• TSX -11.30
• DOW -13.68.
• Dollar +.27c to 97.31cUS closed higher for a 7th straight sessions and hit a seven-week high against its American counterpart as oil prices continued to rise amid signs of global economic improvement.
• Oil +$.37 to $81.87US per barrel.
• Gold -$11.20 to $1,123.60 USD per ounce
Home purchase intentions full steam ahead: RBC poll
Vast majority of Canadians view buying a home as a good investment
TORONTO, March 8 /CNW/ - Homebuying momentum in Canada continues to gain steam with the portion of Canadians who are very likely to purchase a home in the next two years rising to 10 per cent from seven per cent two years ago, according to the 17th Annual RBC Homeownership Study. Younger Canadians, aged 18 to 24, will lead the charge this year, with those very likely to buy almost doubling to 15 per cent from eight per cent in 2009.
The RBC study conducted by Ipsos Reid found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years, and one-quarter (26 per cent) expect their home to be their primary source of income when they retire.
"With the Canadian housing market showing continued vigour, it's not surprising that Canadians feel more confident in the long-term value of owning a home," said Robert Hogue, senior economist, RBC. "Exceptionally low mortgage rates and improved affordability have been key reasons for the resurgence in the housing market this past year."
Most Canadians who intend to buy a new home in the next two years are planning to take a fixed rate mortgage (44 per cent). However, combination mortgages had the highest increase in popularity this year, with 40 per cent intending to take both a variable and fixed rate component, up from 32 per cent last year.
For Canadians planning to take a fixed rate or combination mortgage, seven-in-10 intend to take a term of five years or longer. Sixteen per cent said they intend to take a variable rate mortgage, down from 20 per cent in 2009.
"Canadians seem to be opting for more caution this year and may be factoring in potential rate increases down the road," said Marcia Moffat, RBC's head of home equity financing. "Choosing a combination mortgage can take some of the guesswork out of making a decision between whether it is better to lock in to a longer-term or stay in a variable rate."
In the wake of the recent housing rebound, most Canadians (six-in-10) also believe housing prices will rise in 2010, up significantly from 25 per cent in 2009. Similarly, a majority (64 per cent) believe mortgage rates will be higher over the next year, also up from 33 per cent a year ago.
"The expectation of higher mortgage rates on the horizon could be motivating buying intentions this year. But it's important that homeowners - especially first time buyers - get solid advice about what they can afford, not only today, but down the road," added Moffat.
In addition to seeking customized advice from a financial advisor, Moffat provides the following tips:
For homebuyers:
1. Lock in your rate when you apply for your mortgage.
Depending on your situation, there are rate guarantees that allow you to lock in your mortgage rate for up to 120 days.
2. "Stress test" your mortgage for rate increases.
If you are concerned about affordability down the road, knowing what your payments would be with a one - three per cent rate increase will give you greater peace of mind that your new home is affordable both today and in a few years time, when rates might be higher.
3. For first time homebuyers, leave some wiggle room.
With a pre-approved mortgage you will know what you can afford today. But before making a decision to find a home at the top of your pre-approval amount, also consider your current lifestyle preferences and how future changes in your circumstances could impact your payment comfort zone.
For homeowners renewing their mortgage:
1. Take advantage of early renewal options.
Some mortgages allow you to renew up to 120 days before the end of your term. This means you can lock in your new mortgage rate early.
2. Consider a combination (hybrid) mortgage to manage your interest costs.
If you are unsure of where rates are headed, consider splitting your mortgage into part fixed and part variable. You will have rate protection on the fixed rate mortgage portion, while you benefit from today's low interest rates on the variable rate mortgage portion. Transmitted by CNW Group
More young Canadians taking advantage of low interest rates in housing market
By Luann Lasalle, The Canadian Press
MONTREAL - Younger Canadians are expected to lead the way with home buying this year as they take advantage of low interest rates, new jobs and what they consider "good prices," a bank survey says.
