Finance Minister Joe Oliver will allow Canadians to shelter more of their savings from taxes for longer while boosting benefits to children in a pre-election budget aimed at seniors and working families.
The budget measures for households will be worth about C$5 billion ($4.1 billion) in each of the next two fiscal years, saving families as much as C$6,600 this year. The main measures are an increase in contribution limits for tax-free savings accounts to C$10,000 from C$5,500, and giving seniors more time to withdraw money from tax-sheltered retirement accounts.
Oliver said the tax breaks are focused on working Canadians, a response to opposition criticism the Conservatives have focused too much on money for companies and rich families since taking power in 2006. Oliver said the government’s move to cut the overall tax burden to the lowest in half a century has benefited everyone, including the 11 million Canadians who have a tax-free savings account.
“These measures will make life more affordable for all Canadian families with children,” Oliver said in his budget speech.
Allowing seniors to make slower conversions from a tax-deferred Registered Retirement Savings Plan, or RRSP, will cost C$670 million through fiscal 2019-20, according to budget documents.
Members of the CARP seniors’ group “will welcome the proposals that will help them save and manage their savings for their retirement needs,” Susan Eng, vice president of advocacy, said in a statement. “These changes are valuable vote getters in an election year.”
The Conservatives have the support of 39 percent of voters aged 55 and over, compared with 32 percent for the Liberals and 24 percent for the New Democratic Party, according to a poll this month by Ipsos.
The expansion of the TFSA addresses concerns that people are earning low rates of interest on their savings and paying tax on it, said Myron Knodel, director of tax and estate planning at Winnipeg-based Investors Group. More than half the people who have made the maximum contributions to TFSAs were over 55, Oliver said.
“It would appear that it is geared to people who are in their savings years as opposed to their high debt years,” Knodel said.
The budget also increases the universal child care benefit by $160 a month, creates a new tax credit for helping people taking care of the disabled, and expands benefits to care for someone who falls ill to six months from six weeks. The government will also propose “a new financial consumer protection framework for banks” that restricts advertising and sales techniques.
Today’s budget focused more on smaller targeted tax increases rather than broad-based cuts to personal income tax rates, said Toronto-Dominion Bank economist Derek Burleton.
“It’s a relatively tight budget in terms of new measures, to make it fit the fiscal box,” he said in an interview, citing the government’s goal of a balanced budget this year. “In a perfect world, you would be looking at some broader-based relief, but the recognition is it comes at a substantial cost.”
Some Canadians could use tax relief with household debt at a record high relative to after-tax income. Debt ratios have risen on borrowing fueled by high housing prices and low mortgage rates. The government “continues to closely monitor the housing market,” according to the budget documents.
Consumer spending has been among the biggest sources of growth since a recession that started at the end of 2008, with manufacturing and business investment curtailed by weak global demand. Oliver delayed the budget beyond the start of the fiscal year that began on April 1 to give his department time to gauge the impact of collapsing oil prices.