TFSAs won't be a problem for Harper's granddaughter, PBO report says

A new report from the Parliamentary Budget Office says nearly doubling the TFSA contribution limit will be "manageable" for future federal revenues, but says the boost will primarily benefit wealthy seniors.

Only wealthiest can save to the limit, so revenue drop won't be as severe as some expected, watchdog says

The Parliamentary Budget Office says Finance Minister Joe Oliver's newly boosted TFSA contribution limits will be "manageable" for the economy, but will still cost federal coffers some $87 billion by 2080. (The Canadian Press)

The government's plan to nearly double the TFSA contribution limit might not be a problem for Prime Minister Stephen Harper's granddaughter after all, according to a new calculation done by the Parliamentary Budget Office.

So few people will actually be able to contribute $10,000 a year to their accounts that the fiscal hit to the federal government will be manageable, the PBO said.

"This is not something that can get out of hand because people have limited room to save and invest. Even if you triple the size of the TFSA, only a very small number of people will have the financial room to take advantage of it," said Mostafa Askari, the assistant parliamentary budget officer. 

Facing criticism that the new TFSA contribution limits would deplete government coffers by billions, as Canadians shelter more of their investments from taxation, Finance Minister Joe Oliver defended the move, and suggested if there was a problem by 2080, "we should leave that to Prime Minister Stephen Harper's granddaughter to solve."

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But Askari said it might not be a heavy cross to bear. "The cost in the long run as a share of the size of the economy is only 0.65 per cent of GDP, which is similar to the cost of the RRSP now." 

The PBO also pointed out the maximum contribution will now be a fixed $10,000 and will not be indexed for inflation, reducing the long-term financial impact.

Askari estimates that the newly boosted TFSA contributions limits will reduce federal revenues by $9 billion by 2030, $29 billion by 2050 and $87.2 billion by 2080. 

The big increase in the TFSA contribution limit was a key policy plank in Joe Oliver's budget released last week. While opposition parties have called it a sop for the rich, the government has defended TFSAs as valuable savings tools for Canadian seniors of all income brackets. 

But the PBO, while minimizing the revenue implications for future governments, doubled-down on its assertion that the move will disproportionately favour wealthy Canadians — calling the move "regressive."

"Irrespective of new changes, high wealth and older households are projected to receive relatively larger benefits than lower net worth, younger counterparts."

Few benefit from limit increase

In fact, the PBO report goes so far as to say that low- and middle-income households will see practically no benefit from higher contribution limits. More than half — 55 per cent of the benefits — will be concentrated in the hands of the wealthiest Canadians, it said.

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At the end of 2014, nearly 12 million individuals had opened a TFSA. Of that amount 1.9 million had contributed the maximum amount — the vast majority (over 70 per cent) were aged 55 or older. Some 30 per cent of TFSA account holders had not made any contributions.

As it stands, most lower- and middle-income Canadians already have a lot of unused RRSP or TFSA contribution room.

The tax-free savings account was introduced by then-finance minister Jim Flaherty in the 2008 federal budget. At the time, Flaherty called the TFSA the "single most important personal savings vehicle since the introduction of the RRSP."

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