Finance Committee on May 26th, 2015

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

We've done a long-term analysis projection until 2035 that's with respect to long-term cost. In today's dollar, we assess that the enhancement would cost about $650 million. That is about—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Is that per year?

[Miodrag Jovanovic]

Yes. That's about 0.03% of GDP and 0.3% of tax revenues. With respect to the overall program, we've assessed that the long-term cost over the same horizon would be about 0.22% of GDP. With respect to the short term, or the cost over the planning horizon, you have that in the budget on page 440. It would go from $85 million in 2015-16 to $360 million in 2019-20, for a total of $1.135 billion.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

The PBO has estimated that the program cost would roughly double in four years' time as measured as a share of the economy. Do you agree with that assessment from the Parliamentary Budget Officer?

[Miodrag Jovanovic]

As I said, our assessment is that by 2035 the cost would be 0.3% of tax revenues, about $650 million in current year dollars.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

The federal department often uses quintiles to assess any tax measure and its impact on Canadians. Is that true?

[Miodrag Jovanovic]

They don't necessarily use quintiles. For instance, we can look at tax brackets, which are not necessarily tied to quintiles. As you know, 1% of Canadians, the wealthiest, earn above $200,000.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I'm wondering, just in terms of those income quintiles, the income brackets, which quintile will see the largest benefit, in absolute terms, from the doubling of the TFSA.

[Miodrag Jovanovic]

I'm sorry. I haven't done that analysis. I don't have the answer.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Has the department done that analysis?

[Miodrag Jovanovic]

Sorry, I mean the department hasn't done that analysis.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

The department has not done that analysis.

The PBO has done that analysis and has estimated that the top quintile, the top 20% of Canadian earners, will gain approximately $9 billion from doubling the TFSA, which exceeds all other gains by all other groups of Canadian earners, so of the bottom 80%, I suppose, combined. Do you refute that evidence?

[Miodrag Jovanovic]

What I can tell you is that the individuals taxed in the third and fourth brackets in our tax system represent about 9% of the population, which is basically half of the top quintile. If you use the top quintile as a point of reference, you'd have many people, actually, taxed in the second bracket. I'm not sure what the top quintile, in that context, really means.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Has the department done any assessment of the impact on savings since the TFSA was first introduced in 2009?

[Miodrag Jovanovic]

When it was introduced in 2009, we said that the long-term impact of the TFSA would be about $3 billion in income.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Has the TFSA, since being introduced, increased the savings rate of Canadians?

[Miodrag Jovanovic]

We haven't done that analysis. The Department of Finance hasn't done that analysis.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

No, I heard you. I'm a little surprised, because the whole point of the program is to increase the savings rate of Canadians. This is not a complicated analysis to do. We can look at the savings rate.

The PBO has testified in front of this committee that the savings rate of Canadians has not changed since the introduction of the TFSA. People are simply choosing vehicles, switching money from one savings vehicle to another one, but the overall rate has not changed. This is not a complex analysis. I'm surprised that, if it was the intention of the program, the department wouldn't have assessed that impact.

[Miodrag Jovanovic]

The economic literature on savings rates is quite complex. If you look at the literature and you look at many, many studies that have tried to assess the determinant of saving and have even tried to determine the definition of a proper savings rate, doing that is extremely complex.

What we know is the government has created a vehicle that is very attractive to Canadians of all income classes and all ages.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Cullen.

Mr. Dubourg, you have the floor for five minutes.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Thank you, Mr. Chair.

I would like to take this opportunity to greet all my parliamentary colleagues and our guests.

I will briefly continue with the TFSA topic that my colleague addressed.

We often hear in the House that the families making $60,000 have made a maximum contribution to a TFSA. Do you have any information on that and can you tell us how it is possible to state that families making $60,000 contributed a maximum amount to a TFSA?

[Miodrag Jovanovic]

We have data on people who contribute the maximum amount. About 20% of people contribute the maximum amount to a TFSA. Of that number, which represents approximately 1.9 million people, we see that 60% have an income under $60,000 a year.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

You are saying that 60% have an income under $60,000. However, is it true that, before the inception of the TFSA, those people perhaps had a number of years' worth of savings and, once the TFSA was set up, they all seized the opportunity if they had $6,000, $7,000, $8,000 or $10,000 in their bank accounts?

Right now, can we expect families making $60,000 to still contribute the maximum amount, which is $10,000?

[Miodrag Jovanovic]

The money used for a TFSA can come from various sources of savings or from income earned during the year.

[Emmanuel Dubourg, Liberal, Bourassa, QC]

Okay, but I would like to point something out.

People who have a gross income of $60,000 also do their income taxes. After paying their taxes, how many people can have $10,000 in savings for a TFSA?