Sheena Goodyear / QMI Agency
If the Tories go ahead with plans to double the contribution limit on tax-free savings accounts, it will cost the government billions of dollars and benefit only the very wealthy, two separate studies released Tuesday say.
The Parliamentary Budget Office, Canada' budget watchdog, and the Broadbent Institute, a left-wing think-tank, both released scathing reports about the Conservative government's plan to double the TFSA limit once the budget is balanced.
That plan amounts to putting billions in potential tax revenues into the pockets of the rich, the think-tank says.
"There is absolutely no case — on either economic or equity grounds — for the doubling of TFSA contribution limits. The great majority of Canadians would enjoy no significant benefits. In fact, they would bear the burdens of an expanded TFSA by enduring reduced public services or bearing the increased taxes needed to offset the lost revenues," the report's author, economist Rhys Kesselman, wrote.
TFSAs are long-term savings accounts that allow Canadians to earn tax-free investment income. More than 11 million Canadians have opened one since they became available in 2009. They come with a $5,500 annual contribution limit.
In 2009, 64% of Canadians contributed the maximum limit, which was $5,000 at the time. But the Broadband Institute speculates that's because people were moving savings from other accounts in their new TSFAs.
By 2012, only 16% of people contributed the full limit.
For Canadians who earn $200,000 or less per year, the current limit leaves ample room to build retirement savings with their combined TSFAs and RRSPs, the report says.
It concludes only extremely wealthy Canadians — those who earn more than $200,000 a year, and the 16% who have maxed their TSFA limits — would benefit from the Tories' plan.
The PBO report drew similar conclusions, dubbing the plan "regressive."
"Benefits skew to higher income, higher wealth and older households," the report found.
The gap between how much the plan would benefit working-class and wealthy Canadians would grow over time, the PBO says.
"TFSA gains for low- and low-middle income households project to plateau in 2040, while PBO estimates that higher-income households will benefit from continued annual increases to TFSA contribution room."
Meanwhile, $1.3 billion in taxes would be lost in 2015 alone.
"By 2080 the TFSA fiscal costs project to increase ten-fold, reaching 0.57% of GDP," the report says.
The think-tank pegs the cost of doubling the limit at $4 billion by 2050.
Broadbent Institute executive director Rick Smith called it "a horror show."
"It would mean even more billions of lost revenues to both the federal and provincial governments with the benefits flowing overwhelmingly to the wealthy," he said in a statement.