Against Expanding the Tax Free Savings Account: Part Two

The second critique of expanding the Tax-Free Savings Account is from the Parliamentary Budget Office and is simply called: The Tax-Free Savings Account

http://www.pbo-dpb.gc.ca/files/files/TFSA_2015_EN.pdf

Here is part of the executive summary.

Executive summary

The Tax-Free Savings Account (TFSA) program
was started in 2009. It benefits TFSA
contributors by exempting TFSA investment
income from federal and provincial income tax
and transfer calculations. Under current rules,
the TFSA contribution room accumulates
annually for individuals aged 18 and over, so
PBO projects that contribution room will grow
from $1 trillion in 2015 to $9 trillion in 2080.1
Increases in TFSA contribution room will grow
the size of the exempt tax base over time. This
growth will not only increase the fiscal impact
of the TFSA program as a share of federal and
provincial budgets, but alter the distribution of
benefits toward higher income and wealth
households.

How will the TFSA affect government’s
bottom line?

In 2015, PBO projects the fiscal impact of the
TFSA to be $1.3 billion or 0.06 per cent of
Gross Domestic Product (GDP). Two-thirds of
this cost is borne by the federal government,
$860 million, while the remaining third
($430 million) affects provinces (Figure A-1).

By 2080 the TFSA fiscal costs project to
increase ten-fold, reaching 0.57 per cent of
GDP (Figure A-2). This growth effect is unlike
most program expenditures, which generally
grow along with GDP and are subject to
periodic parliamentary review. The TFSA, like
all tax expenditures is not subject to regular
review.

Who benefits?

PBO estimates that the TFSA program is
regressive, overall. Benefits skew to higher
income, higher wealth and older households.
Low-income households’ benefits range from
half to one-fourth the median between 2015
and 2080………

 

 

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