Tuesday, June 20, 2017

More and more Canadians borrowing against their home equity

According to some Many Canadians may now be turning to their home equity as a way to raise money to fund a lifestyle that could be unaffordable for some.

A recent article in BNN points out that more and more Canadians are using their homes as if it were an ATM from which they could withdraw. Since 2011 the number of Canadians who have taken out a home equity line of credit (HELOC) has risen by 40 percent. As many householders are still paying on mortgages and other debts such as car loans, the added debt can sometimes not be managed. Many are not able to even make regular payments on time.
The Financial Consumer Agency of Canada's(FCAC) commissioner Lucie Tedesco said: "At a time when consumers are carrying record amounts of debt, the persistence of HELOC debt may add stress to the financial well-being of Canadian households." The Agency's report says there are about three million HELOC accounts in Canada, and the average outstanding balance is $70,000. Canada's debt to income ratio has now risen to record levels even higher than that in the US before its 2008-9 housing crash. Should there be an unexpected economic shock many households could be vulnerable and end up losing their homes.
The agency report actually shows that about 40 percent of consumers are unable to make regular payments towards the HELOC principal. Most consumers are unable to repay their HELOC until they sell their homes. The report note that banks were combining term mortgages with HELOCs and other products to customers, creating complex products that customers often did not understand too well. The FCAC report said: "Banks reported to FCAC that a readvanceable mortgage is now the default option offered to credit-worthy mortgage customers with down payments of at least 20 per cent,."
Some analysts fear a housing bubble, especially in areas such as Toronto and Vancouver, but unlike the US, Canada does not have much of a sub-prime mortgage market where loans are made that are quite risky nor does it have the complex credit products that fooled borrowers and investors in the US housing crash. However, the report shows clear signs that there are dangerous trends in Canadian's borrowing based on their home equity. The appended video shows prices in the Toronto housing market have declined recently due to government policy.
There are several other ways that you can borrow against the equity in your home as well as a HELOC. Many people choose to take out a second mortgage or a reverse mortgage. The options are outlined here.
The Mortgage Professionals Canada put out a report in which their chief economist William Dunning shows that 1.91 million Canadians now have a HELOC a lower figure than FCAC it would seem. Perhaps many who hold the accounts are not Canadian. The report estimates that 21 percent of Canadians who purchased their first home before 1990 still have not paid off their entire mortgage. One percent of those who bought homes between 2014-216 actually have negative equity in their homes. 4.3 million Canadian homes have a mortgage but 3.57 million homes have neither a mortgage or a HELOC. There are fully 1.48 million Canadian homes with both a HELOC and a mortgage. Canadians take out a HELOC not just because they need cash. A full 28 percent just used the HELOC for debt consolidation a smart move with low borrowing rates. Another 31 percent used the money to actually invest in the house for renovation and repair. Only 9 per used the credit for general purchases and finally 9 percent claimed to use it for other reasons. It would seem that many use the HELOC in quite sensible ways and only a small minority to finance what may be an unaffordable lifestyle.

Friday, June 16, 2017

Manitoba Conservative government may privatize home care services

The Manitoba Progressive Conservative (PC) government of premier Brian Pallister is looking to save money on provincial home care service programs and may even privatize the service.

