Budget Day 2008!

[Topaz]

The new tax savings account is for the seniors who got hit with the Interest Income tax and the young who don't have the debt load that most middleincome married with kids have.

[M.Dancer]

This is a typical Conservative budget, and sadly supported by their lapdogs of late, the Liberals.

There is nothing in this budget for the people who need it the most: the poor and low incomers. There are no monies to help toward affordable housing, no increase in minimum wage for the working poor and no improvements to the child care system. And the incentive to buy clean cars with a rebate has been killed. If one person recieved this rebate, then it has been a success (as that is one small step in helping the environment.)

As much as many of you try to ridicule or discount the NDP, they are absolutely right in what they say about this budget.

1) Minimum wage is a provincial issue

2) The car rebate was arbitrary and a waste.

3) The best medicine for the poor and low income earners is an economy that provides better paying jobs.

4) I think I can speak for Jack Layton when I say this budget does nothing for those unwilling to help themselves....

[Caldezar]

As far as our troops are concerned, have you asked THEM how they feel? Remember it was the liberals who committed the troops there and it was the liberals who have decimated the forces over the years. In fact, the conservatives have gone on a wild spending spree for upgrading our capabilities and it's about time.

But your target for villification of the state of our armed forces is on the wrong party.

I completely agree with you as far as the Liberals being the cause of our military neglect. However, that's one of the reasons that the Conservatives are our elected government. We can blame the Liberals all we want, but if we elect a Conservative government to fix our issues, then I expect them to deliver on that. I'll grant you that, at the start of their run, they did inject money in to the military. My concern is that they have failed to keep up with that promise. You can't play the hero for a year or two and then turn around and stop everything you started. Make a plan and stick to it. Preferably one that puts the health and safety of our loved ones and fellow countrymen at the top of the list. Not a plan to appease people with a tax break or 'get retired quick' scheme. We've all seen these tax changes before. The problem is that it's just a never-ending cycle; increase taxes in one area (gas is a great example, but not the only one), then get a tax break to your income or savings so you think you're actually coming out ahead.

[M.Dancer]

I completely agree with you as far as the Liberals being the cause of our military neglect. However, that's one of the reasons that the Conservatives are our elected government. We can blame the Liberals all we want, but if we elect a Conservative government to fix our issues, then I expect them to deliver on that. I'll grant you that, at the start of their run, they did inject money in to the military. My concern is that they have failed to keep up with that promise. You can't play the hero for a year or two and then turn around and stop everything you started. Make a plan and stick to it. Preferably one that puts the health and safety of our loved ones and fellow countrymen at the top of the list. Not a plan to appease people with a tax break or 'get retired quick' scheme. We've all seen these tax changes before. The problem is that it's just a never-ending cycle; increase taxes in one area (gas is a great example, but not the only one), then get a tax break to your income or savings so you think you're actually coming out ahead.

You realize of course that the new spending initiated in the last couple of budgets by the Conservatives is a multi year programme? That the increases offered in this budget are on top of the multi year commitment of the 18+ billion committed by the Liberals and the Conservatives?

Overall, this year's $18.2-billion defence budget will increase, as projected, to $19 billion.

After more than a decade of heavy spending cuts by the Conservatives and Liberals, the Paul Martin Liberals promised the military a five-year, $13 billion infusion in 2004 before the Harper Conservatives in 2006 topped that up with a further five-year $5.3 billion pledge.

The budget also added an extra $43 million over two years to upgrade the military's communications security establishment, and it earmarked an extra $282 million over the next three years to help veterans and their survivors.

http://www.canada.com/topics/news/features...a11&k=32136

[Wilber]

The new tax savings account is for the seniors who got hit with the Interest Income tax and the young who don't have the debt load that most middleincome married with kids have.

Good way to save for a down payment on a house. A person with little or no debt could put as much as they can in their RRSP then put the resulting tax refund into a TFSA.