The survey for the Royal Bank suggested that 15 per cent of Canadians between the ages of 18 and 24 were very likely to buy, almost double from eight per cent in 2009.
It's a marked shift in the attitudes of younger Canadians, who have tightened their budgets over the past few years to cope with tough jobs markets and the recession.
"Our poll found that 35 per cent of younger Canadians, between the ages of 18 and 24, are intending to buy a home due to good real estate prices," Marcia Moffat, RBC's head of home equity financing in Toronto, said Monday.
The national average price for a home was $328,537 in January, according to the Canadian Real Estate Association.
Thirty-one per cent of 18 to 24-year-olds surveyed in the online poll said they would buy a house because of a new job. The survey also found 22 per cent in that young age group wanted to buy a home because they considered interest rates were good.
CIBC World Markets senior economist Benjamin Tal said more young people are getting into the real estate market, taking advantage of low interest rates, lower down payments and more years to pay off their mortgages.
Tal said he estimates the young people getting into the market as a bit older, between the ages of 22 and 28.
"Basically parents are begging their kids to buy now because they remember when they were paying 12 to 15 per cent mortgage interest," Tal said.
"So there's a sense of urgency to get into the market and young people are a part of it."
Tal described the coming real estate market of the next three or four years as "boring."
"I think that what we are doing now is that we are basically stealing activity from the future."
The RBC survey also suggested that overall attitudes are changing as more Canadians return to shopping for homes as the economy recovers, even though it's considered a seller's market.
"Confidence in the housing market is back, essentially," RBC senior economist Robert Hogue said.
Royal Bank said the study found more Canadians are "very likely" to buy a new home in the next two years.
Ten per cent of the 2,047 people of all ages surveyed for the study said they planned to buy a home within two years - up from seven per cent two years ago.
The RBC study also found that 91 per cent of Canadian homeowners believe a home is a good investment, the highest level in 12 years.
"At this stage last year, there was doom and gloom all around and it definitely affected the housing market," Hogue said.
One-quarter of those surveyed, 26 per cent, said they expect their home to be their primary source of income when they retire.
However, the surge in optimism doesn't necessarily mean that Canadians have forgotten about past economic troubles.
The survey found they are still more cautious when it comes to mortgages. Forty-four per cent of those surveyed who plan to buy a home in the next two years said they would take a fixed-rate mortgage.
Also on Monday, the latest new homes numbers showed that the annual rate of housing starts were up in February.
The Canada Mortgage and Housing Corp. said that the seasonally adjusted annual rate of housing starts reached 196,700 units in February, an increase from 185,400 in January 2010.
Senior CMHC economist Bill Clark said the market is seeing a lot of "catch-up" and consumers in Ontario and B.C. are likely trying to avoid the harmonized sales tax before the summer.
"So if you roll all of that together it's really sort of one big recipe for housing starts to go up," Clark said.
The report showed the gain was concentrated in the multiple starts segment, particularly in Toronto.
Urban starts increased nine per cent to 179,100 units in February.
Urban multiple starts increased by 19.1 per cent to 89,900 units, while single urban starts increased by 0.5 per cent to 89,200 units.
The annual rate of urban starts increased 28.6 per cent in Ontario in February, 14.3 per cent in Atlantic Canada, 10.8 per cent in the Prairies and by eight per cent in British Columbia.
In Quebec, urban starts fell 14.1 per cent.
Rural starts were estimated at a seasonally adjusted annual rate of 17,600 units in February.
Tuesday, March 9, 2010
Monday, March 8, 2010
Financial Update For March 8, 2010
• TSX +150.17
• DOW +122.06 .
• Dollar +.01c to 97.04cUS closed higher for a 6th straight sessions
• Oil +$1.29 to $81.50US per barrel.
• Gold +$2.20 to $1,134.80 USD per ounce
Regular reviews of your mortgage ensure your loan is still right for your financial situation
by Malcolm Morrison, THE CANADIAN PRESS
TORONTO - Buying a home is probably the most expensive purchase you will ever make and if you're like the vast majority of Canadians, you used a lot of borrowed money to experience the joys of home ownership.
