Economists meet at The duty ask about the merits of the Tax Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). According to them, these two tax measures, which cost the State billions of dollars per year, benefit the richest and intensify economic inequalities.
“These are programs for rich people. “That’s not what we said when we created them, but that’s what happens when we look at the data,” says David Macdonald, senior economist at the Canadian Center for Policy Options (CCPA).
A analysis note from the Quebec Observatory on Inequalities (OQI) published last November the distribution of all amounts invested in RRSPs and TFSAs was identified by wealth bracket, measured by net worth. Thus, the wealthiest 20% of individuals have 55% of the amounts invested in a TFSA and 70% of those invested in an RRSP. In contrast, the least well-off 20% of individuals own 1% and 0% of the pot in these two instruments, respectively.
Several factors explain this difference. “To take advantage of these programs, you must have the ability to save and therefore a corresponding income to save,” researcher Julia Posca, from the Institute for Socio-Economic Research and Information (IRIS) first indicates. In addition, “the deduction reduces the tax depending on the situation [des contribuables] in the tax scale, so the aid is more generous for the wealthiest,” says tax expert Luc Godbout, professor at the University of Sherbrooke.
In the case of the TFSA, where investment interest is not taxable, maximum contributions are set at $7,000 for the year 2024, out of a possible total of $95,000 for anyone eligible for contributions from the program that began in 2009. Although this savings vehicle is open for everyone, those who cannot use it to its full potential are at a disadvantage.
For the RRSP, not only do you have to have enough funds to contribute, but the maximum value of tax-deductible contributions is directly linked to income. The allowable limit is 18% of annual employment income, although it is capped for taxpayers with a salary over $171,000.
“With the RRSP, you have to pay attention to the statistics,” says Mr. Godbout, since a good number of taxpayers have access to other tax measures that encourage retirement savings, such as approved pension plans. The analysis would be more complete and the results clearer by considering both programs at the same time, although, according to the researcher, the phenomenon would remain the same.
Big tax expenditure
“There is a range of tax measures that disproportionately benefit a few better-off people, but also take significant revenue from the State to ensure its vision,” noted economist Geoffroy Boucher of the OQI.
Both levels of government are seeing their revenues greatly reduced due to the TFSA and RRSP tax deduction programs. These tax expenditures would exceed $6 billion in Quebec in 2023, according to the Quebec Ministry of Finance.
Due to the uneven side of these measures, the four experts came together The duty Wonder if all this money could not be better invested. They all suggested that improving existing public retirement programs, such as the Quebec Pension Plan, would be more effective than maintaining the TFSA and RRSP.
According to a Léger survey conducted last March for the Quebec Public Health Association84% of the Quebec population favors greater government investment in public retirement programs, the poll’s most popular potential investment to reduce wealth inequality in Quebec.
For Mr Boucher, it is also necessary to “act against the current reasons why people don’t have money to save at the end of the month”, for example by funding social and community housing. Such a measure would have a significant downward impact on the price of the real estate market”, reducing the effects of the housing crisis, according to the economist.
For Mr. Macdonald, all Canadian tax deductions, inequitable or not, should be questioned when they together produce tax expenditures that reach $100 billion per year, or about 5% of the entire Canadian economy. “Poverty can be eradicated with figures like that,” he notes.
First a political question
“Wealth or income inequality is not inevitable, it’s affected by the policies we’ve put in place,” says Mr Boucher. Governments can play an important role in reducing inequality. We have the levers to do it, we just have to have the political will to put them into action. »
According to experts, we must question whether it really has the power to influence political choices. “We have a political class with an over-representation of the wealthiest classes and these are tax advantages that benefit them,” says Ms Posca. On the other side of the coin, “the people who don’t benefit from these measures, or at least have access to the means to express their opinion, are not vocal people,” says Mr. Boucher.
Furthermore, “the speech is often different [au sujet des déductions fiscales] and the effect of the measures in reality,” says Ms. Pocket. However, if we put politics aside, “helping the poor is more beneficial than helping the wealthiest, economically and socially,” she says. The money that the former spend on their basic needs “returns to the economy” and partly to government coffers through taxes, while the wealthier go to “financial and speculative assets” and sometimes use “strategies tax avoidance”, according to the researcher.
“The tip of the iceberg”
“The RRSP and the TFSA are the tip of the iceberg,” reflects Mr. Boucher. Many other tax measures disproportionately benefit the wealthiest, including the tax-free savings account for the purchase of a first property (CELIAPP), which was introduced last year.
For Mr. Godbout, it is this accumulation of programs above all that makes it impossible for most families, even those in the middle class, to benefit from all the tax measures available at the same time.
A CCPA study published in April it estimates the total tax rate of taxpayers, taking into account all sources of taxation (including consumption taxes and city, provincial and federal taxes) on all types of income (taxable or not). She concludes that the tax system as a whole becomes regressive for higher incomes. Thus, for the richest 20% of Canadians, as income increases, the percentage of taxed income decreases, on average.
This phenomenon becomes particularly evident at the top end of the distribution, where the overall tax rate for the top 1% of individuals is lower, on average, than the tax rate for any other income bracket.
Taxing the wealthiest less, among other things through programs like the TFSA and the RRSP, contributes to the concentration of wealth. A report of the Parliamentary Budget Officer It also estimates that the wealth held by the richest 1% reached 24.8% of the total net worth in Canada in 2019.
“Currently, the rules of the game are not level for everyone, they contribute to exacerbating inequalities,” concludes Mr Boucher.