Amount Canadians owe compared with income ticks lower but still near record high

The amount Canadians owe compared with their income ticked lower in the first quarter but remained near record levels as mortgage debt continued to climb.

Statistics Canada said Wednesday, June 14, 2017 the amount of household credit market debt as a proportion of household disposable income slipped to 166.9 per cent in the quarter compared with 167.2 per cent in the fourth quarter of last year.

That means that for every dollar of disposable income, Canadians owe about $1.67.

Economists and policy-makers, including the Bank of Canada, have raised concerns about household debt and see it as a key risk to the economy.

Low interest rates have fuelled the growth in household debt in recent years, but the central bank has started dropping hints that may be changing as the economy has improved.

Canadians should be thinking about what their finances would look like were interest rates to rise, Bank of Canada governor Stephen Poloz said this week.

Royal Bank economist Laura Cooper said the cost of servicing debt has remained broadly unchanged in recent years, but households’ sensitivity to rate hikes is likely greater now than when rates have risen in the past.

“Non-mortgage debt tends to command higher borrowing rates and variable payments, leaving households increasingly vulnerable to a looming uptrend in interest rates,” Cooper wrote in a report.

Household income gained 0.9 per cent, Statistics Canada said, greater than the 0.7 per cent increase in household credit market debt.

Total debt, which includes consumer credit, and mortgage and non-mortgage loans, totalled $2.041 trillion in the first quarter. Mortgage debt represented 65.7 per cent of that, up from 65.6 per cent during the last three months of last year.

“While indebtedness has recently stabilized for Canada as a whole, it still remains elevated, leaving households particularly sensitive to rising rates,” TD Bank economist Diana Petramala said in a note to clients. “Moreover, averages do not tell the full story, with risks still rising in Ontario.”

Household net worth at market value rose 2.2 per cent to nearly $10.534 trillion. Households borrowed $27.5 billion on a seasonally adjusted basis in the first quarter, down slightly from $27.6 billion in the previous quarter.

Mortgage borrowing increased $2.7 billion from the fourth quarter to $20.9 billion, while demand for consumer credit and non-mortgage loans fell $2.8 billion to $6.5 billion.

Statistic Canada’s report came as the Teranet_National Bank national composite house price index, which measures homes sold at least twice in their history, hit a new all-time high for a 16th consecutive month. The index gained 2.2 per cent last month, the largest gain for May in the 19-year history of the index.


Canadian Economy Showing Encouraging Signs

Source: PR Newswire

With the adjustment to lower oil prices largely behind us, there are encouraging signs that growth is broadening across regions and sectors, Senior Deputy Governor Carolyn A. Wilkins told the Associates of the Asper School of Business in a speech June 13, 2017.

Senior Deputy Governor Wilkins discussed how having more broad-based economic growth makes it more likely that it will be sustainable over the medium term. This is the horizon Bank of Canada policy-makers consider as they set policy to achieve the Bank’s 2 per cent inflation target.

“While broad-based growth is desirable, it’s not under the direct control of monetary policy, and it’s not our objective. We target a 2 per cent inflation rate,” she said.

Senior Deputy Governor Wilkins focused on diversity in sources of growth from three perspectives: progress made in adjusting to lower oil prices, the range of industries that are growing and the evolution of the labour market.

One sign of progress in adjusting to lower oil prices is the bounce-back in capital expenditures in the oil and gas sector, which is helping to underpin renewed growth in business investment. Another comes from rising consumer demand in energy-intensive provinces. And Bank of Canada models also point to a broadening in provincial activity this year, reinforcing recent results in the Bank’s Business Outlook Survey.

“What’s encouraging is that this growth is not being driven by just a few key industries,” Senior Deputy Governor Wilkins said. The data show that more than 70 per cent of industries have been expanding and the labour market continues to improve.

However, slack in the economy is still translating into below-target inflation, Senior Deputy Governor Wilkins said, and risks to the outlook remain.

To meet its inflation objective, the Bank must consider not only current economic conditions, but also how they will evolve, she said.

“If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly,” said Senior Deputy Governor Wilkins. “You don’t want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead.”


