Andrew Willis: A budget that will play well at Tim Hortons
- March 3, 2008 7:46 AM |
- By Michael Hlinka
Money Talks is a collection of daily columns from The Business Network, which airs weekday mornings on CBC Radio One at 5:45 a.m. ET (6:15 a.m. ET in N.L.).
By Andrew Willis, a columnist with the Globe and Mail
(Listen to the original audio)
The federal Conservatives talk about voters in terms of their coffee tastes. I am not making this up.
Stephen Harper and his gang sit around in meetings, sipping their own java, and discuss how to win the hearts and minds of the people who line up at Tim Hortons every day.
That's the vast middle class. They drink double-doubles.They indulge in the occasional cruller. And if they start voting Tory, then Prime Minister Harper gets the majority government he so desparately wants.
Which brings us to the latest budget, and the Tax-Free Savings Account. The new savings plan was the centrepiece of the budget. It allows Canadian to set aside $5,000 annually, and pay no tax on the income. They can take out the money any time they wish.
Wealthy Canadians couldn't care less about this tax break.They drop five grand a year at Starbucks. It's pocket money.
The only meaningful tax break for the rich would have been elimination of the capital gains tax. That would have been huge for anyone with a serious investment portfolio.
But killing the capital gains tax is just too expensive to consider right now, even though the Conservatives promised to do just that a few years back.
And it wouldn't play as well in Tim Hortons.
Now the Tax-Free Savings Account, that's something any double-double drinker can embrace. It's a middle class tax break. It's a better way to set aside money for a new car, or a cottage. Things that rich Canadians buy without even dipping into their savings.
The latte drinkers on Bay Street didn't get much in this budget. They don't much care for Stephen Harper.
But the $5,000 savings plan was aimed right at the folks in Tims. As this tax break registers with voters, the Conservatives should pick up support.
-- For the Business Network, I'm Andrew Willis in Toronto
(Click on the comment link below to share your view)
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Comments (12)
It would be definitely true if the middle class was actually saving, but recent financial statistics show that average middle class is getting more into debt, and so fewer people will actually have any money to put into a savings account.
Further, the tax break is minimal. If a middle class wage earner deposits the maximum $5,000 into this savings account at an interest rate of 5% (generous by today's savings account rates), the person would earn $250 in interest annually, and NOT pay the 22% federal tax on that interest. Total tax savings: a mere $55 annually! Not exactly a landfall.
I commend the tax break the Conservatives initiated in this budget. Far better than those meaningless GST cuts of the past two. However I am not a Conservative. I am a young liberal.
It seems the political maneuvering has begun, to set in place a majority conservative government in the state of North America. As it becomes ever more unlikely that the neo-cons in Washington will hold their seat this coming November.
However i must advise to be wary of this generosity. As this article mentions it was a target directed at the middle class, in order to assure votes for whenever we go to election. However those big corporate tax breaks are just around the corner, once they do get the power. So do not be fooled. The once currency US CANADA AND MEXICO currency will be ever closer should we give Mr Harper and the North American Conservatives power in the now ever so resource and economically rich Canada.
Im not evil, im equal!
I appreciate more and more Canadians have little left to save at the end of the month,myself included, however, I think this new tax free savings account is an incentive to start saving. You can save up to $5000 a year. That doesn't mean it has to be the full amount. Everyone should take advantage of this. Do what you can afford. Make some sacrifices. Call this a new beginning, whatever. Instead of going shopping 6 times a month, go 5 and put that money away.
It has inspired me to do it!
Once again make it look like some grand pot full of money being given. Deposit $5000 into an account now at todays best rate of 3.5% and you get $177.84 in a year. At average of 22% tax rate you save all of WOW... $39.12 ... makes me want to run right out and buy that $25,000 new car. Guess again. Not all of us are so gullible Mr Haper and that excuse for a Finance Minister. So wonderful those out-of-touch fat cats in mid-Canada think that ordinary working stiffs have any extra to actually "save"
People actually save in saving accounts?! Considering the real rate of inflation in Alberta, saving in a savings account is a losing proposition. Inflation, real inflation, is higher than savings account rates.
Paying tax on the full amount of savings interest has never made any sense no matter your tax bracket. By that I mean, if inflation is 4.5% and savings interest is 5%, how can the government justify taxing the full 5%? The net pretax income in that case is only 0.5%.
The answer of course is in the ignorance of a public that believes inflation to be a natural phenomenon beyond the control of gov't, rather than the result of printing excess amounts of a fiat currency for the very purpose of robbing you. Here you go, says Uncle Chuck, I'll pay you 3.4% on your Canada Savings Debenture (no they aren't bonds) with a currency I inflated by 4.5%.
