Alberta Budget understood by our Economist

General Graham Reimer 28 Oct

Enormous Challenges for the Alberta Budget

 

With the Alberta economy hitting the skids, the Notley government faced conflicting goals–diversifying away from the hard-hit oil sector, stimulating the economy and putting the province back on a path to a balanced budget. In June, the government introduced legislation to increase spending for health care, education and social services. It increased the provincial income tax for higher-income families and hiked the corporate tax rate from 10 to 12%.

Even with these tax hikes, Alberta will still maintain the lowest overall tax regime in Canada, with no sales tax, no payroll tax, no health care premiums and the lowest provincial taxes on gasoline and diesel.

With the decline in oil prices, the Alberta economy has moved into recession, taking the budget from a surplus of $1.1 billion last fiscal year to a deficit of $6.1 billion in FY2015-16. The province is forecasting a return to surplus at the end of this decade or sooner if the economy rebounds quicker.

Fiscal stimulus will come in the form of increased capital spending for infrastructure programs, similar to the prescription of the newly elected Trudeau government. They are also introducing business incentives to create new full-time jobs and greater availability of capital for business through a new government funding facility. Diversification and new business activity will also be encouraged by the creation of a new Ministry of Economic Development and Trade.

On the austerity side, Alberta is following in the footsteps of Ontario in stabilizing funding for key public services and limiting the growth in overall spending. As well, there are a number of new revenue initiatives such as increased tobacco and liquor taxes.

The budget balance by 2019-20 is predicated on the assumption that oil prices will rise gradually to $68US/bbl in FY 2017/18–just about about 50% higher than they are today.

Alberta’s NDP government will forge ahead building schools and hospitals and hiring more teachers and nurses, but the devastating impact of low oil prices has it planning to borrow money just to keep the lights on.

Much of the spending is being underwritten by record debt, which is pegged to reach $36.6 billion by 2018 — nearly 15 years after former premier Ralph Klein announced the province had fully paid off what it owed. Longer term forecasts have debt reaching more than $47 billion by 2020. Starting next year, the province plans to borrow money to pay not just for capital projects, as it has in the past, but for day-to-day programs as well.

To prevent debt from taking over, the government introduced new legislation to cap borrowing. It would limit government debt to 15 per cent of nominal gross domestic product, which is GDP not adjusted for inflation.

Bottom Line: Alberta is faced with the conundrum facing many countries in the European Union as well as Ontario–austerity vs stimulus in the face of economic weakness and burgeoning red ink. The NDP government has chosen to take a middle-of-the-road approach, boosting spending on infrastructure and job support, increasing some social spending and raising taxes and fees moderately while putting a lid on future spending. The big hope is that the global economy will improve meaningfully enough to increase oil prices. As well, the government will do whatever it can to attract and support new business and innovation in the hard-hit province.

 

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

Should you renew your mortgage early? I just did and literally saved thousands!

General Graham Reimer 16 Oct

Hey!

If you have a mortgage, you have a mortgage term. This is the date that your mortgage comes up for renewal and you have to renegotiate your terms, rates, bank, etc. Everyone for the past 5 years has been winning in this renewal scenario because rates are usually much less than what you signed up at 1-5 years ago. 

If you are now searching for your mortgage document to see when your renewal is, I have good news for you. You can EARLY renew! That’s right, you do not need to wait for the magical renewal day to take advantage of today’s crazy low interest rates.

If you don’t think that you have enough equity in your home to refinance, once again I have good news. This is not a refinance, it is purely a switch/transfer. That means no new money is coming out, you are simply taking your current mortgage and switching it over to a different bank with the same amount but at their new rates.

What’s the catch?  Payout penalties.They can be a deal breaker in some scenarios and not make it worth while, but in a lot of cases recently it is definitely worth it despite the penalty. Let me show you with my own mortgage.

My Personal Example:

I often work so hard making sure that my clients are taken care of that I neglect my own mortgage. Ironic, I know…This was the case until recently. I have been in my mortgage for 3 years and am in a 5 year fixed. I had a 3.19% 5 year fixed closed mortgage, which was the best rate at that time. I locked in thinking there is no way rates could go any lower….they dropped the following year…and they continued to drop to where we are today.

I then called my bank and got a penalty quote for $4,600. Yikes!

I ran the numbers only comparing the savings I will receive in the next two years alone (my remaining term). I also ran what they could be over the 5 years if I took advantage of rates now and the savings were even more dramatic. Once again I went back to looking at just the next 2 years on whether I should wait for the actually renewal day or switching out 2 years left. In monthly payment savings (principle and interest) and my balance outstanding at the end of the 24 months, I will have saved $7,720! WHOA! Now I am interested!! 
$7,720 of savings in two years – 4,600 penalty – $3,120 net savings in the next 2 years alone. I obviously pressed submit on my mortgage immediately and sent it off  to the banks.

If you have interest rates above 3% it is worth looking into. Penalties will make a difference if it is worth it, your mortgage amount does, and what type of mortgage product you take on the new mortgage. All of these are factors, but maybe worth considering if you can save $1,560/year!

If you would like me to look into your personal renewal situation send me an email at greimer@dominionlending.ca

There is NO/ZERO/ZIP pressure to act on renewing or refinancing, because this is your home, your mortgage, your finances. Even if you know that you will for sure not do it, but are just curious on your potential savings you can call or email me. I would be happy to run some hypothetical scenarios so you can see what is possible. I just saved a ton a cash by doing nothing but changing products, and therefore wanted to let me community know what is possible.

Thanks for reading! 
Graham Reimer 

P.s. I recommend taking the savings you earn from the new mortgage and putting it back on the mortgage so it is like your payments never dropped. Do this and bi-weekly accelerated you will knock off 5 years of your overall mortgage life. BOOM. Take that debt!!