It was on June 1st of 2021 that the Liberal Government last increased the “stress test” for home buyers taking on a mortgage, which encompasses the vast majority of home buyers.
For those unaware, a stress test requires that a home buyer must qualify at a higher rate of interest compared to current lower interest rates to ensure they can still make their mortgage payments if interest rates rise.
In essence a stress test is intended to ensure that a home buyer has some excess fiscal capacity at their level of income to afford an increase on their mortgage payment if interest rates should increase.
While some may argue that the stress test protects people from potentially higher interest rates, in my experience many who are fortunate enough to pass the stress test and buy a home don't stop there.
They proceed to borrow to make additional purchases, like home improvement, furniture or car loans.
Why do I raise this now?
As many will know this week it was widely expected that the Bank of Canada (BOC) would raise the key interest rate however this did not occur.
Instead, the current rate was maintained although the BOC did warn that:
“Interest rates will need to increase to control inflation. Canadians should expect a rising path for interest rates,”
This means for those with a variable rate mortgage. their monthly payments will be increasing in the near future.
For those with a fixed rate mortgage, when their current rate expires, they may also face higher rates upon renewal.
While stress tests are important public policy tools, there are also other challenges that remain.
Based on feedback I am hearing from many households here in our region, there are new fiscal challenges emerging putting pressures on household finances.
Obviously with the highest in 30-year inflation, many citizens are now forced into paying more for goods, groceries and in some cases services and yet receive less value in return.
Gasoline and diesel prices have increased, likewise the cost of gas to heat your home has also increased, as have some of the taxes on your home heating.
At the same time many citizens have also noticed, because of higher premiums for payroll deductions like the Canada Pension Plan, that their net take home pay is less from what it was last year.
In addition, despite Liberal Government promises to reduce your monthly cell phone bills by “25%” this has not occurred.
While the Liberal Government also promised not to tax online streaming services such as Netflix, as many now know, online streaming services are now taxed.
All of these increased taxes and fees take a bigger bite out of your household net income at a time when payroll deductions are doing the same.
Depending on how much the Bank of Canada raises the interest rate, I have heard from various citizens who indicate their monthly mortgage payment could increase as much as $400 to $800 a month, which is a significant hit to their net income.
Some have suggested increased interest rates combined with higher inflation, fees and tax increases is creating a situation they cannot afford.
More so as ever increasing CPP and Employment Insurance premiums (which the freeze on premiums ends this year) further erodes their net discretionary income.
My question this week:
Are you concerned about your own household affordability?
I can be reached at Dan.Albas@parl.gc.ca or call toll free 1-800-665-8711.
This week Canada’s Parliamentary Budget Office (PBO) released the 2021 Economic and Fiscal update report for Parliamentarians.
The reports tells us that:
“Since the start of the COVID-19 pandemic, the Government has spent, or has planned to spend, $541.9 billion in new measures over 2019-20 to 2026-27, of which $176.6 billion (or about one third) is not part of the COVID-19 Response Plan”.
The PBO also notes that there is $57.8 billion in new spending that will be related to the Liberals 2021 election platform.
One interesting observation from the PBO is that Canada has now recovered 106% of jobs that were lost at the outset of the pandemic.
Despite this positive news, the PBO notes that the government has also dropped previously announced plans to wind down stimulus spending by the end of the 2021-22 fiscal year.
Noting that the labour market in Canada has now recovered, the PBO questions the need to continue to spend billions on stimulus spending despite previous plans to wind that spending down.
From my perspective here locally, one of the most frequent concerns that I hear is from pensioners and families who are struggling to keep up with inflation at the pumps and at the grocery stores.
I have also heard from small and medium sized business owners about the difficulty they have filling jobs, and worsening supply chain issues leading to shortages that lead to increased prices for goods and services.
Many are worried that more stimulus spending may only further increase inflationary pressures making goods even less affordable.
Given Canada’s current employment numbers, low interest rates, coupled with higher levels of government spending both in Canada and the United States during a time where we have seen continued supply chain issues, leads to bigger questions around inflation.
Statistics Canada has recently reported that Canada’s inflation in December was running at 4.8%.
Economists have noted that this is the largest surge of inflation we have seen in 30 years.
My question this week relates to stimulus spending and its role in the economy.
While the debate in Ottawa will continue on the need for more stimulus spending versus winding it down, what is your opinion here locally on stimulus spending?
I can be reached at Dan.Albas@parl.gc.ca or call toll free 1-800-665-8711.
Recently my email inbox, as well as a significant number of calls to my office have raised significant opposition to a proposed annual home equity tax.
The overwhelming feedback on this topic has come somewhat as a surprise to me as this what not a major media story nor have I raised this topic in a weekly report.
Because of the level of responses I have received to this proposed homeowners equity tax will be the focus of this week's report.
