Finance Committee on April 28th, 2015

[Scott Brison, Liberal, Kings—Hants, NS]

It's still a structural deficit.

[Mostafa Askari]

It is a small structural deficit, yes.

[Scott Brison, Liberal, Kings—Hants, NS]

Okay. Thank you.

On the TFSA increase to $10,000, will this result in an additional OAS payment to TFSA-holders who would normally face OAS clawbacks because of their wealth?

[Mostafa Askari]

Potentially, yes. One of the benefits of the TFSA for the pensioners is that they can essentially protect the income they get from the TFSA from the income-testing programs of OAS and GIS. So yes, potentially, part of the cost for the government is the higher payments through those transfer payments.

[Scott Brison, Liberal, Kings—Hants, NS]

To what extent...? Mr. Cullen touched on this a little earlier. If you compare the relative benefits of the top 20% of Canadian families in terms of income to the rest, how does this compare to the bottom 20%? How would you compare the benefits of increasing the TFSA?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Mostafa Askari]

Overall, the income distribution or the distributional impact of the TFSA does not change significantly because of the increase in the contribution room, because a lot of it actually cannot be used over time since it is too big for most of the families, who will exhaust their savings by the time they get to that point.

But overall, yes, those who have higher wealth will certainly have the potential to benefit from the higher amount.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Brison.

Ms. Bateman, please.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much, Mr. Chair.

Thank you to our witnesses who are here today from the Office of the Parliamentary Budget Officer.

I want to refer to the remarks that you have made already, sir. In your remarks in response to another one of my colleague's questions, you said that savings is “a good thing”—we can check the blues for that—and I agree with you. I agree with you.

The other comment I would like to take issue with and build my question around is that Mostafa mentioned that policy won't increase savings. That's just a paraphrase. We can check the exact wording, but you basically said policies won't impact savings. Is that reasonable, sir?

[Mostafa Askari]

I said that tax policies on savings instruments would not—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Okay, tax policies. What I would like to ask you then, in terms of your calculation, is, if it won't affect behaviour.... There are 11 million Canadians whose behaviour has been affected, so I want to ask you some questions on the analysis.

I'm a chartered accountant. When I worked at Price Waterhouse, if we did an analytical piece, we would endeavour to do both sides of the analysis for the client. I would like to suggest that you've only done half the job, and I'd love to get the other half of the analysis, because we have two tax models.

An RRSP has an immediate cost to the treasury. Take the example of a nice 24-year-old person who has just graduated from school. If they put $1,000 into a tax vehicle named the “Registered Retirement Savings Plan”, there is an immediate cost to the treasury. Further, given the time value of money—you can look up the algorithms, and there are a number of them—the reality is that if you defer the payment of tax for seven years, you've pretty well saved that tax dollar. This 24-year-old student is going to declare his or her RRSP perhaps 40 years hence, so the deferral is multiples of seven years. There's an enormous tax—as you would say—cost to the treasury.

You contrast that with the tax-free savings account. That individual has already paid the tax on that investment. He or she did not get any benefit from the government. What they did was pay the full tax—there was no cost to the treasury—and then put their $1,000 into a tax-free savings account. That's the basic difference.

The third piece of the missing analysis in terms of your work that I'm very fearful of.... You're so worried about the loss by 2080, but as time goes, that young man who has made that investment at 24 years old is going to actually contribute to a pool of capital. Whether it goes into mutual funds, investments of other kinds, the equity market, or the bond market, that is a pool of capital that future entrepreneurs will be able to draw upon and invest from, and it will strengthen the economy. That is the piece that I believe, sir, is missing in your analysis. Could you please comment on that?

[Mostafa Askari]

First, I think you're right on the number of people, the 10 million, I guess you quoted, who have invested in TFSAs—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

It's 11 million, actually. If I may just say, sir, 75% of those 11 million individuals earn less than $70,000 a year, and almost half of them earn less than $42,000. This is a vehicle that is helping people make a difference in their lives and take charge of their well-being.

[Mostafa Askari]

If I may make a couple of points, first, there is no indication that the amount of money that has gone into TFSAs is actually new savings. It's very likely that most of it is the money that was saved in other instruments and has been transferred to a TFSA.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Sir, on what basis is that assumption in place?

[Mostafa Askari]

As I said, there is no indication that this is the case because we haven't seen any—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

There's no indication? Then on what basis are you making that—

[The Chair, Conservative, James Rajotte]

Let's have one at a time here. Let's pose the question and then have an answer.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Mr. Chair, I'd like to query the basis of the answer, because it doesn't seem there's any basis for it.

[The Chair, Conservative, James Rajotte]

Okay, but I'm having a tough time following the discussion. Ms. Bateman, you posed the question and we'll have a response.

[Mostafa Askari]

We haven't seen any increase in the savings rates of Canadians as a result of TFSAs yet; it may happen over time. As I said earlier, the literature shows, from studies that have been done internationally and in Canada, that there isn't really a significant impact from changes like the TFSA tax changes on people's savings behaviour, and—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Sir, perhaps you could clarify that for me: what literature internationally?

[Mostafa Askari]

There is a study by the OECD. There are studies by university professors in Canada and in other countries who have looked at the impact of tax policy on savings behaviours of individuals. As I said, the results are mixed. Those that actually show a positive correlation between lower taxes and higher savings show a very small elasticity, a very small impact. That's why—

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Oh, so there is some elasticity?

[Mostafa Askari]

Some could be; as I said, the results are mixed. Some show no impact, some show negative impact, and some show a very small positive impact.

Now, if there is a positive impact, that would be great: there would be more savings. But as I said, we haven't seen an increase in the savings rates of Canadians so far since the TFSA has been established.