Canadian families struggling with $1.1 trillion in record household debt and maxed-out credit cards and who worry an economic meltdown will push them over the edge, are shut out of Ottawa's latest budget.
Unless they have a spare $5,000 lying around.
At a time when dark economic storm clouds are gathering and even Finance Minister Jim Flaherty is warning about fallout from the U.S. subprime madness, he gave us no relief from the highest personal income tax burden in the industrialized world. A little more money in the pockets of over-taxed Canadians, who pay more on taxes than food, shelter and clothing, could go a long way.
But no. Instead, in a surprise move that even caught some investment gurus off guard, the Tory finance minister stood up yesterday and rolled out Canada's first-ever Tax Free Savings Accounts.
Like Registered Retirement Savings Plans, almost anything is eligible to be parked in these new babies, aimed at encouraging overly indebted Canadians, who owe 131% of their household incomes, to save money for a rainy day. That's if we don't drown in a sea of red ink first.
Starting in 2009, anyone 18 and older can invest $5,000 a year worth of cash, GICs, bonds, stocks or mutual funds into the new savings account and the taxman will never be allowed to get his grubby little hands on the gains. You can also carry forward unused contribution room.
Unlike an RRSP, you can withdraw at any time and pay no tax.
Also, there is no tax refund, as with an RRSP. If you invest $2,000 in an RRSP by Friday's deadline and you're in a 40% tax bracket, you'll get an $800 tax refund when you file your 2007 income taxes.
Some critics argue many Canadians can't even afford to invest in RRSPs, let alone these new savings accounts.
After all, for the 2006 tax year, only 31% of eligible Canadians socked $32.4 billion into RRSPs, which is a mere 7% of the total room available. And it's mainly richer Canadians who invest, with 90% of families with after-tax incomes of $85,000 or more owning a RRSP.
Meanwhile, one-third were desperate enough to withdraw money before age 71 and pay tax. That doesn't include withdrawals through the Home Buyers Plan which allows RRSP funds to be used tax-free to buy a home.
Flaherty hails his new scheme as "a powerful incentive to save." But Derek Holt, RBC Financial assistant chief economist, said: "It's a bit optimistic to expect too many low income Canadians to use this vehicle."
INDUSTRY PLEASED
Still, the industry applauds the move, though many hoped for income tax cuts and for Flaherty to make good on a promise of deferring capital gains taxes.
Myron Knodel, a tax and financial planning expert with Investors Group, called the new savings account "a major measure relating to investors." And Ian Russell, CEO of the Investment Industry Association, gave it a big thumbs-up.
Flaherty is also trying to kiss and make-up with seniors, who are still spitting nails over his Halloween trick of clamping down on their precious income trusts. After allowing pensioners to split income, he's now raising the amount seniors can earn and be exempt from calculating Guaranteed Income Supplement benefits from $500 to $3,500.
He's also allowing Canadians aged 55 or older and who have $22,450 or less in locked-in pension funds to access their money. And he's sweetening Registered Educational Savings Plans, by lengthening contribution periods.
But he gave us no relief from high gas taxes at the pumps -- where the hosing continues and where the GST is a tax on tax, though his Gas Tax Fund dedicated to infrastructure and transit is now a permanent deal.
And he tossed a bone at our hard-hit manufacturing sector by extending capital cost allowances on equipment reinvestments, after telling Ontario Premier Dalton McGuinty to quit his whining and cut taxes.
Bottom line is we face tough times. And tough times take tough measures.
We need real tax relief, before the subprime tidal wave washes us away.
