Finance Committee on May 26th, 2015

Evidence of meeting #82 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was tfsa.

A recording is available from Parliament.

On the agenda

Bill C-59, An Act to implement certain provisions of the budget tabled in Parliament on April 21, 2015 and other measures

MPs speaking

Pierre Dionne Labelle

Also speaking

Maureen Donnelly Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Allister W. Young Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Ron Bonnett President, Canadian Federation of Agriculture

Angella MacEwen Senior Economist, Social and Economic Policy, Canadian Labour Congress

David Podruzny Vice-President, Business and Economics, Chemisty Industry Association of Canada, Canadian Manufacturing Council

Bruce MacDonald President and Chief Executive Officer, Imagine Canada

Jean-Denis Fréchette Parliamentary Budget Officer, Library of Parliament

Trevor McGowan Senior Legislative Chief, Tax Legislation Division, Tax Policy Branch, Department of Finance

Miodrag Jovanovic Director, Personal Income Tax, Tax Policy Branch, Department of Finance

Siobhan Hardy Director General, Social Policy, Department of Employment and Social Development

Brad Recker Senior Chief, Fiscal Policy Division, Economic and Fiscal Policy Branch, Department of Finance

Marc-Yves Bertin Director General, International Assistance Envelope Management, Strategic Policy, Department of Foreign Affairs and International Trade

Margaret Hill Senior Director, Strategic Policy and Legislative Reform, Department of Employment and Social Development

David Charter Senior Advisor, Strategic Policy, Department of Employment and Social Development

Charles-Philippe Rochon Assistant Director, Labour Law Analysis, Department of Employment and Social Development

Mark Potter Director General, Policing Policy Directorate, Law Enforcement and Policing Branch, Department of Public Safety and Emergency Preparedness

Bayla Kolk Assistant Deputy Minister, Pensions and Benefits Sector, Treasury Board Secretariat

Jennifer Champagne Counsel, Treasury Board Secretariat

Carl Trottier Associate Assistant Deputy Minister, Compensation and Labour Relations Sector, Treasury Board Secretariat

Caroline Fobes Deputy Executive Director and General Counsel, Department of Public Safety and Emergency Preparedness

9:15 a.m.

NDP

Nathan Cullen NDP Skeena—Bulkley Valley, BC

I'll turn to Mr. Fréchette in a moment, but one of the concerns is that the expense of this program over time becomes a choice that is placed upon future governments, which means that governments can't spend money on other things such as health care or infrastructure.

For the amount of money we're talking about—up to $63 billion within a generation, per year, in forgone revenue—I suppose that in terms of the wisdom and the effectiveness of that type of expenditure from the federal government.... I'm trying to think of what else we spend $63 billion a year on; perhaps health transfers, but I'd have to check that.

In terms of the impact on the economy and the benefit to Canada as a whole, can we measure that type of expenditure versus other options the government might have?

9:15 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

Well, yes, I think that's our point. It's that it's not targeted. It's removing revenue from the treasury. It's creating a large and ever-expanding hole, and there is really no target as to what individuals are using this money for. If there are problems with affordability, such as buying a home, which is one of the stated purposes, or with post-secondary education, then why don't we target that more?

Also, research has shown that low-income individuals respond much better to savings incentives when there is a grant portion involved, such as—

9:15 a.m.

NDP

Nathan Cullen NDP Skeena—Bulkley Valley, BC

So what's your—

9:15 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

—the RESP, which addresses the post-secondary issue. It's a much more effective vehicle with a defined purpose.

9:15 a.m.

NDP

Nathan Cullen NDP Skeena—Bulkley Valley, BC

My apologies for the short time we have. The government's about to say that lots of low-income people use it right now, but you said the typical user of the TFSA is who?

9:15 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

From the British experience, please note, the account is funded by a male from the highest income cohort that they used in their data. This is a U.K. government report. Also, it's someone who is approaching retirement. The prospect that this is for young low-income Canadians is not really, we think, going to be borne out. To say that 11 million Canadians have them is not to say who these people are and how much they have to put in them. I can open one up and put $300 in it and never put in another dime, and I'm a TFSA account holder. But that's not....

Sorry.

9:20 a.m.

Conservative

The Chair Conservative James Rajotte

Thank you very much, Mr. Cullen.

We'll go to Mr. Saxton, please.

May 26th, 2015 / 9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thanks to our witnesses for being here today.

I think Ms. Donnelly just answered my first question. You are a TFSA holder. You just confirmed that. Is that correct?

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

I am.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

Mr. Young, are you a TFSA holder?

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Allister W. Young

I am.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

You're two of the 11 million Canadians who are TFSA holders, so obviously it's a popular program. In fact, it's the most popular program since RRSPs were introduced almost 50 years ago.

Do you think it's important that the government encourages Canadians to save for the future?

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

I think it's important that people can save, but there is a lot of conflicting research on the effectiveness of tax-assisted savings incentives for certain individuals. There is also a point at which saving should not be incentivized any further, because spending has a very positive economic effect as well, and squirrelling away unlimited amounts of money may not be the stimulant we want.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Okay, but you understand that squirrelling away money also gets invested in the economy. It's not lost. It doesn't go into cyberspace.

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

Yes, but it's also coming out of the public treasury and is not going into a distributive mechanism that can benefit other Canadians at the same time.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

It's also allowing Canadians to save more of their own money, to keep more of their own money. Is that not correct?

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Maureen Donnelly

Correct, if that's your goal.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

You mentioned something in your opening statement regarding benefiting single-income families. Can you explain what that was?

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Allister W. Young

Actually, I can explain that.

Once again from the British experience, what we noted was that the dominant contributor to the ISAs in the U.K. were males. What we also noticed in the British experience is that there were some contributions.... For example, the maximum contribution to an ISA is £3,200. What we were noting is that primarily females were maxing out their £3,200 annual contribution to the ISA, and they had incomes of less than £5,000. That indicated to us, and to a certain extent the same thing is happening in Canada, that there is income splitting with the high-income earner to the low-income earner. That's what we were getting at.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

I'm sorry, but I fail to see the problem with that.

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Allister W. Young

Well, the problem with that from a tax policy point of view is that the foundation of the income tax system in Canada is that the individual is the taxpaying unit in Canada, and there are specific rules in the Income Tax Act, for example, that disallow the transfer of income from one individual to the next.

What you're doing with this, the TFSA, is you're really circumventing those rules. Rather than having the individual as the taxpaying unit, what we're moving toward, more on a stealth basis, is joint taxation. When you move toward joint taxation, that opens up another whole can of issues.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Yes, we call it income splitting.

It sounds to me you have a problem with a spouse giving money to the other spouse.

9:20 a.m.

Associate Professor, Taxation, Goodman School of Business, Brock University, As an Individual

Allister W. Young

I do.

9:20 a.m.

Conservative

Andrew Saxton Conservative North Vancouver, BC

Thank you.

My next question is for Ms. MacEwen. You talked about RRIFs. I believe you said you were against the changes to the minimum withdrawal. Is that correct?

9:20 a.m.

Senior Economist, Social and Economic Policy, Canadian Labour Congress

Angella MacEwen

What I said is that the changes to the minimum withdrawal benefit the wealthy mostly, and allow people who have benefited from tax deferral at the front end to then again avoid tax at the rear end. What I'm saying is that benefits wealthy individuals, and you've done nothing that will benefit the lower.... It's very lopsided.