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Spendapalooza 2021: Ottawa unveils first Federal Budget in two years

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CTVNews.ca

The first Federal Budget in more than two years was unveiled shortly after 4 pm Monday. You can get the official documents [all 724 pages of it, with the heft of a big-city telephone book] from the Department of Finance here.

It sports the title A Recovery Plan for Jobs, Growth, and Resilience. 

The last federal budget [“Investing in the Middle Class”] came down on March 19, 2019.

You can find the latest Budget tweets and post-announcement reaction under the hashtag #Budget2021, and on my Twitter feed @JonChevreau, which also scrolls on the right of this site. Minister of Finance Chrystia Freeland tweets as @cafreeland. Earlier Monday she tweeted that “we will finish the fight against COVID-19 and invest in job creation and a resilient economy.”

Here is the initial analysis from the Globe & Mail [possibly subscribers only]; personal finance columnist Rob Carrick focused on the childcare initiative.  Also at the G&M, David Rosenberg rightly construed it as a vote-buying multi-year massive spending binge that Canada is unlikely to afford.

Here is what the National Post has to say; William Watson’s take is here; I love this quote from him: “In terms of taxes, however, ‘over-threaten and under-deliver’ summarizes this budget.” Terry Corcoran characterized it as Canada’s Reverse Perestroika with a shift to centralized planning. Jack Mintz lamented the lack of fiscal anchors to hold back the Liberals. Diane Francis warned the pandemic spending spree is nowhere near being over, thanks to Justin Trudeau’s bungling of the pandemic. Finally, CIBC Wealth’s Jamie Golombek looks at five tax-related measures, notably the three replacements for the original CERB.

Here is the Reuters feed. One focus of the Toronto Star was an extra billion dollars devoted to Broadband infrastructure in rural communities.

Federal Minister of Finance and Deputy Prime Minister Chrystia Freeland. (Twitter.com)

Billed as a post-pandemic Budget, it lived up to the prerelease leaks of a spending marathon the past week. In short it is Justin Trudeau’s pre-election Spendapalooza 2021. More than $100 billion in spending over 3 years was unleashed, including $30 billion over 5 years and $8.3 billion a year thereafter for the centrepiece of it all: a National Childcare and Early Learning Program.

No real help to cool Housing Bubble and other measures that didn’t happen

As interesting as what was announced is what many feared might be announced and didn’t happen. As far as I can see at this point, there was no move to end the tax-free gains of a principal residence, nor did I see any changes in capital gains tax inclusion rates on investments in general. As Watson quipped about taxes, “Overthreaten and underdeliver.”

Also in the category of things we’re glad not to see is, as Global News summarized, no hike to the GST and no imposition of a Universal Basic Income, no broad-brush Wealth Tax [but new taxes on expensive cars, boats and planes] and no increases in Health Transfers to the provinces. There wasn’t even significant help to cool runaway housing markets, apart from a tax on vacant or underused residential property owned by non-residents: as reported by Robyn Urback in the G&M.

Nor was there much about Pharmacare, to the dismay of the NDP.

Apart from that there was billions for everybody. As Andrew Coyne wrote in the G&M, the budget had to be the longest in history because “this budget is about everything.”  He notes that the word “support” appears almost 1,000 times, and benefit/s more than 1,300 times.

OAS sweetener for 3.3 million seniors

A $500 one-time Old Age Security payment for seniors 75 or older [as of June 2022] is coming in August, followed by a 10% rise in regular OAS benefits in July 2022. Continue Reading…

Are people denying the Real Estate Bubble, too?

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Will Ottawa move to deflate the housing bubble by taxing gains on principal residences in today’s federal budget?

 By John De Goey, CFP, CIM

Special to the Financial Independence Hub

By now, you’ll know that I have been alarmed by stock market valuations for a long time.  Late 2019, in fact.  Recently, I pointed out that the bond market is severely stretched based on current valuations.  It is now time to complete the TINA Trifecta by examining real estate.

Depending on which market you live in, real estate in Canada is likely somewhere between “pricey” and “there is no hope in hell for my kids to ever be homeowners.” In the greater Toronto area where I live, the consensus price increase in real estate over the past three years or so is about 30%.  No wonder there’s speculation that today’s federal budget will include a capital gains tax inclusion on principal residences.

From a financial planning perspective, it is considered prudent to expect real estate prices to increase at about the same rate as wage inflation.  Inflation has been hovering at around 2% for over thirty years now.  Wages have been essentially stagnant over that timeframe. Stated differently, we’re already gone nearly a third of a century with real estate outpacing prudent expectations.  That’s what TINA [There Is No Alternative] does.  There is literally no alternative because everything is expensive to buy, but ridiculously cheap to own: in terms of financing and the cost of carry.

The Great Covid Bubble?

Central banks started lowering rates aggressively in early March 2020.  Government cheques started to be sent out about a month later.  Over the past 13 months or so, we’ve reached the point where the combined effects of fiscal and monetary stimulus have created a valuation monster that touches on all major asset classes.  Stocks, bonds and real estate are all flashing red in terms of historical valuations.  Someday, people could look back on this unprecedented confluence of circumstances and call it the “Great COVID Bubble.” Continue Reading…

Purpose cleared to launch world’s first Ether ETF

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Burning questions Retirees face

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Retirees face a myriad of questions as they head into the next chapter of their lives. At the top of the list is whether they have enough resources to last a lifetime. A related question is how much they can reasonably spend throughout retirement.

