How to build financial security for lower- and modest-income Canadians

Today, Maytree and Common Wealth are releasing a report that looks at how to help lower- and modest-income Canadians save more money. Authors André Côté, Alex Mazer, and Jonathan Weisstub propose a targeted policy intervention to boost savings and build assets among lower- and modest-income Canadians: the Canada Saver’s Credit (CSC).

The CSC would offer lower- and modest-income Canadians a dollar-for-dollar match of up to $1,000 per year for savings into a Tax-Free Savings Account (TFSA). More than ten million Canadians – those with net household incomes of about $36,000 or lower – would be eligible for the full credit.

“The CSC would go a long way towards protecting lower- and modest-income Canadians from poverty-inducing financial shocks,” says Mr. Mazer. “It would help households become more resilient against fluctuations in employment and income, develop the habit of saving, prepare for major purchases, and build a more secure retirement.”

Canadians on lower and modest incomes face challenges when it comes to building asset wealth. Studies estimate that half of Canadian households have insufficient savings to stay above the poverty line for three months, and the incentives in our tax system do little to help modest-income Canadians save.

While the Government of Canada spends over $45 billion on tax expenditures to encourage people to save through RPPs, RRSPs, and TFSAs, most of this spending benefits middle- and upper-income Canadians. Lower- and modest-income Canadians saving in RRSPs receive minimal tax deductions for their contributions, and risk being subject to a punitive Guaranteed Income Supplement (GIS) “clawback” of 50 per cent or more when they use these savings for retirement income.

The CSC would remedy this by limiting negative interactions with income-tested or retirement benefits, and provide lower- and modest-income Canadians with a simple, flexible way to increase their savings.

It would cost roughly between $275 million and $550 million, around 1 per cent of the $45 billion in current public expenditure on RPPs, RRSPs, and TFSAs.

Download the report at https://maytree.com/publications/the-canada-savers-credit/. The report was prepared jointly by Common Wealth and Maytree, and made possible by supporters of the Common Good Retirement Initiative.