However, Pallister won't say yet whether he plans to privatize the service saying: "I'll continue to say that we are looking for results and improving results. We shouldn't be close-minded about it. All across the country other provinces have faced up to these challenges — some private improvements, lots of changes within the public sector delivery model. We are pursuing these things. We are looking for options." A private company will operate the service only if it makes a profit so unlike a public service it needs to aim for more than just covering its costs. It would not want to incur a deficit to handle expanding needs. either.
In spite of Pallister's remarks, the Manitoba Government and General Employees'' Union (MGEU) revealed that the Winnipeg Regional Health Authority(WRHA) intends to contract out services provided by home care nurses for a newly announced "enhanced home care service". The government is great at rhetorical puffery when they want to promote what will probably be reduced services. MGEU president Michelle Gawronsky believes that the contracting out is a first step towards privatizing Manitoba's home care services resulting in public sector job losses. Gawronsky said: "[Home care workers] are very, very concerned. They're angry, they're upset. We are looking for major change to happen within our system and we are being attacked for trying to improve a system that is the worst in Canada."
The WRHA announced the plans for contracting out in April after the province cancelled the Hospital Home Team a unit of about 10 nurses who were in charge of caring for about 550 chronically ill patients in Winnipeg in their homes. The province had previously given $1.7 million to pay for the program but ended funding on March 31st this year. The appended video appears to be made by nurses in the program. On May 8 in a meeting with WRHA president Milton Sussman , Gawronsky learned about the contracting out scheme. Union members were shocked at the news.
The province has already cut health services in Winnipeg closing half of the emergency facilities, forcing many to make longer trips to emergency rooms. Present legislation in Manitoba requires all regional health authorities to provide home care services free to all who meet the program's requirements. The program is actually quite cost efficient in that it delays sending patients to a long-term care facility where costs are much higher. Under the current contract, 80 percent of the workers in the program must belong to the MGEU. However, contracting out could possibly lead to a breach in the contract according to Gawronsky who wrote to health minister Kevin Goertzen outlining her concern.
As the population of the province ages, a recent report claims that the program that costs now over $300 million annually could end up costing $874 annually by 2037. That is close to three times the present cost but that is over twenty years, a long period. Doing away with the program would cost even more. However much of that cost could be placed on the people now being served by the program rather than the government. In 1996 the then Progressive Conservative premier Gary Filmon also tried to move towards for-profit home care but had such negative reactions that he dropped his plans after a short pilot project.
The WRHA is being forced to find $83 million in savings for the coming year. Miton Sussman chair of the WRHA said that all options were on the table including privatization. He also said that he could not guarantee that jobs would not be lost. Not only will jobs be lost but they will be relatively well paying union jobs to be replaced by non-union jobs with lower pay in order to make room for private operators to make a profit should services be privatized. Sussman said that their had to be changes to achieve the savings required by the government. All five Manitoba health regions have been told by the government to balance their books and find savings for 2017-18. The budget for 2016-17 was $2.6 billion and was projected to wind up $30 million in the red. This is not that large a percentage in terms of the total budget.
Other services considered for privatization are MRI scans and cataract surgeries. However Sussman claimed that the WRHA was had made no decisions yet and was still considering options.,saying:"I don't want to speculate that it is something that is going to happen. What I am saying is we are looking at a whole range of options and if someone can provide a high quality at a lower cost, we have to consider those kinds of things.Where is makes sense, it might be something we look at." From the provincial government point of view it makes sense. It can provide new areas of investment for businesses many of whom support the Conservative government. It can also result in more donations as a token of appreciation.
The Pallister government has hired the consultant group KPMG to find savings and efficiencies in Manitoba health care systems KPMG is one of the big four global auditors with offices in many countries but main headquarters in the Netherlands. It employs about 189,000 people globally. It offers three basic lines of service, financial audits, tax, and advisory services. While the company has won many awards it has had clashes with the Canadian Revenue AgencyCRA) but for some reason the KPMG clients were given an amnesty :In 2015, KPMG was accused by the Canada Revenue Agency of Tax evasion schemes: "The CRA alleges that the KPMG tax structure was in reality a "sham" that intended to deceive the taxman.".[56] In 2016, the Canada Revenue Agency was found to have offered an amnesty to KPMG clients caught using an offshore tax-avoidance scheme on the Isle of Man.[57]
The KPMG report is completed but will not be released since much of the information is said to be proprietary. The Pallister government actually received an extensive report recommending reforms ordered by the previous New Democratic Party and co-authored by Dr. David Peachey of consulting firm of Health Intelligence Inc. in Nova Scotia. The report was received in February this year. However, the Pallister government decided to contract with KPMG for its own report.
These consulting firms that tell you how to save money actually cost a lot of money but they can provide expert opinion that you can use to support your favorite policies usually. This is worth a lot and avoids criticism which can be dismissed as political or ideological. Ontario spent nearly $7 million on consultants who helped a government-appointed panel recommend that the province sell a majority stake in Hydro One and liberalize the sale of beer. KPMG was one of several consultants involved.
The Manitoba PC government paid KPMG $740,000 for their report. Pallister earlier promised that 97 percent of the results would be released to the public with only the names of civil servants who had been asked for their opinions removed. Pallister explained: "My understanding wasn't that a lot of this information would be proprietary at the outset. And now I understand that it is legally my responsibility to protect the integrity of the process that was used... It's owned by the company that helped guide us." This contradicts the governments' own RFP (Request for Proposals) that it issued in December of 2016. which stated that all information, data, research, reports and other material produced by the consultant "shall be the exclusive property of Manitoba." Yet Pallister said: "Out of respect for the company and for future tendering processes I think it's important they have a manner of going about their business they've developed over many years and spent a great amount to develop that they want to protect, so that's part of the problem in releasing that information.:" No doubt Manitoba is quite happy for the public not being able to see the whole report. There could be reforms recommended that the government did not approve and reforms rejected that the government approves.
We should know soon exactly what changes are to made in home care services. We will probably never know if KPMG recommended changes that the government is not making or if it recommended against changes that the government is making. The KPMG report may have been produced with taxpayer money but it remains to be seen if the taxpayer will ever be able to see it all.