Because you have to pay interest on a loan over years and decades, that means you will end up paying a lot more money for your house or condo than what you paid the seller.
You have to take advantage of every break to reduce your mortgage balance and the amount of time it will take to pay off your home. And that means it's a good idea to take a good hard look at that loan at least once a year.
"There's a lot of things that people don't actually think about," said Jim Rawson, regional manager for mortgage broker Invis in Toronto. For starters, he thinks it is a good idea to keep a mortgage table handy just to remind you how much you're actually paying for that house.
"And you should take a look at it every year and take a look at where you are on it and how much you paid down," he said.
One of the most obvious things you can do - and will shave years off your mortgage term - is make sure you are not paying in monthly installments."You can switch to weekly or bi-weekly and generally most institutions will allow you to do that." Doing so amounts to an extra monthly payment every year. Also, most mortgages are built with an annual pre-payment feature.
"And if you can make a portion of that, any portion of it, you're obviously going to be saving some interest," said Rawson.
Many institutions will allow you to pre-pay at least 15 per cent of your principal balance every year. (MERIX allows 20%)
You may not be able to come up with a huge amount of money every year. But even nibbling away at the balance can carve years off the payment term.
"Ten dollars (a week) is not going to make a huge difference (to you) - but $10 a payment can make a difference," said Rawson.
"And you know a lot of people are getting raises every year, or every couple of years and if they were to apply even a portion of their raise to their mortgage, they would be saving a lot of money over the course of their mortgage."
You may also be thinking of embarking on a major renovation for your kitchen or bathroom or slapping on a new roof.
Many would go the home equity loan route but instead, you could just add the cost to your mortgage for a lower interest rate.
"Absolutely, if you have enough equity built in to your home right now and you're looking at a major renovation, certainly refinancing and adding, increasing your mortgage amount can certainly be a very cost-effective way of borrowing for that renovation," said Charles Lambert, Managing Director, Mortgages, at Bank of Nova Scotia.
"You look at it in terms of relative size of the renovation that you want to do - I'm not sure you want to (do this) if you're repainting your house or something like that."
Instead, he said, a line of credit could be the appropriate way to do a smaller project. And here again, you can use your home as security for a line of credit.
"You can borrow up to 80 per cent of the value of your home," said Lambert.
Secured lines of credit generally charge a point or two above the prime rate.
You could also think about consolidating debt like a credit card balance to a lower rate by tacking it onto your mortgage. But don't use it as an excuse to rack up more debt.
"One of the key things that I always advise clients about is if they're going to pay off credit cards by refinancing your mortgage, you better be cutting up those credit cards," said Rawson.
"It doesn't mean you can spend some more money because that's not going to help at all."
Finally, mortgage interest rates are at extremely low levels now - but they won't stay that way and economists expect the Bank of Canada to start hiking rates later this year.
So for peace of mind, homeowners on a variable rate might want to opt for something fixed right about now.
"If you're looking for long-term stability, then you're probably taking a look at trying to do something fixed for five years or so," said Rawson.
But, historically, rates fluctuate and at some time in the future, you may find that it makes sense to break your mortgage so you can take advantage of a lower rate, despite a high penalty.
For example, Scotiabank would charge you the greater of three months' interest on the mortgage balance or the interest rate differential.
"Sit down with a mortgage pro, they can work out for you whether it makes sense or not," added Rawson, adding if you can save yourself two percentage points over the next five years, you're way ahead.
http://ca.finance.yahoo.com/personal-finance/article/cpmoney/regular-reviews-your-mortgage-ensure-your-loan-still-right-your-financial-situation-20100225
• DOW +122.06 .
• Dollar +.01c to 97.04cUS closed higher for a 6th straight sessions
• Oil +$1.29 to $81.50US per barrel.
