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General Mark Goode 9 Sep
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General Mark Goode 7 Sep
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General Mark Goode 19 Aug
Annual Inflation Hits 3.7% in Canada–A New Election Issue
This morning’s Stats Canada release showed that the July CPI surged to a 3.7% year-over-year pace, well above the 3.1% pace recorded in June. This is now the fourth consecutive month in which inflation is above the1% to 3% target band of the Bank of Canada. And given the flash election, opposition parties are already making hay. “The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing a cost of living crisis,” Conservative Leader Erin O’Toole said in a statement. He went on to suggest that the Liberal government is stoking inflation with its debt-financed government spending programs.
While it is true that deficit spending has surged during the pandemic, the same is also true for nearly every country in the world. Moreover, accelerating inflation is a global phenomenon and most central banks believe it to be temporary. Certainly, Tiff Macklem is firmly of that view, as is the Fed Chair Jerome Powell.
Supply disruptions and base effects have largely caused the rise in inflation. Semiconductor production, for example, slumped during the 2020 lockdowns, and then couldn’t be ramped up fast enough when demand for cars and electronics returned, leading the prices of new and used autos to rise at a record pace. Prices for airfares and hotel stays also jumped. Companies found themselves short of workers as they reopened, leading some to offer bonuses or boost wages and subsequently raise prices for consumers.
Central bankers believe that the price pressures are transitory, representing temporary shocks associated with the reopening of the economy. Lumber prices, for example, spiked when demand for new homes returned and have since normalized (see the chart below). To be sure, above-target inflation has heightened uncertainty. The central banks do not want to choke off the economic recovery through misplaced inflation fears. Many Canadians remain out of work, and long-term unemployment is still very high. Moreover, the recent surge of the delta variant proves that the recovery is uncertain.
Governor Tiff Macklem, whose latest forecasts show inflation creeping up to 3.9% in the third quarter before easing at the end of the year, has warned against overreacting to the “temporary” spike.
Shelter Prices Rising Fastest
Prices rose faster year over year in six of the eight major components of Canadian inflation in July, with shelter prices contributing the most to the all-items increase. Conversely, prices for clothing and footwear and alcoholic beverages, tobacco products and recreational cannabis slowed on a year-over-year basis in July compared with June.
Year over year, gasoline prices rose less in July (+30.9%) than in June (+32.0%). A base-year effect continued to impact the gasoline index, as prices in July 2020 increased 4.4% on a month-over-month basis when many businesses and services reopened.
In July 2021, gasoline prices increased 3.5% month over month, as oil production by OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) remained below pre-pandemic levels though global demand increased.
The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 13.8% year over year in July, the largest yearly increase since October 1987.
Similarly, the other owned accommodation expenses index, which includes commission fees on the sale of real estate, was up 13.4% year over year in July.
Year-over-year price growth for goods rose at a faster pace in July (+5.0%) than in June (+4.5%), with durable goods (+5.0%) accelerating the most. The purchase of passenger vehicles index contributed the most to the increase, rising 5.5% year over year in July. The gain was partially attributable to the global shortage of semiconductor chips.
Prices for upholstered furniture rose 13.4% year over year in July, largely due to lower supply and higher input costs.
Core Measures
The average of core inflation readings, a better gauge of underlying price pressures, rose to 2.47% in July, the highest since 2009.
Monthly, prices rose 0.6% versus a consensus estimate of 0.3%. Rising costs to own a home are one of the biggest contributors to the elevated inflation rate, following a surge in real-estate prices over the past year.
Bottom Line
Today’s inflation data likely did little to alter the Bank of Canada’s view that above-target inflation will be a transitory phenomenon. They are already ahead of most central banks in tapering the stimulus coming from quantitative easing. They do not expect to start increasing interest rates until the labour markets have returned to full employment, which they judge to occur in the second half of 2022. In the meantime, pent-up demand in Canada is huge as people tap into their involuntary savings during the lockdown to pay higher prices at restaurants, grocery stores and gas stations. Financial markets appear to be sanguine about the prospect for rate hikes, as bond yields have been trading in a very narrow range.
General Mark Goode 14 Jul
The Bank of Canada raised its inflation forecast in the newly released July Monetary Policy Report (MPR), making it one of the most hawkish central banks in the world. The Bank announced its third action to reduce its emergency bond-buying stimulus program by one-third. The central bank was among the first from the advanced economies to shift to a less expansionary policy last April when it accelerated the timetable for a possible interest-rate increase and pared back its bond purchases. In today’s press release, the Bank announced it would adjust its quantitative easing (QE) program again to a target pace of $2 billion per week of Government of Canada bond purchases–down $1 billion from its prior target of $3 billion per week. This puts upward pressure on bond yields, all other things constant. No doubt, the federal government’s funding of the enormous Covid-related budget deficits has been abetted by the central bank’s bond-buying.
