Enemies of progress emasculating government
Winnipeg Free Press March 19
‘I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub,” Grover Norquist, president of Americans for Tax Reform, once said. “The goal is reducing the size an scope of government by draining its lifeblood.
Ottawa pegs the cost of its new Tax-Free Savings Account (TFSA) at $50 million for the 2009-10 fiscal year. But when it’s fully mature, the price tag will balloon to $3 billion annually. That didn’t prevent Finance Minister Jim Flaherty from exploding in righteous indignation over the $900 million tab he stuck on the Liberals’ private member’s bill to make Registered Education Savings Plans tax-deductible, an initiative supported by the NDP and the Bloc Quebecois.
“It imperils the fiscal plan of the government,” the finance minister fumed. “It runs the risk of putting the balanced budget of our government into a Liberal deficit and we are not going to run a deficit so we’re going to kill the bill.”
Flaherty is projecting his own folly onto his political opponents. It’s the Conservatives, with their tax cut/debt repayment mantra, who are driving the country towards a deficit. Since taking office, the Conservatives have whittled the Liberals’ $13 billion-plus surplus down to a forecast $2.3 billion in 2008-09 and just $1.3 billion in 2009-10. Ottawa’s larder is all but bare with a recession looming.
The TFSA, the new budget’s signature feature, is little more than taxpayer-subsidized mad money for the well-to-do. Here’s what the government’s own blurb has to say about it: “TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation…Unused TFSA contribution room can be carried forward to future years. You can withdraw funds from the TFSA at any time for any purpose. The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room…”
Spend it on anything you want, the government is telling (wealthy) Canadians. Just make sure we, your elected representatives, don’t have it to splurge on such frivolous things as rebuilding the nation’s crumbling infrastructure, addressing poverty and homelessness and investing in higher education, national child care and the environment.
Even the Royal Bank wasn’t impressed. While applauding as “helpful” anything that boosts savings, the budget commentary by Canada’s largest bank says the TFSA is geared towards middle and upper-income earners and unlikely to boost overall savings. RBC concluded it was “more of a deferred consumption vehicle subsidized by tax revenue dollars.”
Canadian Auto Workers’ chief economist Jim Stanford calls schemes like the TFSA “insidious and dangerous.” The TFSA allows all forms of investment income, not just capital gains, to be tax-sheltered up to $5,000 of capital per year for every adult Canadian.
“Investment income in general is very unequally distributed, so this goodie is aimed clearly at the top,” Stanford continues in an article posted on the Progressive Economics Forum website. “The facts and figures about the incredible concentration of capital gains income at the very top of the income ladder are worth repeating…
“According to 2005 tax returns, there were 134,000 Canadians whose total income exceeded $245,000 that year — one half of one per cent of all tax filers. Yet that tiny, privileged slice of society claimed 44 per cent of all capital gains. Those rich Canadians were allowed, legally, to hide $7.3 billion in capital gains (or about $55,000 each.)
“Two-thirds of all capital gains savings are claimed by those making over $200,000. In contrast, the 22 million Canadians with total income below $100,000 were allowed to hide capital gains averaging $24.79 per person.”
The long stock market boom more than doubled the cost of the 50 per cent capital gains tax exemption to the federal treasury. It spiked from $2.3 billion to $5 billion annually. If that had happened to a social program, critics would be attacking Ottawa for out of control spending, Stanford says.
Marc Lee, senior economist for the Canadian Centre for Policy Alternatives, says the TFSA, like the RRSP and the RESP, are “essentially an upper-income tax cut in disguise.” His article on the Progressive Economics Forum website points out that most middle-income families have little in savings and only those with incomes over $200,000 can avail themselves of the full amount of the RRSP deduction. Further, average savings for families are down from $7,000 a few years ago to just $1,000 last year, with the average family $80,000 in debt.
Lee says the latest federal budget shows the government’s true priorities. Projected over three years, its new measures, plus those in last October’s Economic and Fiscal Update, amount to $23.9 billion in tax cuts, $13.8 billion in debt reduction and just $5.4 billion in new spending.
That translates into seven dollars in tax cuts and debt reduction for every dollar in new spending. Grover Norquist would be pleased.