The federal government has finally listened to financial services groups and it is introducing a tax-free savings account in this year’s federal budget.

In his speech to the House of Commons on Tuesday, Finance Minister Jim Flaherty called the TFSA “the single most important personal savings vehicle since the introduction of the RRSP.”

But the TFSA — a version of the tax prepaid savings plan — may be the only innovation in this year’s budget that may benefit investors and the financial services industry. There are other changes — the budget proposes to enhance the flexibility of withdrawals from life income funds, for example, and to extend the time limits in which RESPs must be terminated — that will help Canadians manage their money. It is also increasing the guaranteed income supplement exemption for seniors to $3,500 from $500. But the TFSA stands out as the only substantive investor-friendly initiative.

Under the TFSA, Canadians over the age of 18 can contribute up to $5,000 a year to a registered account in which investment income, including capital gains, will be exempt from any taxes, even upon withdrawal. Of course, TFSA contributions are not tax-deductible but otherwise TFSAs share a number of features of RRSPs.

The government is positioning its 2008-09 budget as a “prudent” one that recognizes the challenges of a slower growing economy. As a result, a number of its proposals are extensions of programs announced in the 2007-08 budget, the fall economic statement and the January announcement that introduced the Community Development Trust. For example, the budget proposes extending the accelerated capital cost allowance for investment in the manufacturing and processing sector another three years.

When it comes to program spending, there are few new initiatives in the budget. Education, the environment, Northern residents, Aboriginals and defence all see some funding increases. Overall, spending will increase by 4% a year over the next two years.

The budget does introduce two new Crown corporations, however. Coming in 2009, the Employment Insurance Financing Board will be responsible for implementing a new EI premium rate-setting mechanism and maintaining a cash reserve of $2 billion. For the first time, money raised from payroll deductions will go to funding EI payments.

The second Crown corporation, PPI Canada Inc., will be the first public-private partnership office operating at a federal level. The budget proposes spending $33 billion over the next seven years for roads, bridges, water systems, public transit and international gateways.

“By increasing our use of P3s and taking into account contributions by other levels of government,” Flaherty says, “we should be able to leverage a $100-billion investment in infrastructure.”

The budget, entitled “Responsible Leadership,” doesn’t come across as an election budget offering voters a basket of goodies. It is more of housekeeping budget that, as Flaherty says, is an “economic plan rooted in reality.”