Your Vote Gets A Better CPP Or Bigger TFSA, Not Both

A couple of election issues that affect you more than most have barely seen the light of day in this campaign.

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.

Based on party platforms, you’re going to get one or the other, but not both.

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.

As of this spring, Canadians had nearly 11 million TFSA accounts worth $118 billion, according to the Canada Revenue Agency.

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.

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.