Is raising the Tax Free Savings Account limit unjust?

It all comes down to whether you are in favour of freedom or government coercion

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Michael Flood answers the questions we're all afraid to ask
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EDMONTON, AB, Mar 4, 2015/ Troy Media/ – Back in 2011, during the federal election, the Conservatives promised to double the limit on Tax-Free Savings Account contributions once the budget was balanced. It remains one of the big ticket promises from that election that is still unfulfilled – not surprisingly, since the budget is not yet balanced.

The government promotes the planned for TFSA limit increase as a means for Canadians to “keep more of what they earn” and to save more easily for retirement. It also helps low-income Canadians and those who live on social assistance by not punishing them for income on investments, allowing them to save without fear of losing their benefits.

Tax Free Savings Account opposed by Broadbent Institute

Critics, like the left-leaning Broadbent Institute, say that the TFSA plan needs a serious rethink. They claim that the primary beneficiaries of the TFSAs, and of any future annual limit increases, are the wealthy and well-to-do, those who have the means to give the maximum contributions. Rhys Kesselman, an economist at the Broadbent Institute, says that the proposals will also “deprive” the government of billions in revenue as the programs mature.

tax free savings account
Why would anyone oppose Canadians keeping more of their money through a Tax Free Savings Account?

Some may glance over these stories thinking they are just dull financial and economic news. Others may have a self-satisfied sneer at the “rich” and how they are always benefitting more than everyone else before clicking to another story. That is a shame, because this story is, in fact, an example of an important issue: who is better able to make use of money, the citizenry or the government?

Social democratic critics like the Broadbent Institute believe that government has a great ability to deliver public goods and benefits most efficiently by collective (in the end, coercive) action. Government can almost provide a measure of equality and prevent great disparities in wealth. Thus they believe that governments have a very great claim on the income of their citizens, almost a right to it – notice that Kesselman says that the TFSA contribution limit will “deprive” government of revenue, as if Revenue Canada had a right to our money the way a citizen has a right to life, liberty, and private property.

Economic liberals, on the other hand, place greater trust in people to look after their own interests, believing that governments’ role is primarily to provide impartial justice and enforcement of contracts along with law enforcement and defence. They fear government overreach and inefficiencies, as well as the possibility of petty repression and exploitation, interfering in people’s looking out for their own good in the name of dubious “common good” projects.

When one looks at the enormous level of non-mortgage debt held by Canadians, it’s pretty obvious that many, many people would be better off with someone else controlling and managing their money. When we see people buying homes and sports cars and boats they cannot afford, dependent completely upon the goodwill or foolishness of their creditors, it’s tempting to believe that what money they have could have been better spent on building roads and funding public healthcare. This is a point in favour of those who lament the government being “deprived” of revenue in the future.

In the economic liberals favour, however, is that their method preserves and protects freedom. Leaving people to spend their money as they will, either to fritter it away on luxuries and vanities or to prudently invest it, is more respectful of people’s individual choices than taking it for collective spending. Further, why should we believe that, if so many Canadian households are massively in debt, those same people, now elected to the legislature or in charge of spending public funds in bureaucracies, will suddenly become wise and sagacious in how they spend tax dollars?

All in all, Tax Free Savings Account a good idea

The economic liberals can, however, go too far. Some believe that any amount of government taxation is unjustified oppression. I would advise those extremists that the country of their dreams, the land of unbounded personal liberty, already exists: it is called Somalia.

While government spending can in many cases alleviate poverty and want, it cannot make people prudent or virtuous. Only freedom, the right to experiment and to take responsibility for one’s decisions, can do that. Increased possibilities for tax-free savings expand people’s capacities for exercising free choice, and should be protected.

I am in favour of the government’s proposed raising of the TFSA limit.

Michael Flood is a marketing writer and communications consultant. He holds an MA in Philosophy from the University of Alberta.

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