Entries from March 2012 ↓

Geezer dole

F has been either a lawyer or a senior politician his entire adult life. He’s married to a lawyer who is also now a politician. F has a pension from being finance minister and MPP in Ontario, and he will have another after being finance minister and MP federally. His wife, Christine Elliott, will also have a political pension. Once F’s done in Ottawa, he’ll surely find seats on many corporate boards, and be invited as a partner into one of the larger Bay Street lawgopolies. His wife may run for premier. And win.

In short, this family is set set. F and Christine will have a household pension income in retirement of at least $310,000, indexed and never-ending.

Intellectually, I have no doubt he knows the impact his OAS budget change will have. But emotionally, not so sure. His wealth certainly will shield him from ever experiencing what the loss of $6,000 a year might be, and he will remain wanted, employed and important for as long as he wishes.

As you know, the feds this week began a process which will make everybody now under the age of 54 wait two years longer to get an important part of the public pension program. The OAS is a universal benefit paying about $540 to all who hit 65. In eleven years, that moves to 67. And it could be pushed off to 70.

In addition, wrinkly old people will be encouraged to defer taking this money, starting next year. The feds will bribe them 7.2% for each year they delay, for up to five years. So, if they wait until age 70, they’ll get a third more cash, which will last until they croak.

Why is this happening? Simple. This public pension thing costs a mint. Taxpayers now shell out $41 billion for the OAS, as well as a guaranteed income supplement (GIS) which gives another $700 a month to poor people. This tab increases by $2 billion a year. At the same time, the feds don’t raise enough taxes to run the country, which means they must issue IOUs (bonds). The shortfall has been as much as $40 billion lately – about exactly what the old geezers have been costing us.

The solutions are to raise taxes (ain’t gonna happen, yet), cut spending (F could barely find $5 billion to nip over three years in a $260 budget) or reduce entitlements (bingo!).

There’s also the issue of intergenerational pissing matches. With nine million boomers about to snorfle and suck their way through pension and health care billions over the next two decades, the country’s fiscal situation will grow only more dim. Many economists (like the Parliamentary Budget Officer, Kevin Page) believe we’re entering many years of a ‘structural deficit’ in which spending on these two items alone, thanks to demographics, will gut national finances. In other words, there aren’t enough working saps to pay for the retired ones.

How did this happen? Is it fair? Should we pay people just because they get old? Can we afford pensions and health care for everyone?

Beats me. But I know this. The very existence of these geezer benefits has lulled way too many people into doing diddly about their financial futures. I’ve given you the stats time and again. Half of us have no savings. The average RSP is big enough to last just six years. Four in ten have trouble paying monthly bills. Forty-three percent might fail a 2% mortgage hike. Eighty per cent of TFSAs are full of (yikes) cash. Debt’s endemic. But seven in ten have houses.

See what I mean? Nobody listens to me. Real estate beats retirement, ten times out of ten. Granite is irresistible, while it’s hard to get horny about growing old. And judging by a slew of comments on this lamentable site, w-a-y too many people believe they can actually get by on old fart pogey.

Of course, you can’t. Not in a city (where 80% of Canadians reside), regardless of whether you have a paid-for home or not. You might endure, but there will be little joy. Hardly the conclusion that life merits.

And now it promises to get a little worse. Two fewer years of government cheques.

This is the correct fiscal decision. No question. But it breaks a social contract. And the current government never mentioned the need to do this when elected a few months ago. Tacky and gutless.

But if leaders wanted us on a more sustainable path, they’d abandon policies pumping houses and stop pretending anyone can live on the geezer dole. F failed the test. There are millions of boomers who think they’ve played by the rules, now house-rich and investment-poor. Little do they know the revenge their real estate-deprived children will exact when the realization hits that they need to bail, because CPP and OAS are SOL.

No, it’s not the government’s fault. This is but a taste of what’s to come. Just wait til Parliament teems with Millennials.

Or, get ready now.

F factor

Once a pumper, always a pumper. The man who dreamed up 40-year amortizations and implemented them just as the US real estate market was crashing, and who allowed government-backed 0%-down house financing and who’s overseen growth of the largest real estate bubble in history, has done it again.

In his much-hyped budget, F choked. As expected.

There will be no murdering of the 30-year mortgage and a return to a maximum of 25 years, as several big banks were pleading.

No suggestion that minimum down payments be raised from 5% to 7%, as experts had suggested, to protect property virgins from themselves, and massive debt.

No end to cash-back mortgages, meaning 100% financing continues, backed by taxpayers.

And no word on raising (or doing anything, for that matter) CMHC’s lending ceiling of $600 billion, which has been all but consumed in an orgy of recent borrowing.

Only this: Ottawa will bring in “enhancements to the governance and oversight framework” of the crown corp. Also (as far as I can tell at this moment), nothing immediate about reforming the system of ‘covered bonds’ which have helped create an ocean of borrowing (but indications that new laws are coming). In fact, in his budget speech Flaherty was strangely silent on what many economists (including Brother blog dog Carney) think is the biggest time bomb ready to take out economy growth – runaway household debt.

Here is all that the 498-budget says about the biggest social issue facing most Canadian families:

The Government continuously monitors housing finance risks and takes action when necessary. Adjustments to the rules for government-backed insured mortgages were announced in July 2008, February 2010 and January 2011. In addition, in June 2011 Parliament approved legislation to formalize arrangements with private mortgage insurers and Canada Mortgage and Housing Corporation (CMHC), enhancing the Government’s ability to manage risks arising from the mortgage insurance sector.

As part of the Government’s continuous efforts to strengthen the housing finance system, the Government will introduce enhancements to the governance and oversight framework for CMHC, contributing to the stability of the housing market and benefitting all Canadians. The Government will propose legislative amendments to strengthen oversight of CMHC and to ensure its commercial activities are managed in a manner that promotes the stability of the financial system.

The Government is moving forward with a legislative framework for covered bonds. A legislative framework will support financial stability by helping lenders find new sources of funding and by making the market for Canadian covered bonds more robust. CMHC will be the administrator of this covered bond program, which will be available to federally and provincially regulated mortgage lenders in Canada.

By the way, the budget does mention, cryptically, that CMHC’s budget will be cut by$102.4 million by 2015-5. Obviously an austerity kick in terms of post-it notes and mouse pads.

As you know, F nicked a few bucks off Parliament’s budget, cut overall government spending by a smidge, promised to eliminate 19,000 civil servants (over time), and exempted almost all Boomers from the move to chop OAS spending. That $6,000-per-year handout just because your knees won’t work will continue to be paid to everyone currently 54 or older, when they hit 65.

So, what does it mean?

For the housing market, nothing. The trap continues to be baited with cheap rates, free-flowing mortgages, no-money-down financing and nary a word of waning. In fact in the entire budget, for which at least one medium forest died, the words “mortgage debt” do not appear. No cautions about overborrowing or the dangerous amount of collective net worth now stuffed into a single asset.

So much for Mark Carney. His continuous warnings about overheated housing in Vancouver, condo madness in Toronto or the inevitable impact of higher interest rates – all gone in a poof of elfin pixie dust. This is what politics does to people who once owned principles. Or told you they did.