• Gold +$2.20 to $1,134.80 USD per ounce
Regular reviews of your mortgage ensure your loan is still right for your financial situation
by Malcolm Morrison, THE CANADIAN PRESS
TORONTO - Buying a home is probably the most expensive purchase you will ever make and if you're like the vast majority of Canadians, you used a lot of borrowed money to experience the joys of home ownership.
Because you have to pay interest on a loan over years and decades, that means you will end up paying a lot more money for your house or condo than what you paid the seller.
You have to take advantage of every break to reduce your mortgage balance and the amount of time it will take to pay off your home. And that means it's a good idea to take a good hard look at that loan at least once a year.
"There's a lot of things that people don't actually think about," said Jim Rawson, regional manager for mortgage broker Invis in Toronto. For starters, he thinks it is a good idea to keep a mortgage table handy just to remind you how much you're actually paying for that house.
"And you should take a look at it every year and take a look at where you are on it and how much you paid down," he said.
One of the most obvious things you can do - and will shave years off your mortgage term - is make sure you are not paying in monthly installments."You can switch to weekly or bi-weekly and generally most institutions will allow you to do that." Doing so amounts to an extra monthly payment every year. Also, most mortgages are built with an annual pre-payment feature.
"And if you can make a portion of that, any portion of it, you're obviously going to be saving some interest," said Rawson.
Many institutions will allow you to pre-pay at least 15 per cent of your principal balance every year. (MERIX allows 20%)
You may not be able to come up with a huge amount of money every year. But even nibbling away at the balance can carve years off the payment term.
"Ten dollars (a week) is not going to make a huge difference (to you) - but $10 a payment can make a difference," said Rawson.
"And you know a lot of people are getting raises every year, or every couple of years and if they were to apply even a portion of their raise to their mortgage, they would be saving a lot of money over the course of their mortgage."
You may also be thinking of embarking on a major renovation for your kitchen or bathroom or slapping on a new roof.
Many would go the home equity loan route but instead, you could just add the cost to your mortgage for a lower interest rate.
"Absolutely, if you have enough equity built in to your home right now and you're looking at a major renovation, certainly refinancing and adding, increasing your mortgage amount can certainly be a very cost-effective way of borrowing for that renovation," said Charles Lambert, Managing Director, Mortgages, at Bank of Nova Scotia.
"You look at it in terms of relative size of the renovation that you want to do - I'm not sure you want to (do this) if you're repainting your house or something like that."
Instead, he said, a line of credit could be the appropriate way to do a smaller project. And here again, you can use your home as security for a line of credit.
"You can borrow up to 80 per cent of the value of your home," said Lambert.
Secured lines of credit generally charge a point or two above the prime rate.
You could also think about consolidating debt like a credit card balance to a lower rate by tacking it onto your mortgage. But don't use it as an excuse to rack up more debt.
"One of the key things that I always advise clients about is if they're going to pay off credit cards by refinancing your mortgage, you better be cutting up those credit cards," said Rawson.
"It doesn't mean you can spend some more money because that's not going to help at all."
Finally, mortgage interest rates are at extremely low levels now - but they won't stay that way and economists expect the Bank of Canada to start hiking rates later this year.
So for peace of mind, homeowners on a variable rate might want to opt for something fixed right about now.
"If you're looking for long-term stability, then you're probably taking a look at trying to do something fixed for five years or so," said Rawson.
But, historically, rates fluctuate and at some time in the future, you may find that it makes sense to break your mortgage so you can take advantage of a lower rate, despite a high penalty.
For example, Scotiabank would charge you the greater of three months' interest on the mortgage balance or the interest rate differential.
"Sit down with a mortgage pro, they can work out for you whether it makes sense or not," added Rawson, adding if you can save yourself two percentage points over the next five years, you're way ahead.
http://ca.finance.yahoo.com/personal-finance/article/cpmoney/regular-reviews-your-mortgage-ensure-your-loan-still-right-your-financial-situation-20100225
Friday, March 5, 2010
Financial Update For March 5, 2010
Budget 2010: A second year of stimulus spending Canadians receive assurance of no tax increases compared to Greece who is facing an increase to their “GST” to 21% .
