The Harper government is nothing if not consistent. Finance Minister Joe Oliver appears to be set to follow up on his problematic new income-splitting tax break with another measure that will also disproportionately benefit a limited number of higher-income earners. In a letter to his Conservative colleagues, he all but promised to double the contribution limit for tax-free savings accounts (TFSAs) in the April 21 budget, from $5,500 to $11,000 a year.
Tax breaks and tax reductions are no surprise from a Conservative government, especially in an election year. The problem is not that the tax burden is being cut; all other things being equal, we'd cheer that. It's the matter of how – and whose taxes. The main beneficiaries, as with the income-splitting plan, will be wealthier Canadians. The policy is designed to guarantee it.
As Canada's Parliamentary Budget Officer reported in February, the TFSA savings program is "regressive overall" and "benefits skew to higher income, higher wealth and older households." The report analyzed the impact of potentially doubling maximum contributions from $5,500 a year to $11,000, concluding the program would "become much more regressive," with the wealthiest 20 per cent predominantly benefiting from the additional contribution space.
The reason the wealthy will be the main beneficiaries is simple: The vast majority of lower- and middle-income Canadians already have a lot of unused RRSP or TFSA room. They simply can't save enough to take advantage of the tax break, which is why raising the TFSA limit does not help them.
And then there's the long-term impact of doubling TFSA contribution limits. It will cost Ottawa almost nothing today – but threatens to break the bank decades from now. It's the campaign equivalent of deficit financing: Ottawa gets the political benefit up front, while leaving it to future governments to figure out how to pay a bill that won't start coming due for years.
The PBO report estimates that TFSA doubling will cost federal and provincial governments a mere $70-million in lost tax revenue in 2016. But every year after that figure will rise, reaching $39.3-billion a year in 2080 – all to finance a plan that disproportionately benefits upper-income Canadians, and which will ultimately put more of a burden on middle- and lower-income taxpayers.
Does the Harper government want to cut taxes? Fair enough. But it should do so in a way that helps all Canadians, and not just a few key voting demographics.