I’m not strongly for or against the TFSA limit increase announced in the latest federal budget (pdf here). However, the attempted spin in the budget document makes me laugh.
As Larry MacDonald observed, the budget writers tried to counter the idea that a TSFA increase mainly benefits the rich by saying “about 60 per cent of the individuals contributing the maximum amount to their TFSAs had incomes of less than $60,000.”
The first thing to observe here is that being rich is only indirectly about income. It’s really about how much money you have. I’d rather have a million dollars and an income of $50,000 than be in the hole a million dollars and have an income of $100,000. The truth is that the people who will benefit the most from a TFSA increase are those who already have significant non-registered assets, regardless of their incomes.
Even if we look at wealth in terms of income, I expect that my wife and I will likely each have incomes under $60,000 in retirement. But we’ll also get to spend some TFSA withdrawals and some of the capital from our non-registered accounts. We’ll have a great retirement, but will still fit under the $60,000 figure from the budget quote.
The TFSA increase makes little difference to those who are very wealthy; the main beneficiaries will be those with upper middle class incomes and those with enough assets that they’ve already maxed out their TFSAs and RRSPs (which tend to be older people).
So, it’s true that the TFSA increase mainly benefits those who are fairly well off. But this doesn’t make it a bad idea. Who says that all government measures have to benefit only the poor? Surely we can have different measures that help different groups. The first few thousand dollars of TFSA room certainly benefit poorer people who are better off not saving in an RRSP.
If pressed for my opinion, I’d have to say that I think we didn’t need the TFSA increase, but I don’t feel strongly about this. What bother me most are nonsense arguments for or against the TFSA increase.