The day the retail world stood still
• TSX -27.88
• DOW +47.38 .
• Dollar +.13c to 97.03cUS closed higher for a 5th straight sessions showing little reaction to the release of the federal government's 2010-11 budget.
• Oil -$.66 to $80.21US per barrel.
• Gold -$10.10 to $1,132.60 USD per ounce
Canadian gold-medal wins spurred retail spending
No wonder spending was down last Sunday as 26million Canadians watched Canada win GOLD in men’s hockey
VANCOUVER (Reuters) - Canadian gold medals in the Vancouver translated into brisk business for merchants in the Olympic host city, except when consumers were too busy watching hockey, according to data released on Thursday.
Retail spending in Vancouver more than doubled the day skier Alexandre Bilodeau won Canada's first gold of the Games and jumped again when Tessa Virtue and Scott Moir won ice dancing, said credit card processor Moneris Solutions.
Spending in Vancouver and Whistler on items ranging from clothing to beer was 48 percent higher during the February 12 to 28 competition than it was the same period a year earlier, according to Canada's largest card transaction processor.
An exception came on the final Sunday when Canada's men's ice hockey team was on the ice winning gold against the United States. Sales dropped 41 percent compared with the same time slot in the five days leading up to it, the company said.
Canadians accounted for about 78 percent of the Olympic-spurred transactions during the Games, with the rest coming from international visitors to Vancouver and Whistler.
Chinese spent the most per transaction for the foreign visitors, with an average bill of C$423, while Russians were second with C$236. Russia will host the next Winter Olympics in Sochi.
Visa Inc, which has a sponsorship deal with Olympics organizers, estimated that its international card holders spent US$115.3 million in the host province of British Columbia during the 17 day event.
http://ca.news.finance.yahoo.com/s/04032010/6/finance-canadian-gold-medal-wins-spurred-retail-spending.html
Budget 2010: A second year of stimulus spending
Paul Vieira, Financial Post
OTTAWA -- The Conservative government sketched out on Thursday its initial plans to return to budget balance, by targeting cuts in the public service, a freeze on foreign aid, limited growth in military spending and higher EI premiums.
The spending restraint, outlined in its 2010 budget, would net $17.6-billion in savings over five years and bring the deficit down from a high of $53.8-billion this fiscal year, ending March 31, to a low of $1.8-billion by 2015.
Before the cuts kick in, however, the Conservative government said it was committed to spend $19-billion as part of year two of the two-year $47-billion stimulus package aimed at resuscitating the economy after the global financial crisis.
The 451-page budget sets out how the Conservatives plan to meet all its goals -- of creating jobs and bolstering Canada's long-term competitiveness, while at the same time returning to surplus without tax increases, nor cuts to transfers to provinces and individuals. The government also said it would go through with cuts to corporate income taxes, from 19% to 15% by 2012, despite calls from opposition politicians to cancel them and use the money to help seniors and the poor.
"We are building Canada's reputation as an investment-friendly country," Finance Minister Jim Flaherty said in his budget speech. "A country committed to free and open trade, unburdened by massive debts and [the] higher taxes of our competitors."
All the opposition parties vowed to vote against the budget -- although Liberal Leader Michael Ignatieff said his party would not bring down the government and force an election by withholding the number of Liberal MPs who show up to vote.
Even though Canada's economy is recovering at a rather robust clip of late -- 5% growth was recorded in the final quarter of 2009 -- Mr. Flaherty said following through with more stimuli is the right thing to do as the global recovery is in its nascent stages.
Measures linked with the stimulus plan will expire as of March next year, and with it comes a plan to return to budget balance.
Overall, analysts said the budget struck a fair balance between adding momentum to the recovery from a deep recession, and preparing the economy for fiscal restraint.