Saturday, June 10, 2017

Ontario economy grew at twice the Canadian average last year

For years while the price of oil was high, Ontario's growth lagged behind that of Alberta and Saskatchewan the main oil producing provinces. However, now its growth is surging while the oil producers are hard hit.

Canada's large banks predict that this year Ontario's growth will be near the top of all provinces. The jobless rate, 5.8 percent, is the lowest since 2001. The national average unemployment rate is 6.5 percent itself the lowest since 2008. In 2016, Ontario added 96, 800 full-time jobs and surprisingly part-time jobs actually decreased by 10,200 a plus for many workers. Manitoba has the lowest rates at 5.4 percent and British Columbia 5.5 percent. However there are still 437,000 Canadians looking for work according to Statistics Canada. In 2016 the province grew at twice the national average. The growth is not related to just one sector but includes manufacturing, real estate finance and technology. Tax revenue from corporations grew 16,.8 percent last year and 19.6 percent this year as corporate profits grew. The future looks promising as a survey of Ontario businesses by the Bank of Canada showed that sales are up and that companies are intending to invest in new equipment and hire on more staff.
The center of recent growth is in the Greater Toronto Area. The Conference Board of Canada predicts that this will be the leading metropolitan growth area in 2016 leading to a 2.6 increase in GDP for Ontario. Windsor, the Ottawa region, and the Kitchener-Cambridge-Guelph triangle are also prospering. The Conference Board claims: "Through 2019, Ontario households will reap the benefits of a robust business sector. With the labour market looking good, healthy consumer spending across all spending categories is expected over the near term." Robert Hogue, the senior economist at the Royal Bank of Canada(RBC) described the Ontario economy as vibrant and said: "The Ontario economy has been, I think, quite impressive at adapting, at adjusting, and at continuing to generate jobs." Ontario premier Kathleen Wynne will no doubt point to Ontario's growth if she announces a plan to hike the minimum wage to 15 dollars an hour.
In spite of the low unemployment level, the growth in the economy has not been matched by a parallel growth in wages. The average worker has not shared in the boom. Statistics Canada data show the average worker's wages grew just 1.1 percent last year. This is below inflation meaning that last year the average worker took a pay cut. This may have an effect on consumer confidence and sales in the future. As Nik Nanos, of Nanos research put it: "There's a collision between the psychology of consumer confidence and the reality of the economic numbers. When people don't feel that real wages are significantly increasing, when they're unsure about their level of job security, it creates a psychological chill on consumer confidence." However, borrowing iterest rates are low and that may encourage spending. The Bloomberg Nanos Canadian Confidence Index suggests that consumers in the province are feeling upbeat. The swing up began as the price of oil dropped. No doubt it reflects more money being available as less is spent on fuel.
There is some worry about growing protectionist rhetoric by Trump in the US and uncertainty caused by renegotiation of the North American Free Trade Act (NAFTA). Exports could also be hurt if the Canadian dollar, the loonie, were to increase significantly in value. However there are positive signs too from the US. Aided by tax refunds and rising incomes Americans increased spending in April at the fastest rate since 2016 in a sign the U.S. economy is growing faster. This could result in an increase in Canadian exports to the U.S. especially as the value of the Canadian dollar is quite low. Another worrying factor for Ontario is the boom in the housing market in Toronto that may turn out to be a bubble.
While some complain of Ontario hydro rates, the province has a low tax rate of just 11.5 percent. Only British Columbia has a lower rate. Ontario is fortunate as well in that its economy does not depend on one main commodity. It is less subject to severe stress as has happened in Alberta where oil is its main source of revenue. However, the entire manufacturing sector in Ontario was badly hit during the 2008-9 recession and the recovery has been relatively slow with some negative effects such as there being more part-time and contract work with less benefits for workers.
British Columbia led all provinces in the growth of its GDP last year growing by 3.7 percent. This was up from 3.1 percent in 2015. Ontario came second with a growth rate of 2.6 percent the same as in 2015. Manitoba was third with 2.4 percent an increase from 2.1 percent in 2015.


