Days ago the federal government, out of the blue and doing a 180, said they’ll sweeten the CPP. Sort of. If it happens, people could increase the money they pay into the system in order to get more out in retirement.
There are major hurdles with pulling this off, but never mind. We have bigger stuff to discuss today.
As you know, the Ontario left-wing Liberal government has gone down a similar road. The province is now building a pension plan taking another 2% from everybody’s income (to $90,000) which might pay about $10,000 a year in benefits in three decades. And then there’s Alberta. That province embraced a socialist NDP government promising to make the rich pay more (including higher taxes on corporations and people making over $125,000), while boosting the minimum wage in a pro-people, anti-business agenda.
In BC, twenty-five thousand people signed a petition to thump foreign investors in residential real estate. The mayor of Vancouver called on the province for a broad-based speculation tax and hundreds of thousands of #DontHave1Million tweets decreed the ‘unfairness’ of wealth inequality between the haves (Boomers) and the haven’ts (Millennials).
Spot a trend here?
These are the political reactions you can expect in a country where the economy reflects what the public wants and does. In reality, most people have been over-borrowing, over-consuming, under-saving and now increasingly realize they could be screwed. The bulk of middle-class wealth has been shoveled into a single commodity, houses, which could easily be imperiled by a faltering job market, global economic forces (like the price of oil) and, inevitably, higher interest rates. Most people are woefully unprepared for the rest of their lives, or desperately envious of those with wealth. This is the soil from whence the shoots of socialist thought sprout.
So, tax the rich. Clip corporations. Nail the speculators. Plus the Chinese. Governments have a responsibility to support the people. Even if citizens are the architects of their own situation. And so the plot goes.
As you plan your financial future, you might wish to reflect on the following six chilling charts, some of which were published by the federal government for the first time in the past few days.
1) The economy has been seriously losing altitude for an entire year. It‘s now in negative growth – shrinking, in other words. So why have real estate sales been torrid with average prices in Toronto, for example, up 10.7% since last May. Does this represent an increase in household debt and a greater concentration of wealth in one, over-valued asset?
2) Here’s how the economy is changing. And not in a good way. While overall investment is down and exports have been whacked, households have increased their spending, largely fueled by debt. Business inventories, however, are increasing showing that sales have weakened, while imports have jumped. This is not sustainable.
3) Here’s what the economy looks like when you strip out a bunch of the housing component. When businesses stop investing in equipment and expansion, where do we expect the new jobs to come from? This could help explain why we lost 19,700 paycheques in the latest monthly period.
4) House prices in Canada (red) compared to those in the US (blue). Increasingly the Canadian economy is becoming dependent on the real estate sector and industries associated with it. People in this country have convinced themselves the red line will go up forever. Guess what?
5) This explains the last chart. House values in Canada have far exceeded those in the States because we’re willing to swallow epic levels of debt to buy beyond our means. Blame it on cheap rates, greedy bankers or CMHC – but at the end of the day, this is what people have done to their own personal balance sheets. Risk, in extremis.
6) Finally, here are property prices expressed as a ratio of family incomes. This is what cheap debt and house porn does. Chasing real estate, speculating in its continued ascent, Canadians have gambled they can increase spending even as incomes fall behind.
With an aging population, scant savings and a weak economy, it’s hard to see how this ends well. Instead of diversifying or using cheap rates to trash debt, we’ve done the opposite. Never before have your neighbours owed so much nor owned so narrowly. Now they want to elect politicians promising public policy to wipe away their mistakes by taxing others and providing lifelong security.
Govern yourself accordingly.