Ontario looks at ways to make child care more affordable

Ontario is looking at ways to make child care more affordable for families in the province, announcing a framework the minister in charge calls a step toward universal child care.

A new strategy aims to increase access to high-quality child care by funding new spaces, providing more funding for licensed home child care and offering more fee subsidies for families who need them.

“This framework sets us on a path towards a universally accessible child-care system for Ontario families, one where every Ontario family that needs licensed child care can access that care, where every family that needs affordable child care can access that care and one where every family that wants quality care can get that care,” said Early Years and Child Care Minister Indira Naidoo-Harris.

She and Education Minister Mitzie Hunter discussed the framework Tuesday while announcing $1.6 billion in funding to build 45,000 new licensed spaces.

Those new child care spaces are part of a pledge of giving 100,000 more children aged four and under access to licensed child care over five years.

“We all know that child care and the right early years programs and supports play a crucial role in a child’s healthy development and lifelong success,” Hunter said. “In other words, laying a solid foundation in a child’s earliest years dramatically increases their opportunities in life and a chance for a brighter future.”

According to research from the Canadian Centre for Policy Alternatives, several Greater Toronto Area cities have the highest child-care fees in the country, with Toronto topping the list with a median fee of $1,649 a month for infants.

As part of the overall child care framework, Ontario will appoint experts to lead an affordability strategy and the province will study how it can better support early childhood educators and child care staff with compensation, hiring, retention and training.

The strategy also prioritizes the growth of non-profit child care and plans to develop a new approach for early years care for children with special needs.

The Progressive Conservatives said Tuesday that they supported the creation of more child care spaces but criticized the Liberals for not acting sooner to make daycare more affordable.

“Currently the licensed daycare sector provides spaces for little more than 20 per cent of children. The Wynne Liberals have no plan to pay for this promise, and they won’t be accountable for it until years down the road,” PC children and youth services critic Gila Martow said in a statement.

NDP early years and child care critic Catherine Fife called the government’s announcement little more than a publicity stunt.

“The Wynne Liberals announced a plan to make a plan when it comes to child care and that’s not good enough,” she said. “Parents deserve action to make affordable, quality, licensed child care spaces available right away.”


Do young workers suffer first from increased payroll taxes?

By Jordan Press


OTTAWA _ “The first people who suffer when payroll taxes go up are young Canadians and new entrants into the workforce.” _ Conservative Leader Andrew Scheer.


Newly minted Conservative Leader Andrew Scheer was hoping to lure young voters into the Tory tent this week when he said “payroll taxes” ultimately hurt new and young workers a key constituency in 2015’s Liberal election win.

Such workers would be left behind if increased payroll costs, linked to plans to expand the Canada Pension Plan, dissuaded businesses from making new hires, Scheer argued.

“This is the great lie of the left,” he said  ‘hat they hurt the people they claim to help.”

How much truth is there to Scheer’s statement?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of “no baloney” to “full of baloney” (complete methodology below).

This one earns a rating of “a little baloney” the statement is mostly accurate but more information is required.


Scheer’s argument stems from a concern the Conservatives have voiced for years: increased Canada Pension Plan premiums dampen employer interest in expanding workforces because of increased labour costs.

Over seven years beginning in 2019, CPP premiums will be gradually increased as the program is expanded, resulting in a one per cent increase in the premiums paid by employers and employees.

That’s about $408 more per year coming off paycheques _ hence the Conservative “payroll tax” label.

The Tories point to 2014 research by the International Monetary Fund on youth employment in Europe that suggests a one per cent increase in payroll taxes can increase youth unemployment by between 0.3 and 1.3 per cent, compared to 0.5 per cent for adults. Likewise, Scheer’s staff point to a 2011 Organisation for Economic Co-operation and Development (OECD) paper that said it is “reasonable to conclude” that higher labour taxes affect unemployment.

A University of Calgary study this year found higher corporate income tax rates tend to result in lower wages for workers. Older research papers suggest similar effects on wages in Colombia and Chile from changes in payroll taxes.

When looking at cost reductions, a 2014 Queen’s University paper found that employment rates increased between one and two per cent for young workers between the ages of 18 and 24 when the federal government offered would-be employers rebates on EI premiums.