Quebec unions shut down construction sites

(May 28)Unions representing 175,00 construction workers in Quebec launched a general strike shutting down major construction projects in Quebec after months of failed labour negotiations.

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Labour federations and construction companies had negotiated late into the night last Tuesday but could not reach a deal before a midnight strike deadline. Workers in the industrial sector want more stable work schedules, but salaries are believed to be the main issue in the residential construction area. Michel Trepanier a spokesperson for the alliance of construction unions said; "Employers are asking us to sacrifice time with our families to be available for work... There are limits and they've been reached." Collective agreements had expired on April 30.
Some large projects in the city of Montreal were halted by the strike, including work on the new Champlain Bridge and the CHUM hospital. Hundreds of workers picketed at the two sites. Montreal is replete with orange construction cranes all of them idle now. Work was also disrupted on the new Turcor highway exchange a key highway stretch in the west end of the city.
Plumber Martin Gauthier supports the strike but hoped a deal could be reached quickly noting that the strike was costly: "I'm not making money today,. Nobody is winning — that's the bottom line." As well as construction workers about 1,400 Quebec government engineers walked of their job at the midnight deadline. The engineers have been in a strike position for almost a year. Union president Mar-Andre Martin said that a week of negotiations had not resulted in any notable progress.
The Quebec government could in time pass back-to-work legislation but will not do so for now. The provincial Labour Minister Dominique Vien said she is hopeful that the construction workers and employers can reach agreement soon saying: "The message I want to send is that it would be better to have a negotiated deal than a special law. I think that everyone here very much agrees with that." She estimated that the strike was costing Quebec economy $45 million a day. She said that the provincial government could not allow the strike to continue long as it would cost Quebec too much. She said the government was prepared to table back-to-work legislation.
Montreal Mayor Denis Coderre urged the province not to be "too patient" before legislating workers back to work. Coderre said: "We're not going to be patient for a long time." The federation of Quebec chambers of commerce also urged a quick end to the dispute. Stephane Forget head of the federation said: "The adage that says 'when the construction industry is doing well, everything is doing well' is also inversely true — a labour conflict has a major and direct impact on all economic sectors." Forget noted that a 10 day work stoppage back in 2013 caused a drop of 1.1 percent in the province's GDP for that year.
Construction job sites that did not join the strike were targeted by flash mobs of pickets that led many workers to lay down their tools. A mobile strike picket unit of up to 40 members moved from one location to another to convince those still working to join the strike. Some had not heard the news but others were reluctant to strike. Quebec has an anti-scab law that would normally prevent employers from still operating but some employer groups claim the law does not apply to the construction industry; if workers agree, some sites could remain open. However many job supervisors decided to comply with the strike as soon as pickets appeared.
Montreal was particularly hard hit as about 60 projects were halted. At the new Champlain Bridge more than 600 employees were off the job. The bridge costing $4.3 billion is slated to be finished by the end of 2018. It is replacing the most-used bridge in Canada. The Turcot exchange is a key cog in Montreal's highway network and is being replaced. Approximately 300,000 used the exchange daily in 2017. The project is just 40 percent complete and is slated to be finished by autumn 2020. Many street projects plus a new hospital project also are shut down for now.