You're better off holding your nose and investing in the fraud market. Look for the companies laundering Afghan heroin dollars. But I digress.
Canadins dont have much left to save... How much resources will Canadians consume? We earn a lot and spend a lot. What we lack is discipline. I immigrated from a Country where there was not much money, but a lot of happiness and satisfaction. Give up your Tim Hortons coffee in the morning and walk into to the store instead of sitting in the drive thru in your SUV, take the bus and give up the second car, steam some veggies and cook some rice instead of the take out or fast food, stop watching PPV sports and actually play some sport.. There are thousands of ways to save the $5000, even more. Stop complaining and start to act. Stop depending upon the government to take care of you. Say thank you for the $5000 savings account. And you are Welcome!
What a bunch of whiners! Loney: Gee, I save 5,000.00 and only get a tax break of 55.00 a year on the interest. What do you want? Give your tax break to me, I'll use it. As for the the young I-Prinze liberal, you may have some time to wait for your economic doomsday scenario of merged currencies, conservatives running rampant over North America etc etc. Wait..Let's get Chretien back! That'll fix things. Or maybe elect do-nothing Dion, the man who uses the Canadian voter as an excuse everytime he supports Harper. As usual, the Ceebeecee brings the lefties out of the woodwork.
The interesting thing about the new Savings Account is what a great make-work project it will be. An entire new department will have to be set up in Ottawa (or some other lucky municipality) which will need clerical, marketing, and other administrative staff to explain first to the banks how they are to administer the new program, and then in turn to explain those details to the general public. And then the banks will have to put their people in place, and their marketing. Wouldn't it have been a lot easier to just make the first $250 per year in interest earned on existing investments as tax free for anyone with an income less than $75,000 (or whatever other numbers they wanted to use)? No mess, no fuss, no cost. But no big announcement either...
Great idea! But who can afford to use this new tax savings vehicle?
-80% of households report no growth in household income year over year
-100,000 Canadian households declare insolvency each year
-Average Canadian consumer debt is around $2,500 per person
A tax free savings account is a great idea, once you have maximized your RRSP and RESP contributions, paid off your consumer debt and purchased a reasonable life insurance / mortgage insurance policy.
Most Canadian families are unable to contribute regularly to RRSP's (for retirement)and RESP's (for their children education) let alone to a $5,000 tax free savings account.
This does not appeal to the Tim Horton's crowd, it appeals to the Starbuck's crowd (upper middle class) and the wealthy. Another tax give away to those who least require it!
I'm with Ganesh on this one. Canadians don't save because they choose not to. If they spent less now they would have more later.
Naturally this does not apply to everyone but I suggest it applies to more people than it doesn't apply to.
For those who argue that it isn't worth $39 they are missing the point. If you add $5,000 each year it's $39 in year one, $78 in year two and $117 in year three. After 3 years you have saved $234. Sounds better than paying $234 doesn't it. And, after 3 years you have $16,000 set aside (based on the example used above).
For the young Liberal, your story is getting very, very old. The chicken little story hasn't worked in the past and won't work now so give it up.
The difference between a Liberal and a Conservative is the Liberal believes a Liberal government knows best how to spend my money and a Conservative believes I know best how to spend my money.
All I know is that I wouldn't have blown $1 billion on a gun registry that doesn't work or millions of dollars on sponsorships in Quebec.
Paul, I decide my vote on the economy as you do, but it seems you've allowed rhetoric to cloud your judgment. Yes, the Liberals do spend on social programs, but those aren't terribly expensive.
The Liberals dug us out of the deficit the Conservatives built us. Thankfully we haven't made the mistake the Americans have in giving them back our pocketbooks. Do you really want to let Harper do to our economy what Bush did to theirs?
B Hope is absolutely correct - the economic costs of the start-up and ongoing overhead costs of this program will far outweigh its potential benefits for the first number of years (and particularly outweigh the portion of the benefits that related to lower/middle income Canadians who do not have an immediate $5,000/year to set aside). The concept is good but the execution appears to clearly be politically driven - those who were around 20 years ago can remember that we used to have a $1,000/year interest income exemption when we filed our income tax returns. That route (using whatever annual amount they desired, including capital gains, and using a taxable income threshhold for qualification if desired) could all have been implemented with minimal cost through the income tax system rather than this unwieldy boondoggle.....but it sure would have been harder to get the PR mileage out of the simple and obvious solution!