[Topaz]

Harper's gave tax cuts to banks and other business and what do I get in the mail....your visa is going up 1 %. Good thing I pay it off every month. BTW, the employees of banks get their charge cards at 5% but if they leave, it goes up to the 18% or the future 19%.

[M.Dancer]

Harper's gave tax cuts to banks and other business and what do I get in the mail....your visa is going up 1 %. Good thing I pay it off every month. BTW, the employees of banks get their charge cards at 5% but if they leave, it goes up to the 18% or the future 19%.

My mastercard is 10.5%

[August1991]

I still think this $5000 savings account is overly complicating the tax system. Just cut income taxes please.

On the contrary. My initial reaction was wrong.

Mr. Flaherty called the TFSA the only significant savings initiative, tax-wise, since the introduction of RRSPs in 1957.

“I know it's going to take awhile for the importance of this initiative to strike people,” he said. “But in 1957, the government of the day introduced something called an RRSP that all of us take for granted now.”

“This is going to become a very popular measure for all Canadians,” he said.

G & M

Flaherty is right. This won't cost much now but it amounts to a significant tax cut in the future.

The $5,000 limit is per *adult*. It's $10,000 for a couple. How many dentists/doctors with adult children who are in school etc. won't immediately be putting $5,000 into an account for each child?

So what? Let them.

The people who will benefit from this are people who can save up to $5000. (Above such amounts, there's no benefit.)

With an RRSP, small savers are locked in and getting their money in an emergency is difficult. That's not the case with a TFSA. Furthermore, if saving for a downpayment on a house, there's no $20,000 limit.

This makes offshore banking (legally) possible for ordinary people. Flaherty is right to say that these will become popular and will have a significant effect on savings patterns in Canada. I think the maximum amount should be increased to, say, $10,000 and the TFSAs could replace RRSPs.

Incidentally, they are called ISAs in the UK.

Edited February 27, 2008 by August1991

[jdobbin]

On the contrary. My initial reaction was wrong.

Flaherty is right. This won't cost much now but it amounts to a significant tax cut in the future.

Many economists are skeptical that it will lead to big changes in savings for Canadians. It was done because Flaherty can't or won't deliver his promised capital gains changes. Many people don't use all of the RRSP room they have now. Moreover this creates a whole new program that has to be administered and overseen by the government and private sellers.

I think that the government should have boosted the basic personal exemption.

Edited February 27, 2008 by jdobbin

[M.Dancer]

I think that the government should have boosted the basic personal exemption.

Indeed.

[Wilber]

I think that the government should have boosted the basic personal exemption.

Not so sure. Our personal savings rate has dropped from 11.2% in 1982 to 1.2% in 2005 (Stats Can). We have become a nation of spenders with little regard for our futures. Boosting the basic personal exemption would just mean more of the same. TFSA's might go a little way to correct that.

[jdobbin]

Not so sure. Our personal savings rate has dropped from 11.2% in 1982 to 1.2% in 2005 (Stats Can). We have become a nation of spenders with little regard for our futures. Boosting the basic personal exemption would just mean more of the same. TFSA's might go a little way to correct that.

And this is where many of the experts have shown some skepticism. With so many not even filling the room in their RRSPs or RESPs, the commentary was that there is little evidence to show that it will increase savings. Certainly there is no evidence to suggest Britain or the U.S. has increased savings because of their plans.

Lowering the basic exemption does more good for more people than any other type of tax change the government can make.

[Wilber]

Lowering the basic exemption does more good for more people than any other type of tax change the government can make.

It allows them to spend more. I'm not sure how much good that does, but it is their money. Good thing our nany state will look after us when we no longer have any income to be exempt.

[August1991]

Many economists are skeptical that it will lead to big changes in savings for Canadians. It was done because Flaherty can't or won't deliver his promised capital gains changes. Many people don't use all of the RRSP room they have now. Moreover this creates a whole new program that has to be administered and overseen by the government and private sellers.

I think that the government should have boosted the basic personal exemption.

Dobbin, you state several times "many economists" or "many skeptics". Who are these people? It's the oldest trick in the book to use unknown so-called experts to buttress your own argument.