"It is not a dramatic change of course, and in uncertain economic times you want a steady hand. And we are getting a steady hand," said Craig Wright, chief economist with Royal Bank of Canada.
For some, such as the NDP, there wasn't enough money to help the unemployed or the poor. Others said there wasn't enough on the spending-cut side.
"A plan to balance the budget should actually balance the budget and this doesn't do that," said Kevin Gaudet, federal director of the Canadian Taxpayers Federation. "Restraint delayed is restraint denied. Taxpayers have heard similar promises of restraint before. Canadians will believe it when they see it."
There were some new spending measures, although minor, such as extending a work-sharing program at a cost of over $100-million, and eliminating all tariffs on imported industrial inputs at cost of $1.2-billion over five years.
According to the government's plan, the $53.8-billion deficit will be cut in half in two years time, and by two-thirds in three years. Much of that will be due to allowing the stimulus plan, and its associated measures, expire in March 2011.
The government envisages robust growth in revenue, starting in the 2010-11 fiscal year, and will grow thereafter based on, among other things, four consecutive years of higher Employment Insurance premiums, which business leaders describe as a payroll tax.
Economists at Toronto-Dominion Bank have calculated that EI premiums will rise from the present $1.73 level to $2.33 by 2015, in an effort to return the EI account to balance. As a result, that will contribute nearly one quarter to the overall improvement to federal revenue over the next half decade, they said in a note.
On spending, the government will introduce legislation to freeze the salaries of all MPs and Senators for the next three fiscal years.
Also, Ottawa is eyeing $6.8-billion in savings through containing the operating costs of federal departments. Departments' operating budgets will be frozen in 2011 and 2012 at 2010 levels. Further, a 1.5% wage increase owed to unionized workers in 2010, at a cost of $300-million, has to be funded through cuts within departments.
The government also plans to cap growth in defence spending, which doubled to $20-billion in the previous decade. Restraint doesn't begin until 2012, and the efforts aim to achieve savings of $2.5-billion by 2015. Meanwhile, foreign aid will reach $5-billion this coming fiscal year, and increase no further, and be subject to review on a year-by-year basis.
Overall, after the stimulus package expires, program spending is set to increase at on an annual basis of between 1.5% and 2.5%. This could be quite the feat, as prior to the recession program spending grew at roughly 6% to 7% a year.
Douglas Porter, deputy chief economist at BMO Capital Markets, said the government's plan is banking on a well-entrenched U.S. and global economic recovery as of next year to smooth the way toward stimulus removal.
"The big question mark is whether the economy can withstand the abrupt removal of stimulus a year from now," he said. "To me, that's the real test."
The budget's underlying forecast envisages economic growth of 2.6% this year (below the Bank of Canada's forecast), 3.2% in 2011 and 3% in 2012.
At a media conference during a lockup for reporters, Mr. Flaherty said if the economic growth projections fell short, his government was prepared to "do more" in terms of spending restraint. http://www.financialpost.com/news-sectors/story.html?id=2636923
Budget Highlights
Projected deficit for current year (2009-10): $53.8-billion
• Deficit for 2010-11: $49.2-billion
• Total spending: $280.5-billion
• Program expenses: $249.2-billion (an increase of 4.7% over 2009-10)
• Debt charges: $31.3-billion
• Total infrastructure project spending: $7.7-billion
• Elderly benefits: $36.7-billion
• EI benefits: $22.6-billion (compared with $16.3-billion in 2008-09)
• Health and social transfers to provinces: $37.1-billion
• Transfers to municipalities: $2-billion
• Total federal debt: $566.7-billion
• Personal income tax to be collected: $117-billion
• Personal income tax cuts: $3.18-billion
• Corporate income tax to be collected: $22.3-billion
• Total excise duties and GST to be collected: $188.9-billion
• Savings from "containing administrative cost of government": $300-million
• Administrative savings, 2011-12: $900-million
• Savings from "closing tax loopholes": $355-million
• Total increase in funding for scientific research and post-secondary education: $1.88-billion
The day the retail world stood still
• TSX -27.88
• DOW +47.38 .
