I am here today to address provisions of Bill C-59 dealing with changes to the tax-free savings account, specifically the proposed increase of the TFSA annual contribution limit from the current $5,500 to $10,000.
I speak against this very large increase of more than 80% on the basis that the existing TFSA, with its $5,500 limit, is already failing to serve its stated purpose. To almost double the limit will exacerbate the inequity that research has already identified.
I will refer you specifically to our article published in the Canadian Tax Journal entitled “Tax-Free Savings Accounts–A Cautionary Tale from the UK Experience”.
The purpose of that research project was to predict how Canadians would use the TFSA and specifically whether the government's promise would be borne out, i.e., that the introduction of the TFSA would benefit all Canadians at all income levels in all walks of life.
We used data from the British experience with their tax-free savings plan, the ISA, or individual savings account, a tax measure very similar to the Canadian TFSA. There was every reason to believe that the Canadian experience would be similar to the effects that the British savings plan had already shown, as follows:
One, as income rises, so does plan participation.
Two, the introduction of such a plan does little to break down the barriers to savings faced by low-income individuals.
Three, the plan take-up rate in terms of new savings by low-income individuals could be less than 5%.
Four, the proportion of accounts held by low-income individuals falls consistently over time, as the proportion held by high-income individuals continues to rise.
Five, these plans provide a significant opportunity for income splitting in single-income households.
Six, the typical account holder is a man, belongs to the highest-income cohort, and is approaching retirement.