The pace of purchases of Canadian government bonds was as high as $5 billion last year. The central bank acquired a net $320 billion of the securities since the start of the Covid-19 pandemic. The bank owns about 44% of outstanding Canadian government bonds.
The Bank of Canada has said it wants to stop adding to its holdings of government bonds before it turns its attention to debating rate increases. Still, officials chose not to accelerate the projected timeline for a possible hike today.
In holding the overnight rate at the effective lower bound of .25%, the Governing Council reaffirmed its “extraordinary forward guidance” that the Canadian economy still has considerable excess capacity. The recovery continues to require extraordinary monetary policy support. “We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved,” the central bank said in the policy statement. In the Bank’s July projection, this happens sometime in the second half of 2022.
Swaps trading suggests investors are fully pricing in a rate hike over the next 12 months and a total of four over the next two years, which would leave Canada with one of the highest policy rates among advanced economies. This puts the Bank of Canada ahead of the Fed in raising interest rates. Chair Powell told Congress today that the US economy isn’t ready for bond tapering. “Reaching the standard of ‘substantial further progress’ is still a ways off,” he said in prepared remarks. In the U.S., investors aren’t pricing in any rate hike over the next year and only two over the next two years.
July Monetary Policy Report
The Bank revised its forecast for Canadian GDP growth this year from 6.5% in the April MPR to 6.0% because of the more restrictive third-wave pandemic lockdown in the second quarter. Growth is now expected to pick up strongly in the third quarter of this year. Consumer confidence has returned to pre-pandemic levels, and a high share of the eligible population is vaccinated. As the economy reopens, consumption is expected to lead the rebound, increasing spending on services such as transportation, recreation, and food and accommodation.
Housing resales have moderated from historically high levels but remain elevated (Chart below). Other areas of housing activity—such as new construction and renovation—remain strong, supported by high disposable incomes, low borrowing rates and the pandemic-related desire for more living space.
CPI Inflation Boosted By Temporary Factors
The Bank revised up its inflation forecast for this year but asserted once again that inflation would return to 2% in 2022. This is a controversial call consistent with central-bank mantras around the world. The BoC said, “Three sets of factors are leading to this temporary strength. First, gasoline prices have risen from very low levels a year ago and are above their pre-pandemic levels, lifting inflation. Second, other prices that had fallen last year with plummeting demand are now recovering with the reopening of the economy and the release of pent-up demand. Third, supply constraints, including shipping bottlenecks and the global shortage of semiconductors, are pushing up the prices of goods such as motor vehicles.
The BoC expects CPI inflation to ease by the start of 2022 as the temporary factors related to the pandemic fade. Economic slack becomes the primary factor influencing the projection for inflation dynamics thereafter. The uncertainty around the outlook for the output gap and inflation remains high. Because of this, the estimated timing for when slack is absorbed is highly imprecise. In the projection, this occurs sometime in the second half of 2022. After declining to 2% during 2022, inflation is expected to rise modestly in 2023 as the economy moves into excess demand. The excess demand and resultant increase in inflation to above target are expected to be temporary. They are a consequence of Governing Council’s commitment to keeping the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved.
Inflation is expected to return toward the target in 2024. The projection is consistent with medium- and long-term inflation expectations remaining well-anchored at the 2% target. Both businesses and consumers view price pressures as elevated in the near term. A large majority of respondents to the summer 2021 Business Outlook Survey now expect inflation to be above 2% on average over the next two years. Nonetheless, firms view higher commodity prices, supply chain bottlenecks, policy stimulus and the release of pent-up demand as largely temporary factors boosting inflation higher in the near term.
Bottom Line
Only time will tell if the Bank of Canada is correct in believing that inflation pressures are temporary. Financial markets will remain sensitive to incoming data, but for now, bond markets seem willing to accept their view. The 5-year GoC bond yield has edged down from its recent peak of 1.0% posted on June 28th to a current level of .936%. As well, the Canadian dollar has weakened a bit, to US$0.7993, since the release this morning of the BoC policy statement. The loonie, however, remains among the strongest currencies this year vis a vis the US dollar.
