It’s unfortunate when politics trump good economic policy and common sense.
Case in point; The 2015-Q4 announcement by the Federal Department of Finance that effective January 1, 2016 they would be reducing the annual contribution limit of the Tax-Free Savings Account (TFSA) from $10,000.00 to $5,500.00. The motion was included along with the provision to create a new top personal income tax rate of 33 per cent for individual taxable incomes in excess of $200,000. These were both part of the efforts by the Government of Canada to ask the wealthiest one percent of Canadians to contribute a little more.
We here at CASE are not “trained and schooled economists” in the classical sense but rather simple voracious observers and consumers of economic data and opinion that we then funnel and analyze through our filters of experience and common sense. With that being said, we suspect that a reduction in savings incentives to those earning under $200,000.00 per year will have a far greater negative impact on them than a wealthy one percenter! (ie. allowing an extra $5,500.00 to grow tax free for a guy making say $70,000.00 to $90,000.00/year, if he chooses to, would be a lot more noticeable to his net-worth over 20 years than some uber-wealthy guy living on the other side of the tracks). All in all we are having difficulty wrapping our heads around the net-benefit of this policy decision over the long run.
Furthermore, there is a troubling message in all of this, (that we must conclude is completely an unintended consequence and not malicious in nature) at a time when household debt to disposable income is hitting record highs of over 163%; the value of “savings and fiscal prudence” is not an important value to encourage. Should good economic polices not be ones that support and encourage financial independence? If we are not independent are we not then dependent? On whom? The Government? Now that’s a scary thought.
As a collection agency with offices in Edmonton, Calgary and the GTA we are watching with keen interest the unfolding of events with respect to these phenomenon and their impact (or lack thereof) on Canadian credit markets.