The Liberals promised to do something similar in their election platform, but have yet to follow through on the pledge.


Markets decide how best to deal with the costs of payroll taxes, be it through increased consumer prices or reduced shareholder revenues, but they mostly materialize through lower wages,

Companies decide best on how to deal with the costs of payroll taxes, either by passing the extra cost along to consumers in the form of higher prices, cutting dividends to shareholders or _ as is most often the case _ by cutting wages, said Ken McKenzie, an economics professor at the University of Calgary who co-wrote the 2017 paper.

“Most of the action happens on lower real wages and it takes some time for this to happen,” said McKenzie, who has studied and advised Canadian and international governments on taxation.

“Companies faced with higher payroll tax costs will just give lower increases in wages, or inflation will go up because labour costs go up, and that slowly erodes the real wages.”

Businesses can adjust their spending in the face of higher labour costs by cutting back on hiring, which affects new entrants to the labour force, said Craig Alexander, chief economist at the Conference Board of Canada.

Just how much the CPP premium increase, spread over several years, would affect hiring is unclear, but it would likely be minimal, Alexander said.

Tammy Schirle, an associate professor of economics at Wilfrid Laurier University in Waterloo, Ont., said a payroll tax that is clearly visible and directly connected to an individual benefit _ saving for retirement, for instance _ ought not have negative employment effects as long the benefit is of value to people.

CPP premium increases will likely reduce employment levels in the short term and be replaced in the long run by lower wages, said Ted Mallett, vice-president and chief economist with the Canadian Federation of Independent Business. CFIB modelling suggests new entrants to the labour force, including youth, are likely to be disadvantaged in the long run as employers look to hire someone with more employment history.

It is possible that some employers will cut back on their private pension plans as a way to neutralize the effects of a CPP premium increase, but it’s unclear by how much, Mallet said. Employees, too, will likely cut back a bit on retirement savings, he added.


There is evidence to support Scheer’s comments about the general effects of payroll taxes. His statement, however _ one of his first as Opposition leader _ lands a rating of “a little baloney” because of a shortage of evidence when it comes to young workers.

“For political reasons, you can see why he would say that. His comments, as far as I can see, weren’t totally offside. He’s basically saying that payroll taxes may actually hurt people,” McKenzie said.

“He focused on young people, and that’s an area where there’s not a lot of empirical work, because most payroll taxes affect everybody.”


Jonathan Gruber (1995). “The incidence of payroll taxation: Evidence from Chile.” National Bureau of Economic Research. Link:

‘Battered, bruised and buffeted:’ Wall says Saskatchewan deficit climbs to $1.2B

Saskatchewan Premier Brad Wall says the provincial deficit is up to about $1.2 billion and wage freezes or job cuts are on the table for public-sector workers.

Wall delivered the grim financial news to delegates at the Saskatchewan Urban Municipalities Association convention.

“(A) non-essential hiring freeze has been in place now in government for some time and we’ve made some progress, but we’re not anywhere near close to having dealt with this gap,” Wall said Monday, Feb. 6, 2017.

The gap is actually growing.

The government projected a deficit of $434 million when it introduced the budget in June. A fiscal update released last November by Finance Minister Kevin Doherty suggested that had gone up to nearly $1 billion.

The premier said the government spends about $7 billion on salaries and benefits for workers. The government “will have no success in bringing order to our finances if we cannot contain our payroll costs,” he said.

The new financial reality applies to anyone relying on provincial funding to deliver services, including municipalities, school boards, health care and universities.

“Our very base case, our minimum expectation, is that we will freeze the total (human resources) cost of government for this year and potentially for a few years down the road.”

Wall said a scenario being considered to help balance the budget this year includes some tax increases, cuts of 4,900 jobs in health care, layoffs in education and reduced support for vulnerable people.

Saskatchewan is also considering whether to privatize cleaning of government buildings. The Ministry of Central Services is exploring whether the private sector could do the job for less.

The Saskatchewan Federation of Labour has said that the government is attempting to make public-sector workers the scapegoats by demanding they pay for the deficit.

The premier said tax revenue is lower than forecast and crop insurance claims are up $250 million because of a late harvest.