General Mark Goode 15 Jun
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General Mark Goode 9 Jun
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General Mark Goode 2 Jun
Housing Drove the Economic Expansion in Q1
Residential investment is a component of the Gross Domestic Product accounts and is technically called ‘gross fixed capital formation in residential structures’ by Statistics Canada. Investment in residential structures is comprised of three components: 1) new construction, 2) renovations and 3) ownership transfer costs. The first two components are obvious.
The home-resale market’s contribution to economic activity is reflected in ‘ownership transfer costs.’ These costs are as follows:
Growth in housing investment was broad-based. New construction rose 8.7% (quarter-over-quarter), largely driven by detached units in Ontario and Quebec. Ownership transfer costs increased 13.1%, with the rise in resale activities. Working from home and extra savings from reduced travel heightened the demand for, and scope of, home renovations, which grew 7.0% in the first quarter.
Strength in oil and gas extraction, manufacturing of petroleum products, and construction industries led to a higher gross operating surplus for non-financial corporations (+11.5%). Higher earnings from commissions and fees bolstered the operating surplus of financial corporations (+3.9%), coinciding with the sizeable increases in the value and volume of stocks traded on the Toronto Stock Exchange (TSX).
Most aspects of final sales were solid in Q1, with consumers a bit stronger than expected (2.8% a.r.), government adding (5.8%), and net exports also contributing. In contrast, business investment was one real source of disappointment, with equipment spending surprisingly falling. But the biggest drag came from a drop in inventories, with this factor alone cutting growth 1.4 ppts in Q1, and versus expectations, it could add a touch. The good news is that this should reverse in Q2, supporting activity in the current quarter.
On the monthly figures, there were few big surprises. March’s initial flash estimate of +0.9% was nudged up in the official estimate to +1.1% as the economy began to re-open from the second wave. Tougher COVID public health rules slammed the brakes on Canada’s economy in April. Statistics Canada estimates gross domestic product shrank 0.8% in the month, representing the first contraction in a year and a weak handoff heading into the second quarter. April may well be followed by a soft May. Even so, we still expect a strong June will keep Q2 roughly flat overall and look for robust Q3 growth.
Bottom Line
In many respects, Q1 data is ancient history. We know with the resurgence in lockdowns, growth in Q3 will at best be flat. In the hopes that vaccinations will accelerate and COVID case numbers will continue to fall across the country, Q4 will likely see a strong resurgence in growth.
General Mark Goode 21 May
The Canadian Real Estate Association (CREA) released statistics showing national existing home sales fell 12.4% nationally from March to April 2021. Over the same period, the number of newly listed properties fell 5.4%, and the MLS Home Price Index rose 2.4%.
While home sales fell month-over-month in April, largely due to the new lockdowns, April sales were still the strongest ever for that month and well above the 10-year monthly average.
Month-over-month declines in sales activity were observed in close to 85% of all local markets, including virtually all of B.C. and Ontario.
New Listings
The number of newly listed homes declined by 5.4% in April compared to March. In a market with historically low inventory, where sales activity depends on a steady supply of new listings each month, the synchronous gains in new supply and sales in March followed by synchronous declines in April suggest the slowdown in sales may be partially about the availability of listings as opposed to only a demand story. New listings were down in 70% of all local markets in April.
The national sales-to-new listings ratio eased back to 75.2% in April compared to a peak level of 90.6% back in January. That said, the long-term average for the national sales-to-new listings ratio is 54.5%, so it is currently still high historically. The good news is that it is moving in the right direction.
Based on a comparison of sales-to-new listings ratio with long-term averages, only about a quarter of all local markets were in balanced market territory in April, measured as being within one standard deviation of their long-term average. The other three-quarters of markets were above long-term norms, in many cases well above.
There were 2 months of inventory on a national basis at the end of April 2021, up from a record-low 1.7 months in March but still well below the long-term average for this measure of a little more than 5 months.
In a separate release, Canadian housing starts fell to 268,600 annualized units in April from the blowout (334.8k) month in March. While down sharply month-over-month, this is still a solid level of new construction activity in Canada by historical standards. In fact, average annualized starts over the past six months run at the strongest level on record, topping building booms in the 1970s and 1980s. All regions but the Prairies and Atlantic Canada saw lower starts in April.
Home Prices
The Aggregate Composite MLS® Home Price Index (MLS® HPI) climbed by 2.4% month-over-month in April 2021 – a historically strong gain but less than in February and March. Most of the recent deceleration in month-over-month price growth has come from the single-family space compared to the more affordable townhome and apartment segments.
