THE 2009 BRITISH COLUMBIA BUDGET TD Economics

Interesting TD Economics article by Pascal Gauthier with a focus on British Columbia. Enjoy!

HIGHLIGHTS

• After a small $50 million surplus in fiscal year (FY) 2008-09, planning deficits are estimated at $495 million in FY 2009-10 and $245 million in FY 2010-11
• Return to balanced budget by FY 2011-12, with the help of cost savings worth $1.9 billion over 3 years
• No forecast allowance, but prudent growth forecasts and contingency amounts
• $9 out of every $10 in new spending towards health care
• Few new tax measures, back-end loaded to FY 2011-12
• Capital spending in infrastructure ramped up significantly (+ $14 billion)

British Columbia is feeling the pinch from the severe ongoing global recession, like every other region in the country. Compared to last September’s quarterly fiscal update, downward revisions to growth forecasts by the private sector have translated into a massive revenue shortfall of $6.6 billion over the Province’s 3-year fiscal planning horizon. As a result, for the first time in six years, the province is faced with a deficit. However, the deficits are expected to be modest both in absolute size (cumulating to $740 million over two years) and relative to the size of the economy (at 0.2% of nominal GDP in fiscal year 2009-10). The government has chosen not to include a forecast allowance as in previous years. However, in order to mitigate risks to its projections, it will use economic growth forecasts significantly below the private-sector consensus, and contingency amounts of $250 million to $385 million per year.

Economic and Revenue Outlook

The private-sector consensus forecast for real GDP growth calls for no growth (0.0%) in 2009. Akin to the prudent approach taken by the Federal Finance Department, B.C. Finance is playing it safe by using a forecast significantly below the private-sector average. Their assumption is for a contraction of real GDP of 0.9% this year, which is very close to our own call for a contraction of 1.0%. When compared to the Budget 2008 plan, the downward adjustment to revenue projections is broadly based, but most badly hit are own-source revenues in the form of resource royalties, corporate income taxes, and property transfer taxes. Similarly, but with a lesser difference, their real GDP growth forecast of 2.4% for 2010 lies below the private-sector forecast of 2.8%. Our own forecast for next year is more bullish and suggests some upside risk vis-à-vis their projection, with the main difference hinging mostly on the projected direct and indirect boost to growth from hosting the 2010 Winter Olympics.

Spending measures

Savings worth $1.9 billion over the 3-year planning horizon are being targeted, $250 million of which are yet to be identified. Administrative spending will be put under the microscope, while the number of senior executives in government will be slashed by 20% and no additional planned wage increases are being budgeted for upcoming rounds of public sector negotiations. The expected savings are being recycled towards key spending areas, but mostly health care. In fact, $4.8 billion, or 90% of all additional spending, is slated for health care. The remainder of additional spending will go to education, social services, safety, communities, and the environment.

Very much in line with a theme omnipresent in the Federal Budget and very likely to show up in other upcoming provincial Budgets, infrastructure spending is being ramped up significantly – to the tune of $14 billion over 3 years. Of this amount, $10.6 billion is for approved projects within the Province’s capital expenditure plan, while $2 billion is provided on a cost-shared basis with the Federal government, and the remaining $1.4 billion is for local infrastructure in partnership with the Federal and local governments.

Tax measures

The very few new tax measures introduced were understandably back-end loaded to FY 2011-12 and beyond. As announced in November, a 2-year property tax deferment program is being introduced. The B.C. Mining Flow-Through Share (non-refundable) Tax Credit is being extended by one year to the end of 2009. Expiry dates for film tax credits are being eliminated, while the credits themselves will be made available to other Canadian (non-B.C.-based) companies. Furthermore, starting in FY 2011-12,

The industrial property tax credit will increase from 50% to 60%, saving mills, mines, and other industrial employers $11 million per year. This tax relief will be funded from carbon tax revenues (intended to be revenue-neutral).

The Low Income Climate Action Tax Credit will increase by 10%, representing foregone revenue of $15 million per year.

A Northern and Rural homeowner benefit increase of $200/year, also funded by carbon tax revenues.

The farm land school property tax will decrease by 50%.
Bottom line

Faced with such a U-turn in economic fortunes in a short amount of time, the government has elected to modify its balanced budget legislation to allow for a cyclical deficit. Not having done so, and forcing taxes hikes and/or more drastic spending cuts could have meant exacerbating the recession. In the current context, leaning against this recession, along with other governments, and allowing a modest deficit while ramping up capital spending seems appropriate. As a result of these deficits and additional capital spending, the (taxpayer-supported) debt-to-GDP ratio will end up 2 percentage points (from 13.8% in FY 2008-09 to 15.8% in FY 2011-12) higher by the time a balanced budget is within reach. This would still lie below the 16.1% level recorded in FY 2005-06 and leave the province in a healthy fiscal position once the economic recovery has taken hold.

