Increasing taxes and fees hurt household bottomlines

Feeling the financial pinch

It was on June 1, 2021 that the Liberal Government last increased the “stress test” for homebuyers taking on a mortgage—which encompasses the vast majority of homebuyers.

For those unaware, the stress test requires a homebuyer 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 a homebuyer 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 the stress test protects people from potentially higher interest rates, in my experience many who are fortunate enough to pass the test and buy a home don't stop there. They proceed to borrow to make additional purchases, like home improvements, furniture or take out a 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. But that 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 increase 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 other challenges that remain.

Based on the feedback I am getting from many households here in our region, there are new fiscal challenges emerging putting pressures on household finances.

Obviously, with the highest inflation in in 30-years, many are now forced into paying more for goods, groceries and, in some cases, services. But they receive less value in return.

Gasoline and diesel prices have increased, likewise the cost of gas to heat your home and some of the taxes on your home heating. At the same time, many have also noticed, because of higher premiums for payroll deductions like the Canada Pension Plan, their net take-home pay is less than it was last year.

In addition, despite the Liberal government’s promises to reduce your monthly cell phone bill by 25%, that has not occurred.

While the government also promised not to tax online streaming services such as Netflix, as many now know, they 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 constituents who say their monthly mortgage payment could increase as much as $400 to $800 a month. That is a significant hit to their net income.

Some have suggested increased interest rates combined with higher inflation, fees and tax increases are creating a situation they cannot afford. Ever increasing CPP and Employment Insurance premiums (the freeze on those premiums ends this year) further erode their net discretionary income.

My question this week:

Are you concerned about your own household affordability?

I can be reached at [email protected] or call toll free 1-800-665-8711.

Is it time to wind down stimulus spending?

Stimulus spending

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 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 Canada has now recovered 106% of jobs that were lost at the outset of the pandemic.

Despite this positive news, the PBO notes the government has also dropped previously announced plans to wind down stimulus spending by the end of the 2021-22 fiscal year.

Noting 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 locally, one of the most frequent concerns I hear is from pensioners and families who are struggling to keep up with inflation at the gas pumps and at the grocery stores.

I have also heard from owners of small- and medium-sized businesses 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 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 recently reported Canada’s inflation in December was 4.8%.

Economists noted that that was the largest surge of inflation we saw in 30 years.

My question this week relates to stimulus spending and its role in the economy.

This weeks’s question is:

While the debate in Ottawa will continue about the need for more stimulus spending versus winding it down, what is your opinion here locally on stimulus spending?

I can be reached at [email protected] or call toll free 1-800-665-8711.

Plenty of reasons to oppose a suggested new home equity tax

Proposed home equity tax

Recently, my email inbox, as well as a significant number of calls to my office, raised significant opposition to a proposed annual home equity tax.

The government has stated it will not implement a home equity tax but the overwhelming feedback on this topic came as a surprise to me, as this was not a major media story, nor had I raised this topic in a weekly report.

Because of the level of response I received however, the proposed tax is the focus of this week's report.

First off, what is it?

Recently, a Canadian Mortgage and Housing Corporation (CMHC) funded report, by a group known as “Generation Squeeze,” recommended an annual home equity tax on residences valued in excess of $1 million. The proposed tax would be 0.2% for homes with a value of between $1 million and $1.5 million and would increase to 0.5% for home valued up to $2 million. It would ultimately increase to 1% for homes valued at more than $2 million and would be 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 that the balance owing would be paid when the home is sold, or the title transferred through an inheritance.

How would this make housing more affordable?

In theory the government would use the 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.

My thoughts?

To be candid, I oppose this tax proposal. As has already been shared with me, there are residents who now find themselves living in homes with a value in excess of $1 million and who 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 buy a million-dollar home.

On the surface they could sell and cash in on the increase in their home’s value but, as has been pointed out, with the average price of a home in Kelowna now more than $1 million, it is pointless as the gain would be wiped out trying to buy in the current market.

As we have seen large jumps in home values throughout B.C. in recent years, it would be only a matter of time before more and more homes qualify to pay this tax, regardless of their household income.

It has also been pointed out that selling a “million-dollar” home in itself can negatively impact your equity as real estate commissions and the B.C. property purchase tax are much higher on homes with a value in that price range.

As an individual shared with my office, he or she is only a “millionaire” homeowner on paper and could not afford to sell and buy another home at the current market rate, so it is all relative.

I have heard other reasons why residents 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's equity while, 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, your ability to pay a home equity tax.

From my own perspective, I don’t believe the government has a revenue problem that requires a home equity tax. The challenge is spending. As an example, the current federal government has invested in the Asian Infrastructure Investment Bank.

I believe our shares in this bank should be sold as those funds would be better spent investing here in Canada, building Canadian infrastructure.

My question this week:

Do you support the idea of a home equity tax to fund affordable housing?

I can be reached at [email protected] or call toll free 1-800-665-8711.

Canadians face increases in the employment insurance premiums they pay

EI premiums increasing

In a recent report, I referenced an exchange I had in June 2020 with the employment, workforce development and disability inclusion minister.

In the exchange I asked the minister to reveal the current balance of the EI account? As it turned out, I never received an answer to that question.

The Parliamentary Budget Officer (PBO) also noticed the Liberal government's secrecy around the EI account balance.

“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,” it said.

Why does this matter? As I pointed out back in my December 2020 report, by law 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 Jan.1, the EI premiums many Canadians pay will increase. Next year, on Jan. 1, 2023 when a two-year freeze on EI increases expires, the premiums will increase again.

The increase for this year is based on the maximum insurable earnings increasing tp 60,300 from $56,300.
That works out to a maximum weekly EI benefit increase to $638 per week from $595 per week.

In turn, the maximum annual premium will increase to $952.74 from $889.54 last year.

Next year, 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 2027.

Obviously, these increases mean many workers will have less net take home pay as a result. At the same time, a recent 2022 food prices study, prepared by researchers with Dalhousie University, the University of Guelph, the University of Saskatchewan and the University of British Columbia, forecast food prices in Canada will increase between 5% and 7% this year.

In other words, at a time when many households may see their net income drop, the purchasing power of their 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 [email protected] or by telephone at 1-800-665-8711 (toll free)

More Dan in Ottawa articles

About the Author

Dan Albas, Conservative member of Parliament for the riding of Central Okanagan-Similkameen-Nicola, is the critic for Environment and Climate Change.

Before entering public life, Dan was the owner of Kick City Martial Arts, responsible for training hundreds of men, women and youth to bring out their best.

Dan  is consistently recognized as one of Canada’s top 10 most active Members of Parliament on Twitter (@danalbas) and also continues to write a weekly column published in many local newspapers and on this website.

Dan welcomes comments, questions and concerns from citizens and is often available to speak to groups and organizations on matters of federal concern. 

He can be reached at [email protected] or call toll free at 1-800-665-8711.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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