The non-seasonally adjusted Aggregate Composite MLS® HPI was up 23.1% on a year-over-year basis in April. Based on data back to 2005, this was a record year-over-year increase.
The largest year-over-year gains continue to be posted across Ontario (around 20-50%), followed by markets in B.C., Quebec and New Brunswick (around 10-30%), and lastly by gains in the Prairie provinces and Newfoundland and Labrador (around 5-15%).
The MLS® HPI provides the best way to gauge price trends because averages are strongly distorted by changes in the mix of sales activity from one month to the next.
The actual (not seasonally adjusted) national average home price was slightly under $696,000 in April 2021, up 41.9% from the same month last year. That said, it is important to remember that the national average price dropped by 10% month-over-month last April as the higher-end of every market effectively shut down for a couple of months. That will serve to stretch these year-over-year comparisons over and above what is actually happening to prices until around June.
By segment: Single-detached remains extremely strong, but earlier signs that condo markets in the large cities were tightening up continue to play out. Condo prices were up 8.5% y/y in April, the strongest pace since mid-2018, and price gains are now running even stronger month-to-month in the biggest cities. We continue to expect these markets to come back stronger than most might think.
By region: It’s as close to wall-to-wall strength that we’ve probably ever seen in this country. Long-dormant markets like Calgary and Edmonton are awake again with prices up roughly 9% y/y; Toronto, Montreal and Vancouver remain strong as usual; some smaller markets (think Halifax, Moncton, Southwestern Ontario) are even stronger than the big cities; and cottage country is booming.
Bottom Line
Headlines will probably flag housing market declines in April, but don’t that fool you…this market is still robust across geography and segment, even if we’ve likely seen peak momentum. Activity will likely remain strong this summer, especially if the COVID restrictions are eased, and people begin to get their second vaccine.
General Mark Goode 21 Apr
Today, the Bank of Canada held its target for the overnight rate at the effective lower bound of ¼ percent. The Bank is also adjusting its bond-buying program from weekly net purchases of Government of Canada (GoC) bonds of $4 billion to $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.
Finally, the Bank now suggests that the remaining slack in the economy could be fully absorbed by the second have of 2022–rather than 2023, suggesting that they may begin raising overnight interest rates before the end of next year. The Bank went on to aver that this timing is more uncertain than usual, however, given the uncertainty around potential output and the highly uneven impacts of the pandemic.
The Bank of Canada now believes that first-quarter growth in Canada is considerably stronger than they were expecting back in the January Monetary Policy Report (MPR). This partly reflects a better global backdrop, particularly in the United States. The US recovery is supported by a rapid rollout of vaccines and substantial fiscal stimulus, bringing spillover benefits to Canada through higher demand for exports and stronger commodity prices.
“But the most important factor in the unexpected economic strength has been the resilience and adaptability of Canadian households and businesses. Lockdowns through the second wave had much less economic impact than they did through the first wave. The economy bounced back quickly with the eased restrictions posting substantial job gains in February and March. The third wave is a new setback, and we can expect some of these job gains to be reversed. But the performance of the economy in recent months has increased our confidence in the underlying strength in the recovery.”
The Bank went on to say, “With the vaccine rollout progressing, we are expecting strong consumption-led growth in the second half of this year. Fiscal stimulus from the federal and provincial governments will also make an important contribution to growth. Strong growth in foreign demand and higher commodity prices are expected to drive a solid rebound in exports and business investment, leading to a more broad-based recovery. Overall, we now project that the economy will expand by around 6½ percent this year, slowing to about 3¾ percent in 2022 and 3¼ percent in 2023.
Over the next few months, inflation is expected to rise temporarily to around the top of the 1-3 percent inflation-control range. This is largely the result of base-year effects—year-over-year CPI inflation is higher because prices of some goods and services fell sharply at the start of the pandemic. Also, the increase in oil prices since December has driven gasoline prices above their pre-pandemic levels. The Bank expects CPI inflation to ease back toward 2 percent over the second half of 2021 as these base-year effects diminish, and inflation is expected to ease further because of the ongoing drag from excess capacity. As slack is absorbed, inflation should return to 2 percent on a sustained basis sometime in the second half of 2022.