TFSAs have been used in the UK since 1999. They are very successful and have come to replace the equivalent of our RRSPs. I have no doubt that the same will occur in Canada. (At present in the UK, the maximum annual contribution is £7,000.)

The problem with RRSPs is that they are subject to a (relatively) high withholding tax so that if someone urgently needs cash after making a contribution, it is costly to withdraw and wait until a tax refund. I think this explains in part why some people didn't use RRSPs. In addition, for small savers, RRSPs are not advantageous because any money withdrawn results in lower GAINS.

TFSAs are not difficult to administer. Banks or other financial institutions will offer these accounts (they have a year to design them). They exist now in the form of offshore accounts anyway.

Compared to a capital gains cut, this strikes me as a better way to go. TFSAs are entirely free of tax including capital gains tax. By limiting the amount, it's a cheap way for the government to make this available to small savers.

Lastly, I too would like to see a higher basic exemption and a cut in income tax rates. But how is the government going to pay for all the subsidies and schemes the Liberals and NDP always dream up? Underneath it all, Dion/Rae/Kennedy/Ignatieff are tax-and-spend politicians.

TFSAs amount to a large future tax cut politically locked in now.

Edited February 27, 2008 by August1991

[jdobbin]

Dobbin, you state several times "many economists" or "many skeptics". Who are these people? It's the oldest trick in the book to use unknown so-called experts to buttress your own argument.

It has been pretty much commentary all day on CBC and on talk radio all day about the TFSA. You have heard none of it?

http://www.investmentexecutive.com/client/...156&cat=156

RBC economists said any measures that promote savings are welcomed, but went on to question whether the new TFSA will, in fact, boost nest eggs. “One likely outcome is that contribution room may well be used up by gradually sweeping non-tax sheltered savings across to this new tax sheltered account and thereby have no material impact on saving tendencies,” wrote RBC chief economist Paul Ferley and his colleague, Derek Holt. “The other reason why it may not boost savings over the long haul is that no restrictions on when and how funds can be redeployed make it more of a deferred consumption vehicle subsidized by tax revenue dollars.”

RBC also noted the move provided a bit of political shelter for the current government. “This new plan also allows the federal government to claim a victory by way of delivering on its plans for sheltering investment income, including capital gains.”

I just finished hearing RBC's Paul Ferley comment that he said he would prefer to have seen a capital gains tax cut.

TFSAs have been used in the UK since 1999. They are very successful and have come to replace the equivalent of our RRSPs. I have no doubt that the same will occur in Canada. (At present in the UK, the maximum annual contribution is £7,000.)

Have they increased the savings rate? Are they widely utilized or have the same impact as a basic income tax exemption? Do you have any citation on that. It is easy to say it is good but you have no evidence that is actually increased savings? Is it truly better than a tax cut?

The problem with RRSPs is that they are subject to a (relatively) high withholding tax so that if someone urgently needs cash after making a contribution, it is costly to withdraw and wait until a tax refund. I think this explains in part why some people didn't use RRSPs. In addition, for small savers, RRSPs are not advantageous because any money withdrawn results in lower GAINS.

TFSAs are not difficult to administer. Banks or other financial institutions will offer these accounts (they have a year to design them). They exist now in the form of offshore accounts anyway.

Compared to a capital gains cut, this strikes me as a better way to go. TFSAs are entirely free of tax including capital gains tax. By limiting the amount, it's a cheap way for the government to make this available to small savers.

Certainly the National Post and some of the other investment critics disagree that capital gains was not a better way to go.

http://network.nationalpost.com/np/blogs/f...ive-budget.aspx

It is by no means certain that the TFSA will be a popular success, given the low contribution limit. And all other things being equal, it would be better if the tax relief came in a broader form -- further cuts to the capital gains tax would have been nice, and a boost to everybody's overall personal exemption from income tax would have been nicer still. Canadians don't make full use of their RRSPs now, and money managers will have no choice to pass the costs of creating a whole new program infrastructure onto us. But with a sigh, we must acknowledge that a tax break is a tax break.