First off – what is it?
Recently a Canadian Mortgage and Housing Corporation (CMHC) funded report from a group known as “Generation Squeeze”.
This report recommended an annual home equity tax on residences values in excess of $1 million dollars or more.
The proposed tax would be 0.2% for homes with a value between $1 million up to $1.5 million and would increase again to 0.5% up to $2 million and would ultimately increase to 1% on homes valued over $2 million payable annually like income taxes.
What if you could not afford to pay the annual home equity tax?
The program would be designed to defer the balance owing with a rate of interest charged on the outstanding balance.
The idea being the balance owing would be paid when the home is sold, or title transferred through an inheritance.
How does this make housing more affordable?
In theory the government would use this tax revenue to invest in affordable housing.
The report's author also believes it would create a disincentive for those who invest in housing for a monetary return.
To be candid I oppose this tax proposal.
As has already been shared with me, there are citizens who now find themselves living in homes with a value in excess of a million dollars and would be subject to such a tax despite not having purchased a “million dollar home”.
As these individuals point out, they could never afford to purchase a million-dollar home.
On the surface they can “sell” and cash in on the increase in their home value but as has been pointed out, with the average price of a home in Kelowna now over $1 million, it is pointless as your gains would be wiped out trying to purchase in the current market.
As we have seen large jumps in home values throughout BC in recent years, it would be only a matter of time before more and more households qualify to pay this tax regardless of their household income.
It has also been pointed out that selling a million-dollar home in itself negatively can impact your equity as real estate commissions and the BC property purchase tax are much higher on homes with a value in this price range.
As one individual shared with my office, they are only a “millionaire” homeowner on paper and could not afford to sell and buy another home at the current market rates as it is all relative.
I have heard other reasons why citizens are opposed to this idea.
One common question is what happens in the event that housing markets decline, having a natural effect on reducing your home equity, when at the same time the home equity tax you owe would continue to increase.
There is also a challenge when the value of the home you own does not necessarily accurately reflect your household income and by extension the ability to pay a home equity tax.
From own perspective I don’t believe the Government has a revenue problem that requires a home equity tax.
The challenge is spending.
As one example, our current Liberal Government has invested in the Asian Infrastructure Investment Bank.
I believe our shares in this bank should be sold and those funds would be better spent investing here in Canada, building Canadian infrastructure.
Final and important point.
The Liberal Government has stated that they will not be implementing this home equity tax.
My question this week:
Do you support the idea of a home equity tax to fund affordable housing?
I can be reached at Dan.Albas@parl.c.ca or call toll free 1-800-665-8711.
In a recent report, I referenced an exchange that I had in June of 2020 with the Minister of Employment, Workforce Development and Disability Inclusion.
In the exchange I was asking the question; “Can the Minister please tell us the current balance of the EI account?"
As it would turn out I never did receive an answer to that question from the Minister in question.
The Parliamentary Budget Officer (PBO) also noticed the Liberal government secrecy around the EI account balance.
The PBO stated:
“Given that forecasted EI expenses far exceed projected program revenues, the EI Operating Account is on track for a cumulative deficit of $52 billion by the end of 2024.”
Why does this matter?
As I pointed out back in my December 2020 report;
“by law, the EI premiums that Canadians pay must cover the expenses of the Employment Insurance program. If the expenses exceed the revenue, as is currently the case, the Government must, within a seven-year time frame, recover the deficit of EI funds that have been paid out.”
Why mention this now?
As of January 1st, 2022, the EI premiums many Canadians pay will potentially increase.
Next year, on January 1st. of 2023, when a two-year freeze on EI increases expires, EI premiums will increase again.
The EI increase for this year is based on the maximum insurable earnings increasing from $56,300 to $60,300.
This works out to a maximum weekly EI benefit increase in from $595 to $638 per week.
In turn the maximum annual EI premium will increase to $952.74 as opposed to $889.54 in the previous year.
Next year the EI premiums will start to increase more significantly from $1.58 per $100 of insurable earnings up to $1.83 per $100 of insurable earnings by the year 2027.
Obviously, these EI premium increases mean many workers may have less net take home pay as a result.
At the same time, a recent University 2022 food prices study, prepared by researchers with Dalhousie University, the University of Guelph, the University of Saskatchewan and the University of British Columbia, has forecast that food prices in Canada will increase between 5% to 7% in 2022.
In other words, at a time when many households may see net income drop, the purchasing power of your dollar will be less because of these inflationary pressures.
My question this week:
How much are you concerned about this situation?
I can be reached via email at Dan.Albas@parl.gc.ca or by telephone at 1-800-665-8711 (toll free).
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Dan Albas is the Member of Parliament for the riding of Central Okanagan-Similkameen-Nicola.