When the pandemic first hit, the BoC bought government securities, providing liquidity to assure the full functioning of the market. As liquidity conditions in the Government of Canada (GoC) bond market improved, the primary objective of central bank bond purchases shifted toward a focus on monetary stimulus. The quantitative easing (QE) purchases of bonds continue to put downward pressure on borrowing rates, supporting economic activity. QE also reinforces monetary stimulus provided by the Bank’s forward guidance. This guidance has committed to holding the policy interest rate (the overnight rate) at its effective lower bound until economic slack is absorbed, so the inflation target is sustainably achieved.
The Bank’s total ownership of GoC bonds outstanding has increased to about 42 percent. Since March 2020, the Bank has purchased more than 35 percent of total sovereign bonds outstanding, a higher percentage than other central banks (see chart below). Considering the size of Canada’s bond market and its economy, this means that the Bank has provided an extraordinary amount of stimulus. The Bank must continue to taper its purchases to ensure sufficient tradeable GoCs are available for longer-term institutional investors–such as insurance companies and pension funds–that must hold triple-A debt to offset their long-term liabilities.
In today’s MPR, the Bank of Canada included an assessment of the drivers of the strength in Canadian housing:
The Bank remains concerned about extrapolative expectations leading to overheated price increases and speculative activity (see chart below). They welcome the proposed changes to the Guideline B-20 by the Office of the Superintendent of Financial Institutions to help reduce these risks.
This was a significant BoC announcement, suggesting a turning point in their thinking. The worst of the pandemic is over, the economy has been remarkably resilient, and the Bank can now see the light at the end of the tunnel. That light is now expected in the second half of 2022, rather than 2023. Although the policy rate will remain at its effective lower bound until then, the central bank has already begun to pare back its GoC bond buying.
Some of the Bank’s optimism reflects the comparative strength of the US economy, which is way ahead of Canada’s vaccine distribution.* The spillover effects of that are meaningful in terms of Canadian exports. The fiscal stimulus evident in this week’s federal budget also provides a ballast for the economy. Although an estimated 425,000 people are still insufficiently employed and the third wave containment measures and vaccine rollout are unpredictable, the Bank is more confident now than any time in the past thirteen months that we will attain full-employment by late next year.
*As of April 20, nearly 25% of the US population has been fully vaccinated and 39% have received at least one vaccine. In comparison, as of April 20, only 2.5% of the Canadian population has been fully vaccinated and 25.4% have had one vaccine.
General Mark Goode 21 Apr
n more than two years, the first federal budget extends Ottawa’s COVID-19 “lifeline” for workers and struggling businesses another few months as it aims to pull Canada through the pandemic once and for all. Clocking in at a bulky 724 pages, this is a highly detailed budget that sets the stage for post-pandemic policy in Canada.
Finance Minister Chrystia Freeland’s first crack at a budget plan is also widely viewed as a pre-election platform with more than $100 billion in new spending over the next three years targeting a wide variety of voters, from seniors and their caregivers to parents and business owners.
The government will need to get at least one opposition party to support it to avoid a pandemic election this spring. Much of the redistributive ‘investments’ and social spending is right up the NDP’s alley, so that should be no problem.
Canada’s net debt is now over $1 trillion for the first time, after a $354 billion deficit for the pandemic year just over. It is expected to keep climbing with deficits of $155 billion this year and $60 billion in 2022-23.
That is driven in part by more than $100 billion in new spending over the next three years, including costs to maintain federal wage and rent subsidies and aid for laid-off workers, until September now, instead of cutting them off in June.
Freeland is also looking ahead to the post-pandemic Canada the Liberals want to see, one with $10-a-day childcare, the ability to produce its own vaccines, national long-term care standards and small- and medium-sized businesses equipped with the workers and technology they need to survive.
It also includes a greener, cleaner Canada, with a promise of more than $17 billion in climate change programs, much of it in the form of incentives to encourage heavy industry to curb their emissions and grow Canada’s clean technology sector.
All of it comes with a pandemic-sized asterisk that things could still change drastically if vaccine supplies are delayed, or they prove not to work that well against emerging variants of the virus. The budget includes alternative scenarios that show where the fiscal picture might go if the worst-case scenarios of the pandemic play out.
Those risks seem even more real as the country is battling the worst wave of the pandemic yet with record hospitalizations and patients in critical care and doctors and nurses repeatedly warning of a health care system on the brink of collapse.
The debt-to-GDP ratio will rise again to 51.2%, up from 49.0% in FY20/21 and just over 31% before the pandemic. However, this year should mark the peak for that ratio before declining below 50% by FY25/26.
Help Students and Low Wage Workers
The Budget aims to create 500,000 training and work opportunities. It pledges $2.4 billion over three years to develop skills and trades, with about 40 percent earmarked for training in sectors ranging from health care to construction.
