To be clear, the cut in the middle income tax rate will provide tax relief. Based on the personal savings rate, which is in the low single digits, the bulk of that money is likely to end up in consumption. A small portion of it will end up in savings.
My point is that the savings aren't going to add to economic growth. It won't show up in the government's estimates of how much more boost the economy gets from the tax cut, but it has a benefit because encouraging Canadians to save more is good.
Although we are seeing many Canadians take advantage of TFSAs, I think there are still concerns about whether Canadians are saving adequately for retirement. Canadians are carrying larger debt burdens longer in life, and there are issues related to what's happening to the savings life cycle. In other words, Canadians are saving later in life, and this creates concerns, particularly among Canadians who do not have an employer pension plan.
When we look at the Canadian population, we say, “What is the at-risk population that's going to fall short of income replacement during retirement?” What we find is that it's middle-income households that do not have employer pension plans. As a consequence, this is one of the reasons why RRSPs and TFSAs are useful savings vehicles, because they provide additional incentives for Canadians to save.
What's interesting about the TFSA, which hasn't come up at this point, is that the criticism that's being levelled is that the TFSA is predominantly being used by high-income households. This isn't true. It's being used across the entire income spectrum. In fact, the advantage of the TFSA is that it's designed to help people in the lower tax bracket, because often the people with the lower income tax rates are not getting large tax credits when they save through RRSPs. The TFSA will give them a better tax return, and tax payoff, in terms of their savings. As a consequence, it's low-income Canadians and low middle-income Canadians that benefit the most from a tax point of view through the TFSA.
What should the limit be, and what should the annual limit be, or what should the lifetime limit be? We want Canadians to save more. The fact that the TFSA has proven popular is a signal that it is a useful vehicle and a useful complement in terms of helping incent Canadians to save.
I don't view any of this to be contradictory.