The government is reviewing PST exemptions and the education property tax structure as it looks for ways to save money.

It’s also trying to save money because of a big drop in revenue from oil and gas, potash and uranium.

“For three years, we’ve been battered and bruised and buffeted by a stubbornly long down cycle in commodity prices. It’s been a perfect storm for Saskatchewan … and that storm is still blowing a little bit. We’re not out of it yet by any means.”

Wall told convention delegates that there’s no immediate bounce back in sight for non-renewable resource revenue.

But he said there are some optimistic signs for oil with prices above $50 a barrel and ongoing strength in agriculture, where the second-largest crop on record was expected last year.


The never ending car payment

By Liz Weston,

Car payments have morphed from a temporary nuisance into a permanent part of many people’s budgets. Whether that’s a bad thing depends on what you do with the rest of your money.

One-third of millennial car buyers chose a lease last year, which helped push auto lease volume to a record of 4.3 million and 31 per cent of all new auto purchases, according to market research by

There is a greater percentage of people who view car ownership as a monthly payment like their cellphone or cable or Wi-Fi,” says Jessica Caldwell, executive director of strategic analytics at  “It’s just the way we live our lives.”

Lease payments are typically lower than monthly loan payments for the same car, and leasing is less expensive than buying new cars every two or three years. But leasing is far from frugal, especially compared with paying off a car within five years and owning it for a few more. People who lease don’t get a break from payments or build equity toward the next purchase.

But younger buyers in particular are more likely to view cars as technology that needs to be continually upgraded, Caldwell says.

“It used to be cars didn’t change that much in five years. Now they do,” she says.

(Even Consumer Reports , which typically recommends buying over leasing, suggests leasing electric cars because the technology is changing so fast.)

Fear of repair bills contributes to the leasing trend as well. Many people would rather have constant payments and continually drive newer cars than be surprised by repair costs  especially in an era when 46 per cent of households don’t have $400 in savings to cover an emergency, according to the Federal Reserve .

“Your costs with a lease, while higher, are also more predictable,” says Alex Klein, vice-president for data science for autolist a new and used car search engine.

Younger buyers also are less convinced they’ll need a car five years from now, Klein says.

“There’s more flexibility about the idea of car ownership,” Klein says. “In two or three years, I may get around in an autonomous Uber.”

Millennial car owners plan to own their cars for less time than their Generation X predecessors, an Autolist study of 3,383 vehicle owners found. Forty-seven per cent of those aged 25 to 39 in 2016 said they’d keep their cars five years or less, compared to 41 per cent of those 40 to 54. One-third of the older crowd intended to keep their vehicles for 10 years or more, compared with just one-quarter of millennials.

Leasing certainly can be a better financial choice than some other financing options. Auto loans that stretch six years or more mean buyers often face big repair bills while they’re still making payments. Buyers often owe more on the loan than the car is worth for most of the loan term, and interest rates tend to be higher than for shorter loans.

Too many of these buyers wind up trading in their cars before they’ve paid off their loans, rolling their negative equity into their next vehicle at even higher interest rates. Among car buyers who traded in a vehicle last year, 29.9 per cent rolled an average of $5,193.79 in unpaid debt into their new loans, found. A decade earlier, the comparable figures were 26.4 per cent and $3,997.36 of negative equity.

If you’re leaning toward leasing, here’s what you need to keep in mind:

  • Don’t overspend. Any car payment, whether on a loan or a lease, needs to fit in with more important financial priorities such as saving for retirement and paying off debt. If your payment pushes your “must-have” expenses _ such as shelter, transportation, food, utilities, insurance and other minimum loan payments _ to over 50 per cent of your after-tax income, you probably can’t afford it. Consider buying a less expensive new car or a reliable older model instead.


  • Have a cushion. Car repairs are typically covered under warranty when you lease, but you may face extra charges at the end for excessive mileage, bald tires or wear and tear, especially if you are not leasing another vehicle of the same make . If you’ve modified the vehicle in any way, those alterations have to be removed.


  • Negotiate hard . Experts recommend that you negotiate the purchase price of the car as if you plan to buy it, and discuss leasing only after you get a firm price. Down payment, mileage allowance and after-lease purchase price can be haggled, as well.




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