My (Modest) Hopes for the Federal Budget
There are many priorities and wish lists for the federal budget, to be presented this Tuesday. For my part, I have modest expectations but, in particular, I will be looking for two things:
1) The implementation of the phasing out of the 15 per cent tax credit that shareholders of labour funds get on contributions, announced in the March budget by the Harper government, and now tabled in its implementation bill.
The two largest of these funds are in Quebec and account for 84 per cent of net Canadian assets. The largest by far, the Fonds de solidarité, has now more than $9 billion under management.
Anyone investing in the funds gets at least 30 per cent in tax credit — half of it from the federal government. That cost Ottawa $145 million in lost revenues in 2012.
The rationale for this tax credit was to encourage union organizations to provide development capital to small and mid-sized businesses. But, actually, the Fonds de solidarité devotes only 11 per cent of its assets under management to privately held business start-ups, according to its own annual report. The reason is simple: As labour-sponsored funds keep growing, they invest in all kinds of assets, from equity in large established companies — like Shell, Google or Bombardier — to real estate, government bonds and even business ventures in other countries. Now, there is absolutely nothing wrong in them investing in Shell or in Google, quite the contrary. But, then, this certainly doesn't justify a special tax treatment, relatively to other mutual funds or investment funds.
What's more, these funds are crowding out private investment funds. And those funds don't get any help from the government, hence creating unfair competition. In short, there are no longer serious justifications for the government to give labour-sponsored funds a preferential tax treatment.
2) The continuation of the Tax-Free Savings Account (TFSA)
I particularly like this initiative, first introduced by the Harper government in 2008. It allows every Canadian (18 and older) to let their savings grow without ever being taxed. In 2014, you will be able to put (up to) an additional $5,500 in your account. You keep all your investment returns, just as if there were no tax on capital gains.
According to the Department of Finance, between 2009 and 2012, TFSAs saved Canadians $690 million.
I hope this program stays for a long time, and that the federal government will keep raising the TFSA contribution cap.
It's especially a good policy for our economy and for our future. Canadians aren't saving enough, many say. These TFSAs provide an incentive to save, and put more aside for your retirement or for your future needs. It also helps the economy by increasing the pool of funds available for productive investments, which leads to economic growth, and, ultimately, to more quality jobs for Canadians.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.