In 2009, Harper introduced the TFSA — or what the wealthy call the “totally fantastic savings account!” It allows a person to put away $5000/yr in savings or investments and never have to pay taxes on any money the account generates. If one is familiar with concept of compound interest, that can really add up over the years.
The TFSA might sound like a nifty idea, at first. But like income-splitting, it's a scheme that only the rich really benefit from.
The best savings plan available for the average person is the RRSP. It allows you to deduct your contribution from your taxable income. When you withdraw money, after you're retired, you have to pay taxes on it. But since your income is less, you end up paying less income tax.
Of course, Canadians are holding record levels of personal debt. It's highly unlikely any middle-income earner is putting away $24,000/yr in max RRSP contributions. So filling up your RRSP and having room left over for a TSFA is something only the very wealthy can accomplish.
Economy Lab pans TFSA
Back in 2011, the Globe and Mail Economy Lab examined the issue: Who really benefits from TFSA? The wealthy, for sure. They concluded the tax cut scheme reduced revenues by $3-billion/yr and was a terrible waste of resources:
A small minority of Canadians have stuffed $19-billion in assets into these accounts in less than two years. …
You could relieve an awful lot of day-to-day stress for $3-billion. You could improve services, repair infrastructure or tackle poverty in a meaningful way. …
It’s not the government’s money, it’s our money. And how we use our money to create a prosperous and civilized society is critical.
Let’s be clear. This measure will make the rich and powerful more rich and powerful. The rest of us will be left begging for funding for basic services.
TFSA: the sequel
If that was not bad enough, Harper plans on doubling the TFSA to $10,000/yr if he wins in 2015.
In today's G&M, the economist who designed the TFSA from Simon Fraser University concluded: a) doubling the TFSA is a terrible idea that will blow a whopping $10-billion/yr hole in the budget; and b) all the benefits will go to the rich. Rhys Kesselman: The forgotten tax break for the rich that will cost Ottawa billions.
Reverse, Restructure, Reinvest
When Harper is finally brought down, we're going to have to look into the mess he has made of the tax system and put the money to better use: reverse reckless tax cuts; restructure the tax system; reinvest poorly allocated resources.
According the Con 2009 budget, Harper has cut taxes by $44-billion/yr. That's an gargantuan amount of money going to waste.
Although Trudeau has ruled out reversing any of Harper's “starve the beast” tax cuts, Mulcair could really capitalize on the situation. He could promise to reverse these tax cuts and with most of the savings cut personal income taxes for middle- and low-income earners. That would be attractive to voters and still leave over $20B/yr to spend on infrastructure and social programs.
Harper has put the federal government in a fiscal straight jacket. We need to elect a leader that has the balls to undo the damage Harper has done.