Garth's speaking schedule is here.
Is there a nasty surprise waiting for real estate investors? You bet.
Eight years ago Toronto was short $72 million. Last year the gap was $447 million. Thus year it will be $700 million. In nine years it will be at least $1.2 billion. To balance the books then would take a property tax hike of 37%.
Welcome to the next decade, kids.
Ontario is short $24 billion this year. BC about $3 billion. Alberta over $4 billion. In fact every province in Canada’s in the red.
The feds, of course, are short $56 billion. When you add up the money all governments are spending this year that they don’t have – which I figure is just a little under $100 billion – you get an idea of what’s coming. And it’s inevitable: (a) honking big tax increases, and (b) huge spending cuts.
The tax increases will be in the form of the HST (provincial), a higher GST (federal) and property taxes (local). That’s for starters – over the next three years. After that, you should expect the age at which CPP is paid to increase to match that in the States (67), the RRSP tax deduction to become a credit (cutting the benefit by up to half), health care premiums to creep across Canada and a surtax on ‘high income’ Canadians (over $100,000).
The spending cuts will be insidious. Already BC is closing schools and shutting down emergency response units. Toronto charges people to own cars and put out their garbage while it’s also phasing out schools and pools.
And how long before we get to this state?
COLORADO SPRINGS — This tax-averse city is about to learn what it looks and feels like when budget cuts slash services most Americans consider part of the urban fabric. More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.
The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter. Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that. Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.
City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends.
Could this be the scene in Canada in five years? Ten? After all, it may come down to a choice between endlessly increasing taxes, or governments simply living within their means.
Personally, I see no alternative. Governments country saved nothing, let infrastructure crumble and were totally unprepared for an economic meltdown we were talking about on this blog a year before it happened. In merely 10 months, Ottawa has driven taxpayers into debt faster than during the Great Depression or either of the World Wars. The consequences will be with us for a long time.
So, what to do?
First, avoid taxes. Stuff money into RRSPs and collect the massive deduction that does along with that. Slide all your investment assets inside the shelter of a TFSA so you avoid paying any more. Make your mortgage tax-deductible by selling assets, paying off the home loan, then reborrowing to buy the portfolio back. Stop collecting interest and start paying 80% less tax with the same amount of dividend income. Create a tax-free pension using universal life. Use the homebuyer’s plan to leverage up a downpayment with tax money. Income split with your kids and recycle capital gains to them with a tax-free savings account. Use leverage to get money out of a RRIF free of tax.
All of those strategies are in my latest book, and if you don’t know how they work, find out.
Second, prepare for a property tax storm and a service drought. The worst may be a few years away, but that makes it no less inevitable. Pay close attention to the taxes on any real estate you consider buying, then ask yourself if you could afford to pay 50% more. Also realize what that might do to property values, especially in cities where homeowners are already nailed.
Finally, in keeping with the squirrel-loving, contrarian, coonhound -‘n-ammo nature of this blog, imagine living in a place with a third fewer cops and first responders, restricted public transit, dead parks and rarely-spotted snowplows or police cruisers. In that kind of world, where would you want to be?
Yeah, I know. The bunker.
Good luck with the razor wire.
