Parliamentary Budget Office and The Tax Free...
Transcript of Parliamentary Budget Office and The Tax Free...
Parliamentary Budget Office and
The Tax Free Savings Account
Mostafa Askari University of Regina, March 18, 2015
Why do we have a PBO?
• 2006 Federal Accountability Act
Origin
• To promote transparency and credibility to the government’s fiscal forecasting and budgeting
Purpose
• Level the playing field for Parliament
• Foster trust in government
Ultimate goals
“We also know that the government has been wildly inaccurate in its forecasts and spending projections over the past five or six years. In recent budgets the Liberals have lowballed surplus numbers by an average of $6.5 billion per year. In the U.S. they do not have this kind of debate. There is a congressional budget office. People there, like here, may disagree on fiscal policy, but they should not have to guess if the numbers they are using are accurate.” “We believe that an independent, non-partisan parliamentary budget office should produce forecasts of revenues and spending which are universally available and accepted by all parties and experts of all stripes. Such a body would ensure that the government is genuinely accountable for taxpayers’ dollars and that we maintain fiscal discipline at the federal level.”
Stephen Harper, October 6, 2004
Two branches of the PBO’s mandate
Reporting on the state of the nation’s finances, the
government’s estimates and trends in the Canadian
economy
Estimating the financial cost of any proposal for matters over which Parliament has
jurisdiction
The PBO in practice
• Opposition Senators and Members of Parliament will frequently request analysis of contentious matters, and the resulting public reports are used to hold the government to account
• However, all parliamentarians have an interest in the PBO’s findings
Used for Political Purposes
• Budget of $2.8 million
• 17 employees
Small
• More than 200 publications since the beginning of its activities in 2008
• All PBO publications and data are available to the public
Prolific and open operating model
What features define the PBO?
• The PBO provides advice independent of government
Independent
• Expert staff and independent peer review for major files
Authoritative
• Conduct analysis independent of requestor’s political affiliation
Non-partisan
Reporting on the state of the nation’s finances, the government’s estimates and
trends in the Canadian economy
Annual Economic and Fiscal Outlook, and occasional
updates
Annual Labour Market
Assessment
Quarterly review of
federal program spending
Analysis of the main and
supplementary estimates
Estimating the financial cost of any proposal for matters over which Parliament has
jurisdiction
Estimating the financial
cost to remediate Canada’s
contaminated sites
($3.9 billion)
Cost of absenteeism in the public
service ($871 million)
Budget analysis of acquiring
Arctic/ Offshore
Patrol Vessels
Fiscal cost of the mission in
Iraq, Operation
Impact ($129 to $166 million)
Challenges
•Organizational structure •Appointment process •Budget
Weak statutory protection
• Weak legislation
• No remedies for lack of compliance
Access to information
• Political and bureaucratic resistance
• Fear of PBO’s presence in media
Open and transparent publishing
Tax Free Savings Account
Summary
Key benefit: Exempts investment income earned on TFSA assets from income tax and income-tested transfer calculations
TFSA facts: • Implemented in 2009 • Contribution room increases
annually (by $5,500 in 2015) • Eligibility starts at age 18
Age limit: 38
Age limit: 68
0
50
100
150
200
250
300
350
400
2010 2020 2030 2040 2050 2060 2070 2080
x1000 Illustration: growth in personal TFSA limits
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
-0.2 -0.4 -0.5 -0.7 -0.9
-1.1 -1.3
-1.5 -1.7
-1.9
-0.2 -0.2
-0.3
-0.4
-0.5
-0.6
-0.7
-0.8
-1.0
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
$ b
illio
ns
Provincial
Federal
• Though the TFSA is a federal initiative, income earned in accounts is also exempt from provincial income tax
• The provinces bear about 1/3rd of the fiscal impact
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
-0.2 -0.4
-0.6 -0.7
-1.0 -1.2
-1.5 -1.7
-1.9 -2.2
-0.1 -0.2
-0.2
-0.3
-0.4
-0.4
-0.5
-0.6
-0.6
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
$ b
illio
ns
Transfer Tax
• Most benefits are tax savings, but 20-25% of benefits are generated through increased transfers on income-tested programs (e.g. OAS/GIS clawbacks)
