Finance with Linda Leatherdale
Oh Canada, this is good news:
Our economy is rockin’ the world—posting a sizzling growth rate of 6.2% in the first quarter—triple the average of other G-7 nations.
And if the experts at the Paris-based OECD (Organization for Economic Development and Co-operation) are right, the good times will roll into the second quarter, with our economy expected to grow by another 4.5%.
“Canada is benefitting from its past good policies, in spite of the fact that Canada was severely hit through trade…from south of the border,” commented Pier Carlo Padoan, OECD chief economist.
These are the kind of numbers dreams are made of—especially after the lingering nightmares of a global subprime meltdown and the wake of victims it left behind. But the question some are asking is: can this be for real? Bottom line is if the good times are rolling, not all are sharing in the newfound wealth.
While OECD experts point out Canada enjoys stronger fundamentals, like public debt relative to our economy that is lowest in the G-7, they forget to point out this:
Never in our history has household debt been so high—soaring to $1.6 trillion or $96,100 per family, which equates to a debt to income ratio of 145%, the highest it has ever been. Some predict the ratio could jump to 160% by 2010.
This has put family finances in a very fragile state, warns the Vanier Institute, which reports a 50% jump in families three months behind in their mortgage payments and a 40% jump in families three months behind in credit card payments.
In fact, 59% of respondents to a Vanier Institute survey say they would be in trouble if their paycheque was delayed by even a week. That’s if they’re lucky enough to have paycheque.
With 1.6 million Canadians out of work, many families continue to struggle with a layoff, and are finding it tough to secure new employment with decent pay. “There are plenty of jobs paying $27,000, but that doesn’t pay the bills,” sighed a radio executive, who found himself among the ranks of the unemployed as the media sector undergoes a brutal restructuring. Layoffs have hit many sectors, but particularly hard hit is manufacturing and the auto sector, where workers with pink slips have become the chronically unemployed. Young workers were also hit hard, with half the job losses in 2009 suffered by those aged 15 to 25.
Canada’s jobless rate is hovering at 8.2%, after hitting as high as 8.9%. Back in July 2009, unemployment was at 5.9%.
Fact is, consumers account for two-thirds of Canada’s economic health and wealth. Yet, while they struggle to stay afloat in a sea of red ink, our leaders want to fleece their pockets even more, even though total taxes already eat up 48% of their paycheques.
What a way to celebrate Canada Day—with higher taxes. On July 1, the hated harmonized sales tax (HST) hits British Columbia and Ontario.
Bad timing for Ontario, the manufacturing heartland that was once Canada’s economic engine and is now a have-not province. Despite 75% of Ontarians saying “NO” to the HST, Premier Dalton McGuinty is pushing ahead, with the cost of everything from real estate transactions to hydro and heating bills going up, as the 8% provincial sales tax gets rolled into the 5% GST, creating a new 13% sales tax on steroids.
At the gas pumps, where the hosing continues, the cost of the GST—a tax on tax—now jumps to 13%. Ouch.
And if that’s not bad enough, McGuinty is also hitting Ontarians with a new hydro tax, with his new Green Energy Act allowing the Ontario Energy Board to levy $53.7 million in new fees on local utilities who will pass on the cost on hydro bills. It’s estimated this new tax will hike already soaring hydro bills by $90 a year.
Add in McGuinty’s hydro debt retirement tax, the cost of his smart meter plan, plus the HST, and hydro bills are going to jump by $350.
Meanwhile, electricity deregulation is lining the pockets of some. With the busting up of the Ontario Hydro monopoly, Ontario’s prized electricity system was divided into five players, each with a CEO, board of directors and fat-cat golden parachutes. One of these entities is the Ontario Power Authority, set up as a “transitional” agency with 15 staff. The OPA has now grown into a bureaucratic monster with 300 staff, including 75 who made the Sunshine list of earning more than $100,000. In one year alone, OPA spent $56 million on consultants.
And if that isn’t bad enough, 1,250 tax collectors in Ontario are getting $45,000 severance packages, even though their jobs are being moved from Queen’s Park to the federal government when the HST hits.
That’s our tax dollars at work.