Pascal Gauthier, Economist
416-944-5730

All-in-one Strategy TD HELOC

All-in-one Strategy

all-in-one-strategy This quite a conservative strategy which can dramatically reduce overall interest paid on a mortgage (and reduce amortization).  What is further, this strategy is particularly beneficial if you have other outstanding higher interest debt (then it can actually improve your cashflow on top of that).

all-in-one-strategy $4000 in penalties & will still be far better off in the long run.  As opposed to waiting until his mortgage matured 4 years later.

 

The Smith Maneuver

The best example of how this strategy works can be found on Fraser Smith (the strategies inventor) website.  http://www.smithman.net/home.html.

This is a strategy we covered in our Advanced Financial Planning session.  As you paydown your mortgage you borrow back some of the  principal and place this in an investment.  You then get a tax refund for the investment loan, pay that against your mortgage.  You are essentially converting non tax-deductible bad mortgage debt, into good tax deductible  debt.  & in the long run the can be substantially better off.

TD Rate changes in effect Febuary 2009

Term	Rate	Change
6-month convertible	5.20	N/A
1-year open	7.45	N/A
1-year closed	5.00	N/A
2-year closed	5.75	N/A
3-year closed	5.75	N/A
4-year closed	5.69	N/A
5-year closed	5.79	N/A
6-year closed	6.40	N/A
7-year closed	7.00	N/A
10-year closed	7.35	N/A
1-year closed Special	4.00	N/A
4-year closed Special	4.39	N/A
5- year closed Special	4.49	N/A

 

Variable Interest Rate Mortgages	TD Mortgage Prime	Variance	Rate
Closed VIRM: Rate is TD Mortgage Prime + 0.80%	3.00	+0.80	3.80
Open VIRM: Rate is TD Mortgage Prime + 1.00%	3.00	+1.00	4.00
Home Equity Line of Credit	TD Prime	Variance	Rate
Float: Rate is TD Prime + 1.50%	3.00	+1.50	4.50

Change in Residential Mortgage Rates TD Canada Trust

Change in Residential Mortgage Rates

Effective December 11, 2008, mortgage rates have decreased as follows:

Term	Rate		Change
6-month convertible	5.90		-0.20
1-year open	8.55		N/C
1-year closed	5.60		N/C
2-year closed	6.25		-0.20
3-year closed	6.25		-0.20
4-year closed	6.09		-0.20
5-year closed	6.75		-0.20
6-year closed	7.00		-0.20
7-year closed	7.20		-0.20
10-year closed	7.55		-0.20
5- year Special	5.59		-0.20
Variable Interest Rate Mortgages	TD Mortgage Prime	Variance	Rate
Closed VIRM: Rate is TD Mortgage Prime + 0.60%	4.00	+0.60	4.60
Open VIRM: Rate is TD Mortgage Prime + 0.85%	4.00	+0.85	4.85
Home Equity Line of Credit	TD Prime	Variance	Rate
Float: Rate is TD Prime + 1.00%	3.50	+1.00	4.50

TD PRIME GOES DOWN!!

 

TD Canada Trust has made the following changes to rates:

Decreased the TD Prime lending rate to 3.50%, effective December 10, 2008.

This rate change only affects the float HELOC product.

Note: TD Mortgage Prime will change on January 1st, 2009 which will impact the Variable Rate Mortgage.

Canada’s best mortgage rates!

 

Rates on TD Canada Trust HELOC Changes

Good News!

 

TDDave Vancouver David Hudson

TD Canada Trust has announced that HELOC account changes for the benefit of those with existing TD Canada Trust HELOC accounts who would like to have access to additional equity!

 

For the last few weeks the target HELOC float pricing for the major banking institutions has been set at prime + 1% or 100bps, this has presented a problem for clients who have their float portion priced at prime and wanted to increase the limit. After all why should you be ‘penalized’ for being a loyal customer and wanting to borrow additional funds—the banks should be hungry for your business!

 

 

TD Canada Trust has taken steps to further position itself as the market leader in the Home Equity Line of Credit market. It was announced that all new HELOC accounts for existing customers would be at prime + 0.5% or 50bps (depending on a first or second position) here is a breakdown;

IF –

1st position      

      -          Retain existing HELOC account at current rate, no limit increase

-          Process a new HELOC account in 2nd position at target rate for the required increase amount

-          New registration charge require

            II

-          Close existing HELOC and open a new HELOC in 2^nd position

-          Rate on increased HELOC limit is the greater of the existing rate or Prime + 0.50% and applies to the total (original AND additional) HELOC limit

#### 

Because I treat your money like its mine, when it’s time to save you money or make you money, I am like a ‘Warrior!’ Money is an emotional issue and to represent yourself is like performing surgery on yourself. You would never do that, would you?

