These are stories Report on Business is following Tuesday, April 21, 2015.
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Douglas Porter wonders whether the near doubling of the TFSA limit today is partly a "sheepish admission" by Ottawa that savers have been getting the short end of the stick.
Bank of Montreal's chief economist was musing before Finance Minister Joe Oliver unveiled a budget that included raising the annual contribution ceiling on tax-free savings accounts to $10,000 this year from $5,500.
Mr. Porter has several thoughts on this, the most important being the absence from the debate of the fact that "savers have been handed an extremely raw deal" from years of ultra-low interest rates.
"And when the bevy of studies talks about the heavy cost of the TFSA program, why do none point to the massive interest savings governments have reaped (at the hand of savers) from years of negative real interest rates?" he said in a recent report.
"Perhaps Ottawa has decided to raise the TFSA limit in part as a sheepish admission that it may just be a tad unfair to tax interest earnings that are already well below inflation," Mr. Porter added.
"For example, an investor can now receive a princely 1.35 per cent for lending to Ottawa for 10 years, or less than 0.7 per cent if it is subjected to the top marginal rate, and then -1.3 per cent when subjected to 2-per-cent inflation."
Some see upping the limit as a "sop" to the wealthy, but Mr. Porter noted a higher amount won't really do much to affect the finances of the rich.
Some, too, worry about the cost to the government. To that, Mr. Porter pointed out that the government's annual interest charges have tumbled by $6-billion since early 2008.
"I recall precisely no complaints when the TFSA was first launched in 2009 (announced in the 2008 budget); on the contrary, it was applauded as being a welcome added vehicle to help Canadians save for retirement or other medium-term goals," Mr. Porter said.
"Since that time, interest rates have all but collapsed, making pure saving much less attractive for the average person. While we have often noted that Canadians have done a solid job of building financial assets in recent decades, the issue now is that with very low expected future returns (especially from fixed income instruments), current savings need to be very high," he added.
"Yet, the reported savings rate has been running at less than 4 per cent in recent quarters, down from nearly 5 per cent in the past five years (though up from the meagre 2.6 per cent in the five years before the recession and before TFSAs)."
The BMO economist, who believes it's better to tax consumption than savings, said in a separate discussion that "effectively, we are seeing an example of financial repression (in much of the world) where savers are being punished by negative real interest rates."
Raising the TFSA limit, he added, would "provide a small offset, at least for some."
In the text of his budget speech, Mr. Oliver said today that the TFSA, introduced in the budget of 2008, was the "most significant boost" to savings since the creation of the RRSP. And that since then, almost 11 million people have taken advantage of it.
"They are the people you see in the coffee shop and at the rink and in your place of worship," Mr. Oliver said, adding that half of them earn less than $42,000 annually.
"Some are saving money to buy their first home, or to start their first business," he said.
"Some are saving to put their children through college or university. Others are putting away extra income to make their hard-earned retirement more comfortable and enjoyable."
That was just part of what Mr. Oliver unveiled.
As The Globe and Mail's Shawn McCarthy reports, the government introduce a pre-election budget that offers investment incentives to manufacturers and growing tax breaks to small businesses while projecting a $1.4-billion surplus this year and $1.7-billion in 2016-17.
"A balanced budget is the only way to ensure long-term prosperity for Canadians and their families," Mr. Oliver said in his first budget, which he delayed for two months due to uncertainty over slumping oil prices.
- Bill Curry and Barrie McKenna: Conservatives deliver balanced budget ahead of election
- Rob Carrick: Seniors the runaway winners in pre-election budget
- Shawn McCarthy: In balanced budget, Tories target growth in manufacturing, small business
- David Parkinson in ROB Insight (for subscribers): Budget relies on consumers to keep their feet on the gas pedal
- Barrie McKenna: 'Inefficient' small-business tax break an incentive to stay small
- Bill Curry, Chris Hannay and Jeremy Agius: Seven charts that explain the budget
Teck slashes dividend
Teck Resources Ltd. is taking a knife to its dividend amid a "challenging" environment.
The cut to the half-yearly dividend, to 15 cents a share from 45 cents, brings the payout "more in line with current commodity prices and outlook and ensures balance sheet strength and flexibility for future capital expenditures or other capital allocation opportunities," the Canadian miner said today, adding in its statement that "commodity markets continue to be challenging."
Teck's first-quarter profit dipped to $68-million, or 12 cents a share, from $69-million or 14 cents a year earlier, with revenue down marginally to just over $2-billion.
On an adjusted basis, earnings per share slipped to 11 cents from 18 cents.
Streetwise (for subscribers)
Inside the Market (for subscribers)
ROB Insight (for subscribers)
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