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True, they’re not as sexy as some others, but the pros and cons of a bigger Tax Free Savings Account (TFSA) limit and the discussion over whether to expand the Canada Pension Plan (CPP) are worth thinking about when you cast your vote.
The new $ 10,000 TFSA limit
The TFSA is immensely popular, and for good reason. The late Jim Flaherty called it the “single most important personal savings vehicle since the introduction of the RRSP.” Wealthy Barber author David Chilton calls it a Totally Fantastic Savings Account.
The federal budget in May bumped the annual limit to $ 10,000. The Liberals, NDP and some economists jumped on the increase, saying it would only benefit those with higher incomes, and saying in the long run it would break the tax system.
An Angus Reid survey released ahead of the French language leaders debate two weeks ago shows the Liberals and NDP are out of touch with voters. Canadians of all stripes like the increase and want to keep it.
The poll found that 67 per cent of Canadians oppose rolling back the limit. By party, NDP supporters like the increase more than Liberals — 63 per cent vs. 62 per cent — with Conservative supporters highest at 78 per cent.
Critics argue the increase is a bad idea because the money inside TFSAs is accumulating tax-free. While that’s good for you, it means a growing pool of money is beyond the CRA’s reach, which means less for governments to spend on social programs.
The same argument could have been made of Registered Retirement Savings Plans (RRSPs) when they were introduced 50 years ago. If you had extrapolated maximum use, you might have forecast the plans would break the national bank. But 50 years later, nobody argues that RRSPs are a bad thing, and about 94 per cent of the contribution room is unused, says the CRA.
Some 88 per cent of available TFSA room was unused as of this spring. So it’s a theoretical liability, but practically one that is unlikely to come due.
In an era of record low savings and increasingly thin pension coverage, isn’t anything that encourages saving a good thing? And if, at some future date, the lost tax revenue becomes too much, we can change the limit. Governments do that sort of thing all the time.
Related: 20 of your TFSA questions answered
Expanding the Canada Pension Plan
Canadians want a bigger CPP, and they’re willing to pay for it. So get on with it, they’ve been saying for a decade.
The Liberals and NDP are all for an expansion. Thomas Mulcair says that within six months of forming an NDP government, he would meet with the provinces and come up with a proposal. Liberal leader Justin Trudeau goes one better, saying he’d be at the table within three months of taking office.
“What we will not do is reach into the pockets of middle-class Canadians with a mandatory payroll tax like the Liberals and NDP would do,” federal finance minister Joe Oliver told the House of Commons during Question Period in May.
Oliver hasn’t provided any details of his plan, but it wouldn’t likely have much in common with the CPP.
The CPP works because it is not voluntary. We are forced to contribute, which creates a big pool of money, reduces fees and increases economies of scale. The people running the fund know how much money is coming in and how much they need to generate to pay their obligations.
Another knock on volunteer plans is that they don’t usually work, because those who tend to need them most may not have the discipline to contribute. Good intentions fall by the wayside in the face of day-to-day needs.
So it’s a tough choice if both of these issues are important to you. As the Rolling Stones song goes: You can’t always get what you want, but if you try sometimes, you just might find, you get what you need.
More columns by Adam Mayers
Adam Mayers writes about investing and personal finance on Tuesdays and Thursdays. Have a question? Reach him at email@example.com .