Article content continued

Stuck with low interest rates, some Canadians have had to boost their personal savings to ensure a target retirement income or cover risks, which has the effect of decreasing consumption.

Canada’s tax policy is particularly hard on savers. Despite tax-sheltered returns in housing equity, pensions, RRSPs and TFSAs, most income groups, especially older Canadians, are heavily taxed on their marginal investment.

Take just one category of the middle class: those earning between $45,000 and $49,900 in income. On average for this group, almost five per cent of assessed income is comprised of taxable interest, dividends, capital gains, and rental income. Since this income is earned in excess of pension plan, TFSA and RRSP savings, taxes make it harder to accumulate wealth —not just for this income group but others.

The safest place they could save that income, a government bond, yields a return of about two per cent. At a marginal tax rate of roughly 33 per cent in Ontario for this group, the after-tax yield would be 1.34 per cent. With long-term inflation of two per cent, investors would earn a negative inflation-adjusted rate of return of -0.66 per cent.

The system is thus heavily rigged against taxable savings. Not only do people pay income, consumption and other taxes from their earnings, but they also pay tax on the investment income they earn to pay for future needs.

The unfairness against savers is accentuated in other ways as well. Governments are happy to take their share of your investment profits, but won’t fully share your losses, resulting in higher effective tax rates for riskier investments. This is particularly important in the way it discourages high-risk entrepreneurial (think: venture capital) investments. That impacts most of all the very high net-worth investors these entrepreneurs need to attract, since top average federal-provincial marginal tax rates in Canada are now 53 per cent, the fourth highest among OECD countries.