Oh, oh!
Evidence of meeting #14 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was system.
A video is available from Parliament.
Evidence of meeting #14 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was system.
A video is available from Parliament.
12:50 p.m.
Some hon. members
Oh, oh!
12:50 p.m.
Conservative
Lisa Raitt Conservative Milton, ON
Angella, you said that instead of the TFSA ceiling being raised, we should double the CPP. My argument to that would be that you don't use CPP if you're saving for your wedding. You don't use CPP if you're saving up to travel. You don't use CPP if you're putting money aside for your kid's education, or if you think you're going to need palliative or other care in the future. That's where I think the break is in terms of CPP.
I think the concept that TFSAs are only and solely for retirement is not well-founded. I think it's one where people utilize these vehicles for whatever purposes they want to. The difficulty with CPP—and you know this, and I know this, and it's unfortunate people don't want to talk about this—is that if you double CPP and you don't allow for other vehicles, people's after-tax dollars, or people's pay, will be going into a vehicle that, if they don't live long enough, they will never collect. In the case of a TFSA there is an inheritance ability for the kids or the spouse. That's an important aspect of TFSAs that we should also discuss when we talk about contributions and where people choose to put their money.
The other point I would make, Mr. Chair, and I'll be succinct, is that if you take a look around the world, when we increased our level to $10,000 we did not do it in a vacuum. In the United Kingdom they have an ISA, which is an investment savings account or an income savings account. Do you know what their limit is, Mr. Chair? I'll tell you what their limit is per year. In Canadian dollars it's $28,000 a year. That's the limit for the TFSA in the U.K.. They've had it in place for many years, and in fact they have a junior one. Clearly in their country they view it as a reasonable and meaningful way for people to save their money. It's a good program. We thought a lot of it. We increased the amount as they increased the amount. I think that was a great legacy of Jim Flaherty's.
Instead of having kids being told to put something on their credit card now, and pay it off later, I think it's worthwhile to say, “Put some money in your TFSA and delay what you want to do, and by the way, we'll give you money and it's better for you to do it than paying the interest.”
That would be my comments on the TFSA.
12:50 p.m.
Liberal
The Chair Liberal Wayne Easter
Ms. Raitt, I would like to give Ms. MacEwen a few seconds to respond.
Go ahead.
12:50 p.m.
Senior Economist, Social and Economic Policy, Canadian Labour Congress
Thank you.
Ms. Raitt, you're absolutely correct. The mix matters. It's important for workers to have that CPP that will be there no matter what. You'll have it until you die. The problem with the TFSA is that you can run out of money, but with CPP you can't run out of money. If you have that mix of savings vehicles, then you have that security for workers.
You're right. You're encouraging savings. My husband and I saved up for a house in a TFSA. It does makes sense to have a mix, to look at workers, and to look at what services we're providing to people with low incomes. Your point is absolutely well taken.
12:50 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you.
I have three and a half minutes, so I'll ask only one question, but it is for all four of you, if you want.
Strangely enough, there is one thing I believe you're all in agreement with when we're talking about the tax system. That would be for a review of the tax expenditures we have. I've seen some work done by the CUPE economists. I've seen some work done by Mr. Hodgson. I do believe there's some work by the Fraser Institute on the topic. Mr. Milligan, I know you're interested in the topic.
Not only is it a matter of reviewing the tax expenditures, I think it's a matter of considering that some tax expenditures are inefficient and even detrimental for the economy. We know the Minister of Finance has announced that he was interested in reviewing tax expenditures.
I'd like to have your comments on the state of tax expenditures, the impact it has on economic growth, and if you consider that tax expenditures and even the review of the tax mix constitutes by itself a full reform of the tax system, or if it's only one component that should even be enlarged to look at the whole complexity, the administrative costs, and even the inefficiency of the current Canadian tax system as a whole.
I would like to start with Ms. MacEwen, continue with Mr. Stewart and also have Mr. Lammam and Mr. Milligan comment.
12:55 p.m.
Senior Economist, Social and Economic Policy, Canadian Labour Congress
I think it is certainly time to have a review of the tax system, and the fairness in how business taxes interact with the personal tax system. It would be broader than just tax expenditures.
One of the big problems with tax expenditures, as I think you all know, is that they aren't evaluated in the same way that other program spending is. If we could look at changing how we evaluate tax expenditures as well as what tax expenditures we have on books.... Thank you.
12:55 p.m.