A tax break is not a tax break if it is not broad based as far as I'm concerned. As you would say, it picks winners and losers.

Lastly, I too would like to see a higher basic exemption and a cut in income tax rates. But how is the government going to pay for all the subsidies and schemes the Liberals and NDP always dream up? Underneath it all, Dion/Rae/Kennedy/Ignatieff are tax-and-spend politicians.

TFSAs amount to a large future tax cut politically locked in now.

Getting your partisan shots in, I see. The danger of a deficit is all the Tories now.

The tax and spend king is Stephen Harper and the Conservative party of Canada.

http://www.nationalpost.com/most_popular/s....html?id=336282

The promised slowdown in spending was applauded by Williamson, who however expressed skepticism about whether the government will in fact rein in spending.

"Until now Jim Flaherty has not controlled spending," Williamson said, noting program spending has increased by nearly 15% over the past two years. "He has missed his own spending targets every year . . . "

And as I said late last year, the government could very well be flirting with deficit over some of its tax cuts, spending and policy.

Economically, the budget is "mildly stimulative," said BMO Capital Markets economist Douglas Porter.

But when the measures that were announced in the fall economic statement, including $60-billion in tax cuts over this and the coming five years, it will help keep the economy out of recession, Mr. Porter added.

Also, he noted the budget has gone about as far as it could and that the government could be flirting with a deficit over the coming two years.

Edited February 28, 2008 by jdobbin

[August1991]

A TFSA is known as a Roth IRA in the US and contribution limits are $5000 as in Canada. (It's interesting that the Finance bureaucrats also copied the $500 increment based on inflation from the US model.)

In the UK, they are known as an ISA and have become popular.

In the past Australian election, John Howard proposed TFSAs as part of his campaign.

Like the GST, RRSPs and tax-free interest, TFSAs make good economic sense because they remove the distortion between current consumption and future consumption that an income tax implicitly contains.

They are common in Europe and are typically known as offshore accounts.

I just finished hearing RBC's Paul Ferley comment that he said he would prefer to have seen a capital gains tax cut.

I saw a quote of an RBC economist who criticised the proposal. I thought that he's not much of an economist to criticise it. (My first reaction was to bemoan the added complexity so I guess I'm guilty too.)

Have they increased the savings rate? Are they widely utilized or have the same impact as a basic income tax exemption? Do you have any citation on that? It is easy to say it is good but you have no evidence that is actually increased savings? Is it truly better than a tax cut?

The issue is not whether it increases or decreases the savings rate. (As an aside, for everyone who saves, there is someone else who borrows. If the savings rate goes up, the borrowing rate also goes up. If some people save alot, then other people are in debt alot.)

IMV, people should choose appropriately between consumption today and consumption tomorrow. The current tax regime favours current consumption over future consumption. This leads to bad choices and is costly to the Canadian economy. The GST and RRSPs remove this distortion but RRSPs have their own problems. They are not convenient for low income, small savers who face liquidity risks. A TFSA overcomes this and since a TFSA will not affect pension supplements, they are ideal for low income people.

I am sure that financial planners will now recommend to most people to fill up a TFSA first with $5000 and then to make an RRSP contribution.

----

I hope the provincial governments follow suit and leave these accounts untaxed. This is particularly true in Quebec which determines its own income tax base.

Edited February 28, 2008 by August1991

[jdobbin]

A TFSA is known as a Roth IRA in the US and contribution limits are $5000 as in Canada. (It's interesting that the Finance bureaucrats also copied the $500 increment based on inflation from the US model.)

In the UK, they are known as an ISA and have become popular.

In the past Australian election, John Howard proposed TFSAs as part of his campaign.

Like the GST, RRSPs and tax-free interest, TFSAs make good economic sense because they remove the distortion between current consumption and future consumption that an income tax implicitly contains.

They are common in Europe and are typically known as offshore accounts.

Have you seen some of the disadvantages and restrictions listed with the U.S. system?