But it’s not just higher taxes that overly-indebted families fear. Higher borrowing costs are on the way, too—perhaps as early as June 1 when some experts predict a quarter to half a percentage point hike in the trendsetting Bank of Canada rate, now at a record low of 0.25%.
The rate hike is intended to cool off inflationary flames of a heating economy, especially in our red hot real estate sector. Ottawa already clamped down by tightening up mortgage rules. For example, 0% down mortgages are no longer allowed with the required minimum down payment back to 5%, plus buyers who cannot make the conventional 20% down payment and opt for an insured mortgage must qualify for a five-year, fixed term mortgage, even if they take a variable rate.
Rules for borrowing against home equity have also been tightened up, and gone is Ottawa’s Home Renovation Tax Credit.
Some experts are scratching their heads. After all, shouldn’t we be thankful our key real estate sector is still firing on all cylinders.
And while some cry a bubble is about to burst – a new study suggests what we are seeing is healthy growth, not sizzling boom. For example, a new international home price survey shows Canada failed to make the Top 10 list, and placed 12th with a year-over-year average priced gain of 5.2% in 2009. Hong Kong topped the list with a 27.6% price gains, followed by China at 25.1%, Israel at 21.3% and Australia at 13.5%.
Besides, if you want to kill off real estate, just wait for the HST to hit.
So, are the good times really back? Bank of Canada Governor Mark Carney, in his latest economic outlook, warns there are still some wolves at the door. He says our sizzling economy will moderate through to 2012, due to a stronger Canadian dollar and a “markedly” weaker housing market. He also points out higher debt-servicing costs will dampen consumer spending.
Overall, our economy still faces “considerable” challenges in the years ahead, said Carney, who adds “if we want to grow faster, we are going to have to grow smarter, work smarter, invest better and build new markets.”
My solution: Stop putting the squeeze on hard-working Canadian families.
Linda Leatherdale is a sought-after financial commentator and regular contributor to The Canadian Business Journal and The Toronto Sun’s Homes Extra section. She is also Vice-President, Marketing and Development for Cambria, a North American manufacturer of natural quartz surfaces, countertops, etc. (www.cambriacanada.com). Linda can be reached at lindaleatherdale.com.
Our economy is rockin’ the world—posting a sizzling growth rate of 6.2% in the first quarter—triple the average of other G-7 nations.
And if the experts at the Paris-based OECD (Organization for Economic Development and Co-operation) are right, the good times will roll into the second quarter, with our economy expected to grow by another 4.5%.
“Canada is benefitting from its past good policies, in spite of the fact that Canada was severely hit through trade…from south of the border,” commented Pier Carlo Padoan, OECD chief economist.
These are the kind of numbers dreams are made of—especially after the lingering nightmares of a global subprime meltdown and the wake of victims it left behind. But the question some are asking is: can this be for real? Bottom line is if the good times are rolling, not all are sharing in the newfound wealth.
While OECD experts point out Canada enjoys stronger fundamentals, like public debt relative to our economy that is lowest in the G-7, they forget to point out this:
Never in our history has household debt been so high—soaring to $1.6 trillion or $96,100 per family, which equates to a debt to income ratio of 145%, the highest it has ever been. Some predict the ratio could jump to 160% by 2010.
This has put family finances in a very fragile state, warns the Vanier Institute, which reports a 50% jump in families three months behind in their mortgage payments and a 40% jump in families three months behind in credit card payments.
In fact, 59% of respondents to a Vanier Institute survey say they would be in trouble if their paycheque was delayed by even a week. That’s if they’re lucky enough to have paycheque.
With 1.6 million Canadians out of work, many families continue to struggle with a layoff, and are finding it tough to secure new employment with decent pay. “There are plenty of jobs paying $27,000, but that doesn’t pay the bills,” sighed a radio executive, who found himself among the ranks of the unemployed as the media sector undergoes a brutal restructuring. Layoffs have hit many sectors, but particularly hard hit is manufacturing and the auto sector, where workers with pink slips have become the chronically unemployed. Young workers were also hit hard, with half the job losses in 2009 suffered by those aged 15 to 25.
Canada’s jobless rate is hovering at 8.2%, after hitting as high as 8.9%. Back in July 2009, unemployment was at 5.9%.