But retirement is more than just having a large enough pile of money to live a comfortable lifestyle. Here are some of the biggest questions facing retirees today:

Should I pay off my mortgage?

The continuous climb up the property ladder means more Canadians are carrying mortgages well into retirement. What was once a cardinal sin of retirement is now becoming more common in today’s low interest rate environment.

It’s still a good practice to align your mortgage pay-off date with your retirement date (ideally a few years earlier so you can use the freed-up cash flow to give your retirement savings a final boost). But there’s nothing wrong with carrying a small mortgage into retirement provided you have enough savings, and perhaps some pension income, to meet your other spending needs.

Which accounts to tap first for retirement income?

Old school retirement planning assumed that we’d defer withdrawals from our RRSPs until age 71 or 72 while spending from non-registered funds and government benefits (CPP and OAS).

That strategy is becoming less popular thanks to the Tax Free Savings Account. TFSAs are an incredible tool for retirees that allow them to build a tax-free bucket of wealth that can be used for estate planning, large one-time purchases or gifts, or to supplement retirement income without impacting taxes or means-tested government benefits.

Now we’re seeing more retirement income plans that start spending first from non-registered funds and small RRSP withdrawals while deferring CPP to age 70. Depending on the income needs, the retiree could keep contributing to their TFSA or just leave it intact until OAS and CPP benefits kick-in.

This strategy spends down the RRSP earlier, which can potentially save taxes and minimize OAS clawbacks later in retirement, while also reducing the taxes on estate. It also locks-in an enhanced benefit from deferring CPP: benefits that are indexed to inflation and paid for life. Finally, it can potentially build up a significant TFSA balance to be spent in later years or left in the estate.

Should I switch to an income-oriented investment strategy?

The idea of living off the dividends or distributions from your investments has long been romanticized. The challenge is that most of us will need to dip into our principal to meet our ongoing spending needs.

Consider Vanguard’s Retirement Income ETF (VRIF). It targets a 4% annual distribution, paid monthly, and a 5% total return. That seems like a logical place to park your retirement savings so you never run out of money.

VRIF can be an excellent investment choice inside a non-registered (taxable) account when the retiree is spending the monthly distributions. But put VRIF inside an RRSP or RRIF and you’ll quickly see the dilemma.

RRIFs come with minimum mandatory withdrawal rates that increase over time. You’re withdrawing 5% of the balance at age 70, 5.28% at age 71, 5.40% at age 72, and so on.

That means a retiree will need to sell off some VRIF units to meet the minimum withdrawal requirements.

Replace VRIF with any income-oriented investment strategy in your RRSP/RRIF and you have the same problem. You’ll eventually need to sell shares.

This also doesn’t touch on the idea that a portfolio concentrated in dividend stocks is less diversified and less reliable than a broadly diversified (and risk appropriate) portfolio of passive investments.

By taking a total return approach with your investments you can simply sell off ETF units as needed to generate your desired retirement income.

When to take CPP and OAS?

I’ve written at length about the risks of taking CPP at 60 and the benefits of taking CPP at 70. But it doesn’t mean you’re a fool to take CPP early. CPP is just one piece of the retirement income puzzle. Continue Reading…

36% of non-Home-Owners under 40 giving up on buying first home, but others still plan to buy, RBC poll finds

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By Amit Sahasrabudhe, Vice-President, Home Equity Financing, RBC

(Sponsor Content)

The road to home ownership isn’t always an easy one and the pandemic has made it even more complex, bringing new challenges and opportunities for prospective homebuyers. For some, lifestyle changes have created opportunities for increased savings. Others find themselves priced out of the housing market.

RBC conducts an annual Spring Housing Poll to learn more about Canadians’ attitudes around home buying and the housing market. This year’s results show that despite some Canadians – especially non-homeowners under 40 – reporting they have given up on the dream of home ownership, there has been an increase in those who say they’re likely to buy in the next two years.

Even amidst an increasingly expensive housing market, most Canadians feel that housing continues to be a good investment and that it is still better to buy than rent.

Should you buy now or buy later?

The first step in knowing whether it is the right time to buy is understanding how much you can realistically afford. This includes having a full picture of your current financial situation and how it may change in the future. It is also important to consider external factors like the overall housing market and economy, as they can also have a big impact on your ability to purchase a home.

In fact, our research found that many Canadians are planning to wait to purchase a home because of the state of the economy, concerns about their job security and affordability, especially in hot housing markets. For others, historically low interest rates and the fear that housing market will become increasingly unaffordable are motivating the decision to purchase a home sooner.

While Canadians now have a lot more factors to consider when buying a home, they don’t have to embark on this journey alone. Buying a home is one of the most important decisions you will ever make and there’s no substitute for doing your research and receiving expert advice on how to fit your home purchase into your overall financial plan. RBC Mortgage Specialists are available to help you with your home buying journey from start to finish, and appointments can be booked virtually, by phone or in-branch.

Saving for a down payment

When it comes to purchasing a home, saving for a down payment can often be the biggest barrier to entry. While everyone’s financial situation is different, some Canadians have taken advantage of reduced spending during the last year to build up their savings. Our research found that most Canadians who are likely to buy in the next two years are setting aside monthly savings to put towards purchasing a home, saving an average of $789 each month. Continue Reading…