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January 10, 2020 | Spendy People

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

A rate cut this year? Fuggedaboutit.

Canada created over 35,000 jobs last month. The unemployment rate fell. The 2019 job creation total – despite a few months of suckiness – was the second-best in 13 years, at more than 320,000. So the central bank took a gamble last year when the Fed was chopping (three times) and held fast. It was the right call.

What did bonds do today? Yup. The yield on 5-year GoC debt popped. Bond yields have risen 30% since September – the reason mortgage rates have been inching higher. Given the latest jobs stats, expect more. And did I mention no Bank of Canada cut?

By the way, we’re creating the right kind of jobs, as opposed to self-employed embroiderers, dog walkers and freelance lepidopterologists. Last month 38,400 people found real full-time work. The private sector created 57,000 positions while 21,500 civil servants went home.

All this sounds pretty good until you look at household finances. Debt continues to rise, along with the monthly cost of servicing it. This is why consumer spending in Canada has tanked with retail sales down yielding a poor Christmas for shopkeepers. Remember that two-thirds of the entire economy comes from spending, which is why jobs (good) and debt (bad) are critical.

Given the fragility of our situation, the last thing we need are more taxes. But here they come!

We’ve already alerted you to the plan Chateau Bill and his bearded buddy have to ‘modify’ the way capital gains and perhaps dividends are treated, as well as further tighten the screws on the self-employed with professional corps. But closer to home (if you live in the GTA or the LM) is the continuing assault on real estate.

Don’t be surprised. You were warned.

In Vancouver property taxes are taking a giant leap – up about 8% or four times the rate of inflation. Some of the tax burden is being transferred from businesses to residential owners. And as the market value of high-end detached houses is constantly eroded by the NDP’s venomous  assault, more of the property tax must be shouldered by those buying ‘affordable’ real estate – like $2 million Vancouver Specials or $700,000 weensy condos. That’s what happens when you elect spendy people.

In Toronto we’re just weeks away from the announcement of an ‘empty house’ tax in the nation’s largest market, as well as a jump in the ridiculous double land transfer tax on high-end digs. Oh yeah, and property tax is rising 8% over the next few years.

As you know the vacant house thing was pioneered in YVR when advocates screamed 25,000 places were empty. That was a lie. The number of homes not inhabited full-time turned out to be about 2,000. The city has extracted about $38 million from those owners and for 2020 has increased the tax by 25%. The low rental vacancy rate – the supposed reason this levy was put in place – has not dropped. So, it was just a tax to be a tax, aimed at Hovering off additional revenue from wealthy people. The Canadian way.

Toronto also spends more than it takes in, a significant amount of that to pay for the defined benefit pensions of employees, past and present. Then there’s transit. Subway extension and the cross-town line cost billions upon billions, and are grossly over budget. The city is desperate. The anti-tax, right-wing, former-Conservative-leader mayor is now a spend-and-tax liberal. So his metamorphosis is complete. And up goes the cost of living.

The trouble is, Toronto is Canada’s commercial, corporate and financial capital. There are thousands of homes and condo units used by people who need access to the city for business reasons and for whom hotels are impractical. When all these units were bought, they were taxed. During ownership, they are taxed. When sold, taxed again. Now a 1% vacancy tax on a $700,000 one-bedroom unit used the equivalent of four or five months a year will amount to seven grand – or twice the property tax owing. Coming next month.

The impact of this tax plus the new tough Airbnb regs (there are over 21,000 units for rent) and a creep in lending rates could be palpable. Will gutting the stress test mitigate that? Or has real estate become just too juicy a target for governments – who will encourage ownership and debt, only to feast then on the hapless owners?

Alas. Harry and Meghan may have no idea what awaits them.

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January 10th, 2020

Posted In: The Greater Fool

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