• Dollar +.13c to 97.03cUS closed higher for a 5th straight sessions showing little reaction to the release of the federal government's 2010-11 budget.
• Oil -$.66 to $80.21US per barrel.
• Gold -$10.10 to $1,132.60 USD per ounce
Canadian gold-medal wins spurred retail spending
No wonder spending was down last Sunday as 26million Canadians watched Canada win GOLD in men’s hockey
VANCOUVER (Reuters) - Canadian gold medals in the Vancouver translated into brisk business for merchants in the Olympic host city, except when consumers were too busy watching hockey, according to data released on Thursday.
Retail spending in Vancouver more than doubled the day skier Alexandre Bilodeau won Canada's first gold of the Games and jumped again when Tessa Virtue and Scott Moir won ice dancing, said credit card processor Moneris Solutions.
Spending in Vancouver and Whistler on items ranging from clothing to beer was 48 percent higher during the February 12 to 28 competition than it was the same period a year earlier, according to Canada's largest card transaction processor.
An exception came on the final Sunday when Canada's men's ice hockey team was on the ice winning gold against the United States. Sales dropped 41 percent compared with the same time slot in the five days leading up to it, the company said.
Canadians accounted for about 78 percent of the Olympic-spurred transactions during the Games, with the rest coming from international visitors to Vancouver and Whistler.
Chinese spent the most per transaction for the foreign visitors, with an average bill of C$423, while Russians were second with C$236. Russia will host the next Winter Olympics in Sochi.
Visa Inc, which has a sponsorship deal with Olympics organizers, estimated that its international card holders spent US$115.3 million in the host province of British Columbia during the 17 day event.
http://ca.news.finance.yahoo.com/s/04032010/6/finance-canadian-gold-medal-wins-spurred-retail-spending.html
Budget 2010: A second year of stimulus spending
Paul Vieira, Financial Post
OTTAWA -- The Conservative government sketched out on Thursday its initial plans to return to budget balance, by targeting cuts in the public service, a freeze on foreign aid, limited growth in military spending and higher EI premiums.
The spending restraint, outlined in its 2010 budget, would net $17.6-billion in savings over five years and bring the deficit down from a high of $53.8-billion this fiscal year, ending March 31, to a low of $1.8-billion by 2015.
Before the cuts kick in, however, the Conservative government said it was committed to spend $19-billion as part of year two of the two-year $47-billion stimulus package aimed at resuscitating the economy after the global financial crisis.
The 451-page budget sets out how the Conservatives plan to meet all its goals -- of creating jobs and bolstering Canada's long-term competitiveness, while at the same time returning to surplus without tax increases, nor cuts to transfers to provinces and individuals. The government also said it would go through with cuts to corporate income taxes, from 19% to 15% by 2012, despite calls from opposition politicians to cancel them and use the money to help seniors and the poor.
"We are building Canada's reputation as an investment-friendly country," Finance Minister Jim Flaherty said in his budget speech. "A country committed to free and open trade, unburdened by massive debts and [the] higher taxes of our competitors."
All the opposition parties vowed to vote against the budget -- although Liberal Leader Michael Ignatieff said his party would not bring down the government and force an election by withholding the number of Liberal MPs who show up to vote.
Even though Canada's economy is recovering at a rather robust clip of late -- 5% growth was recorded in the final quarter of 2009 -- Mr. Flaherty said following through with more stimuli is the right thing to do as the global recovery is in its nascent stages.
Measures linked with the stimulus plan will expire as of March next year, and with it comes a plan to return to budget balance.
Overall, analysts said the budget struck a fair balance between adding momentum to the recovery from a deep recession, and preparing the economy for fiscal restraint.
