OTTAWA — In the lead up to his pre-election budget, federal Finance Minister Bill Morneau has been alerted by his department that Canadians’ heavy debts have made abrupt shocks to incomes, house prices or interest rates a “significant concern,” according to internal documents.
On March 19, Morneau will release the Liberal government’s final budget before the October federal election. He’s underlined several issues expected to be addressed in the document, including prescription-drug costs, skills training for workers and support for seniors.
Morneau’s also hinted changes are on the way to help make home-buying more accessible for millennials, a generation of people now in their mid-20s to late 30s.
But with concerns about Canadians’ debt levels, it’s unclear how far the government will go.
Internally, briefing documents show Morneau’s been told “the high level of debt of Canadian households remains a key domestic risk,” even though rising interest rates have helped slow private borrowing and stricter policies have made mortgages less risky for lenders.
Last November, when budget preparations were likely well underway, a Finance Department briefing addressed to Morneau warned of “dynamics” that could have important implications for the economy in late 2018 and into 2019.
Among the issues, officials urged him to be mindful of Canadians’ stretched finances.
“How households would respond if the Canadian economy were suddenly hit with a shock to incomes, house prices or interest rates, given higher debt levels, is a significant concern,” said the Nov. 16 note, obtained by The Canadian Press under the Access to Information Act.
Industry has pressed Ottawa to ease stress tests that have tightened mortgage qualification rules and, as a result, cooled housing markets.
The federal changes, combined with provincial and municipal guidelines, were brought in to improve the quality of mortgage debt and to lower risks to the broader economy.
Asked Friday about pressure to loosen the stress tests, Morneau said he had nothing new to announce about them and that they were needed for a reason.
“We wanted to make sure that the market was stable, we wanted to make sure that prices were not escalating in some markets at a pace that was unsustainable,” Morneau told reporters in Toronto following his pre-budget meeting with private-sector economists.
When it comes to helping more young people buy property, Paul Taylor, CEO of Mortgage Professionals Canada, has said he’s made recommendations to federal officials that they reintroduce insurance on 30-year mortgages as a targeted way to help people at the lower end. Taylor has also argued the stress tests have succeeded in taking some of the froth out of the market and he believes Ottawa should loosen them now.
The stronger economy has encouraged the Bank of Canada to hike interest rates five times since 2017 to its current level of 1.75 per cent.
Governor Stephen Poloz said Thursday that the rate will keep rising — or normalizing — over time to somewhere between 2.5 per cent and 3.5 per cent. But he noted the path is “highly uncertain” because of unknowns related to global trade, business investment and household debt.
Poloz was asked by reporters in Montreal whether the time had come to dial back the stress tests to help more people, including millennials, enter the market.
He said that before the tests were brought in house prices were rising 10 or 15 per cent per year in some markets, which represents a much faster pace than rate increases. The central bank, he added, has been closely watching the data, but it’s still early since the latest rule change has barely been in force for a year.
“I can tell you that underwriting of mortgages, the quality, has improved significantly and that matters a lot because the vulnerability of the economy to a normalization of interest rates was becoming extremely high,” Poloz said.
When it comes to government debt, a preliminary analysis released Friday by Morneau’s department said Ottawa ran a surplus of $300 million through the first nine months of 2018-19. In comparison, Ottawa posted a deficit of $8.9 billion between April and December in 2017-18.
The Liberals have predicted the government will post a shortfall this fiscal year of $18.1 billion. With just three months left in 2018-19, the final federal balance sheet will likely look far different.
Pierre-Olivier Herbert, a spokesman for Morneau, said in an email Friday that the fiscal monitor’s results can be volatile and tend to be revised. He stressed it’s not uncommon to see movements in the budgetary balance in any given month.
Andy Blatchford, The Canadian Press
Connect with us Facebook
Protecting Yourself Financially While in COVID-19 Lockdown
Assess your Current Spending During COVID-19
Considering Safer Investments During COVID-19
Calculating your Net Worth During COVID-19
Should you consider a refinance during COVID-19?
Buying a Home10 months ago
How to Buy a House (1/5) – The Importance of Credit
5 Mortgage Secrets3 years ago
5 SECRETS THE BANK DOESN’T WANT YOU TO KNOW ABOUT YOUR MORTGAGE
Buying a Home2 years ago
6 Reasons to get Pre-Approved for a Mortgage Early
Credit2 years ago
What Happens to My HELOC When I Sell My Home?
Business5 months ago
Buffett says economy is slowing amid virus fears
5 Mortgage Secrets2 years ago
THE PENALTY COVER UP Mortgage Secret 3 of 5
Buying a Home2 years ago
5 Steps to a Guaranteed Mortgage Approval
5 Mortgage Secrets2 years ago
THE POSTED RATE SCAM Mortgage Secret 2 of 5