Increasing taxes and fees hurt household bottomlines

Photo: Contributed

Central Okanagan-Similkameen-Nicola MP Dan Albas

It was on June 1, 2021 that the Liberal Government last increased the “stress test” for homebuyers taking on a mortgage—which encompasses the vast majority of homebuyers.

For those unaware, the stress test requires a homebuyer must qualify at a higher rate of interest compared to current lower interest rates to ensure they can still make their mortgage payments if interest rates rise.

In essence a stress test is intended to ensure a homebuyer has some excess fiscal capacity at their level of income to afford an increase on their mortgage payment if interest rates should increase.

While some may argue the stress test protects people from potentially higher interest rates, in my experience many who are fortunate enough to pass the test and buy a home don't stop there. They proceed to borrow to make additional purchases, like home improvements, furniture or take out a car loans.

Why do I raise this now? As many will know, this week it was widely expected that the Bank of Canada (BOC) would raise the key interest rate. But that did not occur.

Instead, the current rate was maintained although the BOC did warn that interest rates will need to increase to control inflation. Canadians should expect a “rising path” for interest rates.

This means for those with a variable rate mortgage, their monthly payments will increase in the near future. For those with a fixed rate mortgage, when their current rate expires, they may also face higher rates upon renewal.
While stress tests are important public policy tools, there are other challenges that remain.

Based on the feedback I am getting from many households here in our region, there are new fiscal challenges emerging putting pressures on household finances.

Obviously, with the highest inflation in in 30-years, many are now forced into paying more for goods, groceries and, in some cases, services. But they receive less value in return.

Gasoline and diesel prices have increased, likewise the cost of gas to heat your home and some of the taxes on your home heating. At the same time, many have also noticed, because of higher premiums for payroll deductions like the Canada Pension Plan, their net take-home pay is less than it was last year.

In addition, despite the Liberal government’s promises to reduce your monthly cell phone bill by 25%, that has not occurred.

While the government also promised not to tax online streaming services such as Netflix, as many now know, they are now taxed.

All of these increased taxes and fees take a bigger bite out of your household net income at a time when payroll deductions are doing the same.

Depending on how much the Bank of Canada raises the interest rate, I have heard from constituents who say their monthly mortgage payment could increase as much as $400 to $800 a month. That is a significant hit to their net income.

Some have suggested increased interest rates combined with higher inflation, fees and tax increases are creating a situation they cannot afford. Ever increasing CPP and Employment Insurance premiums (the freeze on those premiums ends this year) further erode their net discretionary income.

My question this week:

Are you concerned about your own household affordability?

I can be reached at [email protected] or call toll free 1-800-665-8711.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.