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
0.11
0.18
0.23
0.19
0.13 0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.00 0.05 0.10 0.15 0.20
Tran
sfe
r G
ain
s
Tax Gains
Low
Mid-Low
Mid
Mid-High
High
TFSA gains as % of after-tax income, by income group in 2015
• Transfer benefits rebalance distributional outcomes in 2015
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
-0.1
-0.2 -0.3
-0.3 -0.4 -0.4 -0.4
0.0
-0.1
-0.1
-0.2 -0.2 -0.2 -0.2
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0.0
2010 2020 2030 2040 2050 2060 2070 2080
% o
f G
DP
Provincial
Federal
• The TFSA will grow ten-fold as a share of GDP (2015 to 2080)
• The rate of growth will slow each year as fewer people gain from increasing contribution room
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
Low income
Mid-low income
Mid
Mid-high income
High income
0
0.4
0.8
1.2
1.6
2
2010 2020 2030 2040 2050 2060 2070 2080
Gai
ns
as %
of
afte
r-ta
x in
com
e
TFSA gains by income group
• The lowest 20 percentile gains relatively little from continued TFSA expansion
• Median- to high-income households gain the most over the long term
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
0.49
1.31
1.75
1.71
1.36 0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.0 0.5 1.0 1.5 2.0
Tran
sfer
Gai
ns
Tax Gains
Low
Mid-Low
Mid
Mid-High
High
2060
2015
TFSA gains by income group
• Transfer gains play a sizable role in rebalancing tax gain regressiveness, in the medium and long term
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
Low
Mid-Low
Mid
Mid-High
High
0
0.5
1
1.5
2
2.5
2010 2020 2030 2040 2050 2060 2070 2080
TFSA
gai
ns
as %
of
afte
r-ta
x in
com
e
TFSA gains by net worth
• Unlike many tax programs, wealth not income, is the key determinant of TFSA benefit potential
• Only the wealthiest 20 percent of households materially gain from TFSA expansion beyond 2050
Medium term Long term Scenarios Fiscal Distribution Fiscal Distribution Fiscal Distribution
45 and under – solid lines 46 and over – dashed lines
TFSA gains as % of after-tax income, by income and age group, 2060
Low
Mid-Low
Mid
Mid-High
High 0.0
0.2
0.4
0.6
0.8
1.0
1.2
0.0 0.5 1.0 1.5 2.0
Tran
sfe
r G
ain
s
Tax Gains
• Age is also influential
• Older households generally have higher wealth and choose higher risk/return assets
• TFSA limits also increase with a person’s age, further benefitting older households
Medium term Long term Doubled limit Fiscal Distribution Fiscal Distribution Fiscal Distribution
-50 -170
-250 -350
-450 -80
-130
-180
-230
-800
-600
-400
-200
0
2016 2017 2018 2019 2020
$ m
illio
ns
Provincial
Federal
Medium term
• Like the first iteration of the TFSA, the near-term fiscal impacts of doubling contribution limits are relatively small
• Total TFSA fiscal costs would be about 20% higher by 2020
Medium term Long term Doubled limit Fiscal Distribution Fiscal Distribution Fiscal Distribution
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
2010 2020 2030 2040 2050 2060 2070 2080
% o
f G
DP
Baseline
Long term
• Over the longer term, doubling the limit would increase the TFSA fiscal costs by about 1/3rd
Medium term Long term Doubled limit Fiscal Distribution Fiscal Distribution Fiscal Distribution
Low
Mid-Low
Mid
Mid-High
High
High - status quo
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2010 2020 2030 2040 2050 2060 2070 2080
Pe
r ce
nt
of
afte
r-ta
x in
com
e
Long term distribution of gains by household net worth
• Primarily the wealthiest 20 per cent of households would gain from a higher contribution limit
Medium term Long term $100k limit Fiscal Distribution Fiscal Distribution Fiscal Distribution
• As an illustration, if instead TFSA contributions were immediately and permanently increased to $100k
• The fiscal profile of the program materially changes in the medium and long term
$100,000 limit scenario
Baseline
0
0.1
0.2
0.3
0.4
0.5
0.6
2010 2020 2030 2040 2050 2060
% o
f G
DP
Long term fiscal impact under an alternative scenario
Medium term Long term $100k limit Fiscal Distribution Fiscal Distribution Fiscal Distribution
• Yet the distributional profile of the TFSA would effectively be unchanged
0.38
1.07
1.40
1.42
1.31 0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.0 0.5 1.0 1.5 2.0
Tran
sfer
Gai
ns
Tax Gains
Low Mid-Low
Mid
Mid-High
High
Long term distributional impact under an alternative scenario