Is there any evidence of it increasing savings? Is it better than a broad based tax cut?

[jdobbin]

The issue is not whether it increases or decreases the savings rate. (As an aside, for everyone who saves, there is someone else who borrows. If the savings rate goes up, the borrowing rate also goes up. If some people save alot, then other people are in debt alot.)

IMV, people should choose appropriately between consumption today and consumption tomorrow. The current tax regime favours current consumption over future consumption. This leads to bad choices and is costly to the Canadian economy. The GST and RRSPs remove this distortion but RRSPs have their own problems. They are not convenient for low income, small savers who face liquidity risks. A TFSA overcomes this and since a TFSA will not affect pension supplements, they are ideal for low income people.

I am sure that financial planners will now recommend to most people to fill up a TFSA first with $5000 and then to make an RRSP contribution.

----

I hope the provincial governments follow suit and leave these accounts untaxed. This is particularly true in Quebec which determines its own income tax base.

Since Flaherty is selling this as something that will increase the savings rate, I think it is key to ask if it has done so in countries that have implemented it already.

The best thing for low income people is further tax reductions in the basic rate. It remains and will forever remain the best broad based relief and stimulus for more people than any other government policy. Do you disagree with this?

Edited February 28, 2008 by jdobbin

[Pat Coghlan]

This makes offshore banking (legally) possible for ordinary people. Flaherty is right to say that these will become popular and will have a significant effect on savings patterns in Canada. I think the maximum amount should be increased to, say, $10,000 and the TFSAs could replace RRSPs.

Incidentally, they are called ISAs in the UK.

Just another in a long line of tax "gimmcks" rather than substantial tax reform.

Read this: http://www.thestar.com/World/Columnist/article/307742

[Wilber]

TFSA's are a compromise. It is defered tax relief because a government doesn't believe it has the room to offer it up front. It is also a great deal for those who can take advantage of it. If a person was able to make an RRSP contribution large enough to give them a $5000 tax refund and every year they put that refund in a TFSA which compounded at an average of 5%, in 20 years they would have $175,000 in that account which if desired could be withdrawn in one lump with no taxes. One would need to withdraw at least double that from an RRSP in a lump sum to wind up with the same amount after taxes. In addition to that they could contribute another $5000 for a spouse who is either not working or unable to contribute large amounts to an RRSP with the potential of doubling the return.

This isn't peanuts if you have the ability and are disciplined enough max out the opportunity.

[Wilber]

Double post.

Edited February 28, 2008 by Wilber

[Alta4ever]

I think that many people fail to realize just how powerful a little bit of savings really is. If a 20 year old puts away $133 a month (about the same as what is paid per month for car insurance) for nine years at age sixty five it will compound to about $380,825. Now if you take the principal paid in over the nine years $14,000 - 380825 = $366425 in deferred capital gain which means 50% of that is taxible. So $183212.5 is taxable at the marginal tax rate. Now now lets plug that into 2007 Alberta and federal taxe numbers. You would have to pay $59,265 in taxes on that investment (just remember if you live in another province you will pay more). So if you live in Alberta the savings plan which you didn't max out, just saved you $60,000 in retirement that would have to have been paid to the government in taxes. That is huge and you should say thank you to the CPC. This isn't for the rich or the upper middle class this benefits everyone!

Edited March 1, 2008 by Alta4ever

[jbg]

Now then, most infrastructure in Canada is under provincial jurisdiction. I don't think the federal government should get involved.

I have heard projections of a $14 billion surplus for this fiscal year alone. EI has an accumulated surplus of $54 billion. The CPPIB has an accumulated surplus of about $110 billion.

So why not do the obvious and make a huge federal tax cut with the proviso that provinces should use the room given to raise their own taxes to rebuild infrastructure? More provinces, less Ottawa?

[jbg]

I think I can speak for Jack Layton when I say this budget does nothing for transgendered and GLB workers.....

A parade in every city or town over 100 population, in both languages, would do that job fine.