Fact is, consumers account for two-thirds of Canada’s economic health and wealth. Yet, while they struggle to stay afloat in a sea of red ink, our leaders want to fleece their pockets even more, even though total taxes already eat up 48% of their paycheques.
What a way to celebrate Canada Day—with higher taxes. On July 1, the hated harmonized sales tax (HST) hits British Columbia and Ontario.
Bad timing for Ontario, the manufacturing heartland that was once Canada’s economic engine and is now a have-not province. Despite 75% of Ontarians saying “NO” to the HST, Premier Dalton McGuinty is pushing ahead, with the cost of everything from real estate transactions to hydro and heating bills going up, as the 8% provincial sales tax gets rolled into the 5% GST, creating a new 13% sales tax on steroids.
At the gas pumps, where the hosing continues, the cost of the GST—a tax on tax—now jumps to 13%. Ouch.
And if that’s not bad enough, McGuinty is also hitting Ontarians with a new hydro tax, with his new Green Energy Act allowing the Ontario Energy Board to levy $53.7 million in new fees on local utilities who will pass on the cost on hydro bills. It’s estimated this new tax will hike already soaring hydro bills by $90 a year.
Add in McGuinty’s hydro debt retirement tax, the cost of his smart meter plan, plus the HST, and hydro bills are going to jump by $350.
Meanwhile, electricity deregulation is lining the pockets of some. With the busting up of the Ontario Hydro monopoly, Ontario’s prized electricity system was divided into five players, each with a CEO, board of directors and fat-cat golden parachutes. One of these entities is the Ontario Power Authority, set up as a “transitional” agency with 15 staff. The OPA has now grown into a bureaucratic monster with 300 staff, including 75 who made the Sunshine list of earning more than $100,000. In one year alone, OPA spent $56 million on consultants.
And if that isn’t bad enough, 1,250 tax collectors in Ontario are getting $45,000 severance packages, even though their jobs are being moved from Queen’s Park to the federal government when the HST hits.
That’s our tax dollars at work.
But it’s not just higher taxes that overly-indebted families fear. Higher borrowing costs are on the way, too—perhaps as early as June 1 when some experts predict a quarter to half a percentage point hike in the trendsetting Bank of Canada rate, now at a record low of 0.25%.
The rate hike is intended to cool off inflationary flames of a heating economy, especially in our red hot real estate sector. Ottawa already clamped down by tightening up mortgage rules. For example, 0% down mortgages are no longer allowed with the required minimum down payment back to 5%, plus buyers who cannot make the conventional 20% down payment and opt for an insured mortgage must qualify for a five-year, fixed term mortgage, even if they take a variable rate.
Rules for borrowing against home equity have also been tightened up, and gone is Ottawa’s Home Renovation Tax Credit.
Some experts are scratching their heads. After all, shouldn’t we be thankful our key real estate sector is still firing on all cylinders.
And while some cry a bubble is about to burst – a new study suggests what we are seeing is healthy growth, not sizzling boom. For example, a new international home price survey shows Canada failed to make the Top 10 list, and placed 12th with a year-over-year average priced gain of 5.2% in 2009. Hong Kong topped the list with a 27.6% price gains, followed by China at 25.1%, Israel at 21.3% and Australia at 13.5%.
Besides, if you want to kill off real estate, just wait for the HST to hit.
So, are the good times really back? Bank of Canada Governor Mark Carney, in his latest economic outlook, warns there are still some wolves at the door. He says our sizzling economy will moderate through to 2012, due to a stronger Canadian dollar and a “markedly” weaker housing market. He also points out higher debt-servicing costs will dampen consumer spending.
Overall, our economy still faces “considerable” challenges in the years ahead, said Carney, who adds “if we want to grow faster, we are going to have to grow smarter, work smarter, invest better and build new markets.”
My solution: Stop putting the squeeze on hard-working Canadian families.
Linda Leatherdale is a sought-after financial commentator and regular contributor to The Canadian Business Journal and The Toronto Sun’s Homes Extra section. She is also Vice-President, Marketing and Development for Cambria, a North American manufacturer of natural quartz surfaces, countertops, etc. (www.cambriacanada.com). Linda can be reached at lindaleatherdale.com.