Associate Director, Economics, Conference Board of Canada
Thank you very much for the question.
Our belief is that we should eliminate much of the tax expenditures and put that money from any of the programs into a lower broader tax reduction. When you look at the data, people are increasingly paying to get their taxes done; it's increasing the complexity. Eliminating much of these tax expenditures that may not be suiting their original purpose and putting that money towards a lower broader base and simplifying the tax system makes sense.
12:55 p.m.
Director, Fiscal Studies, Fraser Institute
Thank you for that.
This is a very important question, and one that I agree with wholeheartedly. There is a very important need and opportunity to review tax expenditures. By my last count, there are roughly 128 of them in the federal tax system, which now cost more in terms of lost revenue than the entirety of what the federal government collects in personal income tax revenue each year.
Now, all the tax expenditures are not bad. Some of them, like the personal exemption, are worthwhile, and the same with RRSPs. We've done a study, in fact, where we've calculated that the federal government could do away with several of these tax expenditures, many of which are ineffective in terms of encouraging the desired behaviour, being regressive; that is, they're disproportionately benefiting higher-income earners.
By scaling back or eliminating many of these tax expenditures, we could in fact take out the two middle tax brackets in the old system, which would cost about $2 billion, leaving two rates, one at 15% for the overwhelming majority of Canadians, and another at 29% for roughly 2% of taxpayers. I think this is a really important opportunity to revisit tax expenditures that have grown quite dramatically, particularly since 2006, and to look towards a more simple pro-growth and efficient tax system.
12:55 p.m.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you.
I would like Mr. Milligan to have an opportunity to answer the question.
12:55 p.m.
Professor, University of British Columbia, As an Individual
I will be brief, Mr. Easter.
Thank you for the question. I agree with my co-panellists on the importance of looking at the effectiveness of different tax expenditures.
However, I think it's important to also pick up on a point made by Mr. Caron, which is the complexity of the system. Tax expenditures add substantial complexity, which has an efficiency cost, but it also importantly has a fairness cost. People who have access to greater tax planning and have an accountant on call are able to navigate the complexities of the tax system more easily than a regular middle-class family.
I think it's important, both from the point of view of efficiency and for fairness of the tax system, to have a thorough examination of tax expenditures.
12:55 p.m.
Liberal
12:55 p.m.
Liberal
Francesco Sorbara Liberal Vaughan—Woodbridge, ON
I'll first comment on the tax rates. There's marginal tax rate and then your average tax rate. There's a bit of a difference there. We also need to point out that there are other considerations in terms of where people want to live and work, housing costs, proximity to jobs, transit amenities, open space.
Kevin, I believe you and I crossed paths at the University of Toronto many years ago, probably about 20 years ago I think, when we did our graduate studies. You're out at UBC now, so congratulations on living in Lotusland there on the west coast.
I'm going to throw this out there very quickly. On our government's policy to reduce the second tax rate, some have argued as to why we didn't reduce the first tax rate. I think it needs to be known that reducing that second tax rate is very important, because a lot of income earners who are in that first tax rate bracket qualify for a number of credits that the second bracket of individuals do not. The maximization of providing benefits to the middle class for the cut to the second tax rate, I think is very important, and I think it was great policy on the part of our government.
Before I let you answer, I do want to make sure we correct something that Ms. Raitt pointed out earlier. The bail-in legislation for Canadian banks was brought out by the predecessor government in response to the global bail-in regimes being brought forth by the regulatory agencies and governments around the world after the financial crisis. It is being put in place to protect depositors, insure depositors. It is to do with bonds that are outstanding and the convertibility of liability. I do want to correct that.
Now we can answer the tax question.
1 p.m.
Liberal
1 p.m.
Professor, University of British Columbia, As an Individual
I have a quick response to that with two quick points.
The first is that on the question of mobility of high earners, there is certainly some evidence that there is some sensitivity of high earners to tax rates, but I think we don't want to overestimate that, especially when we're looking at moving between Canada and the U.S. People are going to be less likely to move there than they are among countries in Europe, for example, for many different reasons, especially when you're looking at the soccer player study.
It is important to consider, but I think it's also important to remember that it's not just tax rates that matter. There are other factors, such as quality of life, and other aspects of society that people choose when they choose where to live.
1 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you very much. We are out of time, I'm sorry.
I thank all the witnesses for their presentations in B.C. and here before the table.
Thank you very much. The meeting is adjourned.