"It is not a dramatic change of course, and in uncertain economic times you want a steady hand. And we are getting a steady hand," said Craig Wright, chief economist with Royal Bank of Canada.
For some, such as the NDP, there wasn't enough money to help the unemployed or the poor. Others said there wasn't enough on the spending-cut side.
"A plan to balance the budget should actually balance the budget and this doesn't do that," said Kevin Gaudet, federal director of the Canadian Taxpayers Federation. "Restraint delayed is restraint denied. Taxpayers have heard similar promises of restraint before. Canadians will believe it when they see it."
There were some new spending measures, although minor, such as extending a work-sharing program at a cost of over $100-million, and eliminating all tariffs on imported industrial inputs at cost of $1.2-billion over five years.
According to the government's plan, the $53.8-billion deficit will be cut in half in two years time, and by two-thirds in three years. Much of that will be due to allowing the stimulus plan, and its associated measures, expire in March 2011.
The government envisages robust growth in revenue, starting in the 2010-11 fiscal year, and will grow thereafter based on, among other things, four consecutive years of higher Employment Insurance premiums, which business leaders describe as a payroll tax.
Economists at Toronto-Dominion Bank have calculated that EI premiums will rise from the present $1.73 level to $2.33 by 2015, in an effort to return the EI account to balance. As a result, that will contribute nearly one quarter to the overall improvement to federal revenue over the next half decade, they said in a note.
On spending, the government will introduce legislation to freeze the salaries of all MPs and Senators for the next three fiscal years.
Also, Ottawa is eyeing $6.8-billion in savings through containing the operating costs of federal departments. Departments' operating budgets will be frozen in 2011 and 2012 at 2010 levels. Further, a 1.5% wage increase owed to unionized workers in 2010, at a cost of $300-million, has to be funded through cuts within departments.
The government also plans to cap growth in defence spending, which doubled to $20-billion in the previous decade. Restraint doesn't begin until 2012, and the efforts aim to achieve savings of $2.5-billion by 2015. Meanwhile, foreign aid will reach $5-billion this coming fiscal year, and increase no further, and be subject to review on a year-by-year basis.
Overall, after the stimulus package expires, program spending is set to increase at on an annual basis of between 1.5% and 2.5%. This could be quite the feat, as prior to the recession program spending grew at roughly 6% to 7% a year.
Douglas Porter, deputy chief economist at BMO Capital Markets, said the government's plan is banking on a well-entrenched U.S. and global economic recovery as of next year to smooth the way toward stimulus removal.
"The big question mark is whether the economy can withstand the abrupt removal of stimulus a year from now," he said. "To me, that's the real test."
The budget's underlying forecast envisages economic growth of 2.6% this year (below the Bank of Canada's forecast), 3.2% in 2011 and 3% in 2012.
At a media conference during a lockup for reporters, Mr. Flaherty said if the economic growth projections fell short, his government was prepared to "do more" in terms of spending restraint. http://www.financialpost.com/news-sectors/story.html?id=2636923
Budget Highlights
Projected deficit for current year (2009-10): $53.8-billion
• Deficit for 2010-11: $49.2-billion
• Total spending: $280.5-billion
• Program expenses: $249.2-billion (an increase of 4.7% over 2009-10)
• Debt charges: $31.3-billion
• Total infrastructure project spending: $7.7-billion
• Elderly benefits: $36.7-billion
• EI benefits: $22.6-billion (compared with $16.3-billion in 2008-09)
• Health and social transfers to provinces: $37.1-billion
• Transfers to municipalities: $2-billion
• Total federal debt: $566.7-billion
• Personal income tax to be collected: $117-billion
• Personal income tax cuts: $3.18-billion
• Corporate income tax to be collected: $22.3-billion
• Total excise duties and GST to be collected: $188.9-billion
• Savings from "containing administrative cost of government": $300-million
• Administrative savings, 2011-12: $900-million
• Savings from "closing tax loopholes": $355-million
• Total increase in funding for scientific research and post-secondary education: $1.88-billion
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