For sheer cynicism, it's hard to beat Ottawa's rumoured plan to double the contribution limit to Tax-Free Savings Accounts.
The proposal, strongly hinted at by the federal Conservatives, would ensure our children pay more in taxes, or suffer cutbacks in public services, to compensate for the future revenue the government will be surrendering in a bid to attract votes today.
This, of course, amounts to an abdication of the moral principle that is supposedly so dear to the current government's heart – the notion that people should pay their own way and not saddle future generations with their problems.
But the proposal's lack of concern for the long-term budget outlook is just one of its deficiencies. A doubling of the TFSA limit also amounts to offering a solution to a problem that doesn't exist.
No army of savers is banging on Parliament's doors, desperate to find new places to put their overflowing piggy banks. Most Canadians come nowhere close to topping out the retirement-savings vehicles that are already available to them. Fewer than one in four tax filers even contributes to a Registered Retirement Savings Plan, despite decades of marketing campaigns designed to encourage them to do so.
All of this suggests that the only group that would benefit from a doubling of the TFSA limit would be a relatively small number of older, highly affluent Canadians – precisely the group that Conservatives have demonstrated an eagerness to court.
To grasp how far removed the proposal is from the financial reality of an ordinary household, consider an example from Rhys Kesselman of Simon Fraser University. He calculated the amount of wealth that a diligent saver could accumulate in a TSFA under the current contribution limit of $5,500 a year.
A person who began contributing the maximum under the current rules at the age of 18 and achieved a 5-per-cent real annual rate of return would wind up at 60 with the equivalent of $780,000 in today's money. A couple who both followed that plan could jointly accumulate more than $1.5-million in tax-sheltered retirement savings – surely enough to keep the wolf away from most retirees' doors.
So why double what already appears to be a generous tax shelter? Are there really a horde of couples who can't make ends meet on $1.5-million but absolutely require $3-million?
Most of us would say no. In fact, it's difficult to come up with any convincing economic logic to explain why Ottawa should offer a tax incentive for multimillion-dollar nest eggs.
In a report earlier this year, Prof. Kesselman concluded that doubling TFSA limits "would cost government additional billions in annual tax revenues, put most of the lost taxes into the pockets of the already well-to-do [while] … the great majority of Canadians would enjoy no significant benefits."
An analysis by the Parliamentary Budget Officer agreed that the vast bulk of the benefits from an expanded TFSA would fall to wealthy households, which would derive about 10 times the gains of low-wealth households.
Unfortunately, the lack of any economic or social rationale for higher TFSA limits doesn't mean there's not a compelling political motivation. The structure of the TFSA program means that it will always be a major temptation for politicians desperate for re-election.
The reason is simple: A TFSA requires a saver to pay taxes on contributions today, but then lets him or her accumulate future gains tax free and withdraw them, again tax free. So any government can raise contribution limits to woo voters without suffering an immediate hit to tax revenue. The problem only shows up years down the road, when the expanded amount of money sheltered within TFSAs erodes the tax base, reducing revenues for future governments.
If politicians are truly concerned about helping people prepare for retirement, they should focus less on expanding limits to savings and more on making those savings more efficient.
At the moment, investors' returns are often eaten up by exorbitant management expenses charged by mutual funds. An expansion of the Canada Pension Plan could offer savers a low-cost and much more effective way to save for their golden years. That, unlike more TFSA contribution room, would be an idea worth supporting.
Ian McGugan