $10,000 TFSA (back)! I suspect many other Canadians do as well.

Mark Milke is author of Tax Me I’m Canadian: Your Money and How Politicians Spend It. 


 

Bring back the $10,000 TFSA

  1. Here! Here!

  2. This pathetic country gets dumber by the second. I would love to see a TFSA limit increase, but the braindead head of the IIAC is claiming it would offset the dissolution of some corporate tax credits. How? Is math new to him? Retained active income inside a corporation is taxed very low – paying almost 50% on passive income is still paying less than marginal rate on the money invested. You’d have to net a substantial investment gain for your TFSA to make any sense.

    They really need to focus on finance in schools….

    • It’s not finance you’re talking about but greed and a misplaced sense of entitlement where you think you are owed massive advantages over everyone else because you think you are the special one and the lesser masses can just eat cake if they have no bread.

  3. Unfortunately, your two arguments against raising the TFSA are excellent arguments and you provide no good answer to them.

    Why worry about creating a massive tax shelter for the upper classes in the future you ask? Surely some government will at some point cut those unnecessary social programs or just legislate themselves out of existence completely save the authoritarian branches that the cons love so much. Starve the beast Buchanan & Brownback style and the budgets of the future will take care of themselves thanks to the awesome fiscal management of future governments.

    Not how it’s working out in Kansas, though. Any place where that particular gambit has paid off? Cutting revenues now in order to hopefully force the hand of future governments into cutting services and expenditures is foolish. Would you suggest that someone cut back to half-time hours now in an effort to force themselves to spend less money? Reducing expenditures first and then reducing income would be much more prudent. It’s not smart to spend savings before they are realized.

    As for the fact that the beneficiaries of TFSA’s tax advantages are well off, this does matter. TFSAs are give aways to the upper middle class and wealthy the two groups who are doing well and continue to make the most gains in Canadian society while the bottom four fifths experience income stagnation and little mobility. The same can be said for most “boutique” tax credits. These are regressive tax credits where most of the advantage goes to those who make the most money. The exact opposite of how tax benefits should be designed. Such tax credits increase income inequality by taking tax dollars and redistributing them to the well off. What possible societal good is served by giving me a $50 tax credit for my kid’s $3000 summer camp? As somehow who, like the author, can well afford to pay my share of taxes, I don’t need the government trying to buy my vote by hamstringing future generations ability to pay for needed services, or by cutting funding to services that are currently used by people who required them, thank you very much.

    Not that the author has ever voted Liberal or anything left of Conservative his entire life. Why should any centrist or left party make any attempt to appeal to the greedy rich like him? He’ll continue voting in his own self-interest, which conflicts with that of most Canadians. It’s what’s in the interest of most Canadians that the government needs to concern itself about, not the whinging of the top quintile no matter how loud we tend to be.

    • The author is very selective in his information. While eager to tally up the rise in taxes, he neglects to include the significant increase in the Canada Child Benefit (now tax free) that many families receive.

      It’s illuminating to look at OECD tables that take into account taxes paid and benefits received by the ‘average family.’ In that light, Canada compares very favourably to other 1st world countries and the tax bite looks a lot less ugly.

      Unfortunately, most folks don’t have the knowledge to even begin to look below the surface of articles like this one that paint the whole picture as rigged against the little guy. While we certainly need tax reform, increasing TFSA limits isn’t even close to the top of the list.

      Groups like the Canadian Taxpayers Federation are certainly guilty of spin (aka propaganda). I always check their news releases carefully against other sources to separate fact from fiction.

  4. How about taxing lottery winnings instead of increasing taxes on hard working people. .. after all, lottery winnings are money for nothing.

  5. The answer is not to have yet more loopholes, but close more of them. It is all well and good to “invest” $10,000 in a TFSA, but many of us do not have $10,000 to toss around. I am very tired of paying my share of taxes which subsidize all the people making use of these loopholes. Close the loopholes, and make everyone pay the same percentage regardless. Everyone in the lower bracket would save money, and the government would be collecting more actual revenue.