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April 8, 2021 | The Haves

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.

Up or down? Better or worse? Should we party or turtle?

The numbers seem bewildering. Seven in ten own real estate, which is going insane. The personal savings rate has not been this high since I had black chest hair (thick, manly, be envious). Stock markets and financial assets are galloping. Portfolios plumping. The US economy and corporate profits are on the verge of a melt-up.

But whoa. Most of Canada’s in a serious Covid lockdown. Household debt is growing by a fresh $10 billion – per month. The average family can no longer afford the average house. And here’s the latest Misery Index: extreme. The doomers at MNP have revealed 53% of us are just $200 or less each month from insolvency – unable to pay regular bills.

This is the worst in half a decade and represents a fat 10% jump from four months ago. Of the 53%, a third are already pooched – zero money left at month’s end.

Says the debt agency: “The anxiety Canadians are feeling about making ends meet – or already unable to do so – tells us we may eventually see an avalanche of households falling behind on payments or defaulting on loans, mortgages, car payments or credit cards.”

By the way, of those surveyed here are some ugly facts:

  • 25% have taken on more consumer debt during Covid
  • 20% are depleting savings to pay regular bills
  • 14% are using Visa & MasterCard to make bill payments. 10% are using a LOC or bank loan to do so.

Now, how do we possibly square this with Ottawa having just sent the better part of $100 billion directly to people during the pandemic? Or $108 billion sitting in personal savings accounts? Or detached house prices in both Toronto and Vancouver averaging $1.7 million? Or a cottage Bill was looking at in the Kawarthas with electrical problems being listed at $995,000 and selling this week for $1.5 million? Or, of course, puppies costing $5,000?

Because we have cleaved. The people doing okay – WFH, on salary, employed, saving in the pandemic, buying houses, building equity, growing assets – are living in an alternative universe from the rest. In that other world a huge mess of people are out of work, mostly in the retail, food service, hospitality and tourism sectors. A disproportionate share are young, women and minority. The Third Wave lockdowns in Ontario, BC, Alberta, Saskatchewan and Quebec are making it worse. Big job gains we saw in the winter are being erased again. These are the people who apparently will never own a house or retire secure. We are building two Canadas.

There’s no easy fix for this. But rest assured the federal government will try, starting with the budget in ten days. The ‘have/have not’ disparity will be the impetus for more public spending and higher taxes.

The right-wing CD Howe Institute this week is calling for a 2% jump in the GST, reform of public pensions, dumping first-time homebuyer help and lowering corporate taxes – along with subsidizing both wages and child care costs for lower-income families.

Most of the big banks are calling for cold water to be thrown on the dumpster fire called the real estate market. Lefties in the Libs and NDP want no-cost pharmacare and a UBI so nobody has to worry about paying their cell bill ever again. Accountants are telling clients to prepare for a higher capital gains inclusion rate plus a new tax bracket for the over-$400,000 income crowd. Some people want speculation and capital gains taxes on residential properties. US-based tech giants and social media platforms are preparing to be whacked.

Of course the budget on the 19th will be geared for an election later this year once the vaccinations have rolled out fully. If the T2 gang wins, the 2022 plan will be the one you need most worry about – if you inhabit the Have world. There is no way the status quo remains unchanged in that scenario, with federal finances shattered by pandemic spending, tax revenues curtailed, public debt on its way to 100% of the economy, real estate unaffordable and structural unemployment upon us.

Prudent people who wish to pay their fair share and no more need to understand this. And act.

First, shelter assets. Canadians have not used 80% of the RRSP room they’ve earned, for example. Not only can you chop taxable income with a contribution, but you effectively remove those assets from anything Chrystia the Impaler comes up with – at least for years. Ditto for TFSAs. On average we have filled less than half the potential amount granted. Worse, the bulk of these funds are sitting in savings accounts and GICs paying less than inflation. Fix that. Third, open an RESP for your kids. Invest the max each year and get a grant. This is the easiest 20% you’ll ever make.

Worried about higher capital gains taxes? Then realize gains now. Any change in the inclusion rate (currently 50%) is unlikely to be retroactive. This goes for investment real estate as well as financial assets. In fact, given the certainty of higher taxes and the unsustainability of the property market, is there a better moment than now to bail on real estate? Sell high. What a rad concept. If you think that over the long term government will allow hundreds of thousands in taxless, unearned profits on a house while so many people can’t pay for food, you’re dreaming. That ship sailed when Covid arrived.

Consolidate. Shelter. Keep your head down. Yes, live quietly among the masses.

Maybe they won’t notice.

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April 8th, 2021

Posted In: The Greater Fool

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