It adds on $8.9 billion more to beef up the Canada Workers Benefit in a boost to low-wage workers, who will have a higher income threshold at which their benefit starts to shrink.
Other measures include bumping the federal minimum wage to $15, pledging $300 million to programs for Black and women entrepreneurs and other underrepresented groups, and recommitting to protect gig workers through promised amendments to the Canada Labour Code.
About 300,000 Canadians who had a job before the pandemic are still out of work.
Help for Small Businesses, Tourism Industry and the Arts
The government announced extending the Canada Emergency Rent Subsidy (CERS) and Canada Emergency Wage Subsidy (CEWS) past their current June 5 deadline but added it is planning to wind them down gradually by the end of September. The government also announced a new hiring credit and some aid programs for the hard-hit tourism and arts industries. Firms that collect the CEWS will face a clawback of the aid if their executives earn more in 2021 than they did before the pandemic. A step critics said should have been taken when the subsidy first came into force in mid-2020.
The hard-hit tourism sector is also getting $500 million for a Tourism Relief Fund, to be administered by regional development agencies to help local tourism businesses recover from the COVID recession. Another $100 million is going to a marketing campaign that will encourage Canadians to visit vacation spots in this country. Never mind that they are fully booked for the rest of the year.
The budget also unveiled $200 million in spending to support major arts and cultural festivals, which will flow through regional development agencies.
The Trudeau Government Is Betting Measures Will Improve Productivity and Pay For Themselves
The government’s budget estimates its spending plan will create or maintain some 330,000 jobs next year and add about two percentage points to economic growth, part of a three-year boost from $101.4 billion in new spending over that time.
The largest contributor is almost $30 billion over five years to drive down fees in licensed daycares to reach $10 a day by 2026. That money is on top of already planned child-care spending. However, the problem is that it will take provincial buy-in as it requires a 50/50 split of the expenses. This could cause untold delays.
There is also more money for broadband infrastructure and $7 billion in cash, financing and advice to help companies adopt and invest in new technologies intended to address ongoing concerns about the country’s productivity gap.
Ottawa is trying to jump-start the jobs recovery with a new program that offsets a portion of employers’ labour costs. The Canada Recovery Hiring Program (CRHP) would run from June 6 to November 20 and cover as much as 50 percent of incremental pay to workers, whether through higher wages, more hours or new hires. The program is estimated to cost $595-million.
The labour market has mostly recovered from the pandemic. The number of employed Canadians is down by roughly 300,000, or 1.5 percent, from pre-pandemic levels. At this point, the damage is mostly confined to a handful of sectors – such as hospitality – that are curtailed by public-health measures. At the same time, employment has increased in many white-collar industries.
Housing and Real Estate
Much like past budgets, the federal government has proposed a series of measures on housing, although they are unlikely to curb the robust activity and speculation of the past year.
Canada will impose a 1% tax on the value of real estate held by foreigners if the property is left vacant, beginning in 2022. It follows foreign buyers’ taxes in British Columbia and Ontario. The move is estimated to bring in $700-million in revenue over four years, starting in 2022-23.
The budget also proposes to send an extra $2.5-billion to the CMHC for various initiatives, including the construction of affordable housing units and plans to reallocate $1.3-billion for such things as the conversion of vacant offices into housing.
However, the budget was just as notable for what wasn’t there: new measures aimed directly at cooling the real estate market.
Measures For The Elderly, The Green Economy, Reduced Tax Evasion, And Luxury Taxes on Yachts, Expensive Cars…
If all goes well, and the pandemic is largely behind us by September, the government forecasts a marked drop in deficits and debt over the five-year planning horizon.
Bottom Line
There is no plan to balance the budget, but one area of focus ahead of the budget was whether Ottawa would commit to a specific fiscal anchor. And while a precise figure was not mentioned, the budget states: “The government is committed to unwinding COVID-related deficits and reducing the federal debt as a share of the economy over the medium-term.” With the proviso that the economy recovers roughly in line with consensus expectations and that borrowing costs don’t flare dramatically higher, this suggests that the anchor is a 50% debt/GDP ratio. For the deficit, this implies a reversion to pre-pandemic levels of around 1% of GDP (or about $30 billion later in the decade). In a sense, then, the pandemic has been “paid for” by a one-time level step-up in the debt/GDP ratio from 30% to 50%.
Please Note: The source of this article is from SherryCooper.com/category/articles/