 If being healthy is important to you, then you delegate that to a person you trust and respect. Like me, you probably believe it’s in your best interest to have a skilled, experienced and focused negotiator on your team! TDdave

 

 

 

TD Mortgage Rate Lowers!! 3 Year Fixed Closed @ 5.15%

Great news TD Mortgage Rate Lowers!! 3 Year Fixed Closed @ 5.15%

 

TD Mortgage rates are lowering! Today TD Canada Trust Real Estate Secured Lending announced that effective November 19^th 2008 that a limited time offer of 5.15% 3 Year Closed Fixed Rate Mortgage will be offered on applications up to December 31^st 2008. All transactions must be funded by no later than April 30^th, 2009. As with all TD Canada Trust Mortgage products, the offer can be changed or withdrawn at any time – time is of the essence!

The 3 year rate is important as it is the lowest qualifying rate used by TD Canada Trust and BC Mortgage Brokers. This will allow a potential home buyer more purchasing power!

Is your mortgage working for you, or are you working for your mortgage? Today is the perfect time to start saving money.

-Platinum service -100% results- TDdave-

TD Mortgage Rate Lowers! 4.35%!!

Great news TD Mortgage Rate Lowers!!

 

TD Mortgage rates are lowering! Today it was announced that effective November 19^th 2008 that a limited time offer of 4.35% 1 Year Closed Fixed Rate Mortgage will be offered on applications up to December 31^st 2008. All transactions must be funded by no later than April 30^th, 2009. As with all Mortgage products the offer can be changed or withdrawn at any time – time is of the essence! Is your mortgage working for you, or are you working for your mortgage? Today is the perfect time to start saving money. Today!

TD Lower Mortgage Rates

November 7th 2008 TD Canada Trust is please to advise of a new limited time offer effective Novemer 8th, 2008 Limited Time Offer of 5.34% on the 4-Year Fixed Mortgage * applies to new applications up to November 30th * Must be funded by March 31st 2009 *Offer may be changed to withdrawn at any time Great news for those who are looking for the stability of a fixed rate, or are looking for the maximum qualification. Until today’s announcement the 3 year fixed rate at 5.7% was the lowest qualifying rate. This will allow borrows to qualify for more mortgage while keeping there TDSR and GDSR in line. I am always happy to answer your mortgage questions, please drop me a line at david.hudson@td.com Cheers, David

Home Buyers’ Plan (HBP) RRSP Withdraw for First Time Home Buyers

Lately I have come across a higher number of clients who are interested in the RRSP early withdraw plan for first time home buyers. This week I will focus on Home Buyers Plan, and some tips that clients have found useful.

The Home Buying Plan is a great way to help you acquire the necessary down payment to afford a home, the benefit is that you are really borrowing from yourself  interest free!  The loan from your RRSP’s must be repaid within 15 years and can be set at varying lengths of amortization depending on the institution who is providing the loan. Do not attempt to pay the loan off in 1-2 years,  we have all been taught to be adverse with debt but opting to pay off the loan in 1-2 years can lead to serious cash flow problems, and financial upset.

Because the loans are on the total principle withdraw from the RRSP they can easily add up. Understand that you are not paying any interest on this loan but if you take a $15,000 RRSP loan out and take a two year repayment the monthly payment will be $625 high enough to seriously disrupt your cash flow, but if you take a 5 year repayment it becomes a more manageable $250 per month

Today’s topic is the conditions for the HBP, one of the most important things to ensure is that you must be a first-time home buyer. Several files that have crossed my desk recently I have had a number of folks who whish to use the program but have obviously purchased quite a number of homes before, this will not fly with CRA.

Below are the conditions that the CRA presents for participation

Conditions for participating in the HBP

Only the individual who is entitled to receive payments from the RRSP (the annuitant) can withdraw funds from an RRSP. You can make withdrawals from more than one RRSP as long as you are the annuitant (plan owner) of each RRSP. Your RRSP issuer will not withhold tax on these amounts.

Generally, you will not be allowed to withdraw funds from a locked-in RRSP.

To participate in the HBP, ONE of the following conditions must apply:

* You are withdrawing funds to buy or build a home for yourself as a first-time home buyer.

or

•    You are withdrawing funds to buy or build a home for a related person with a disability .
•
In addition, ALL of the following conditions must apply:

* You must enter into a written agreement (Offer of purchase) to buy or build a qualifying home. The agreement may be with a builder or contractor, or with a realtor or private seller. Obtaining a pre-approved mortgage does not satisfy this condition.
* You intend to occupy the qualifying home as your principal place of residence.
* Your repayable HBP balance on January 1 of the year of the withdrawal is zero.
* Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal.
* You are a resident of Canada.
* You buy or build the qualifying home before October 1 of the year after the year of withdrawal.

You are responsible for making sure that all HBP conditions that apply to your situation are met.

If a condition is not met while you are participating in the plan, your RRSP withdrawal will not be considered eligible. You will have to include the RRSP withdrawal as income on your income tax return for the year you received the funds.

If you do not meet the conditions to participate in the HBP in the current year, you may be able to participate at a later date.