Aftermath

An election about nothing. What does it mean for investors in financial portfolios and real estate now that we have Socks3 supported by Mr. TikTok? Here are a few things to consider:

A bank tax
The Trudeau plan calls for more than $4 billion to be sucked out of bank profits with a corporate surcharge amounting to a 30%+ increase over current levels. It’s a shocking, negative, myopic tax because banks are among the most stable institutions in Canada, with tentacles everywhere. They’re harbingers of the economy, funders of small and large business, superb risk managers and provide seamless, efficient service to almost the entire population. Yeah, they make money. Gobs of it. This does not mean the government has a right to steal more.

The bank tax could come right out of dividends paid to shareholders, which include millions of people with RRSPs containing not only bank stocks but mutual funds and ETFs. The banks make up about a third of the TSX and therefore every security reflecting that index. This is a tax on retirement nest eggs at a time when most people don’t have enough saved. My suspender-snapping portfolio manager buddy Ryan said as much on BNN (which you should never watch).

A hit on REITs
The little brains in Ottawa have fallen for the meme that real estate investment trusts hoover up houses, punting moisters and renters to the curb, then rent them out with coal-black hearts. In the election Trudeau said: “We will undertake a review of the tax treatment of large corporate owners of residential properties such as Real Estate Investment Trusts (REITs) who are increasingly trying to amass large portfolios of Canadian rental housing, putting upward pressure on rents. We will put in place policies to curb excessive profits in this area, while protecting small independent landlords, and more broadly, we will review the downpayment requirements for investment properties. Homes should be to live in, not a financial asset for investment funds to speculate on.”

But major REITs don’t buy up single homes in Canada. They do not compete with ‘small landlords.’ It’s a lie. Meanwhile apartment REITs make thousands of professionally-run units available to a few million tenants. This policy plank is cringe-worthy.

Personal tax load
With Jag in the co-pilot’s seat and T2 not daring to call another early election – now dependent on NDP support – expect personal tax increases if you happen to be rich. By the way, ‘rich’ means an annual income of $300,000 or more, or investment assets in your portfolio which have earned capital gains. Such folks should plan on a new tax bracket being created and an increase in the capital gains inclusion rate. Those items are not in the platform but are likely in the economic statement slated for November, or the March budget.

More housing demand
Creation of the First Home Savings Account is a milestone. It’s Canada’s first ageist tax shelter, available only to those under 40. Never before have people been able to shelter up to $40,000, write the entire amount off their taxable income, collect the refund for doing so, then invest it all without paying tax in residential real estate the profits on which will be tax-free. It’s a massive gift to first-time buyers, effectively subsidizing downpayments with taxpayer dollars. Anyone who does not sign up (or any parent able to fund this yet refusing) is not paying attention.

As such, this could significantly increase available deposits, allow more young adults to buy and borrow, augment demand and jack prices as a result. Combined with the ability to use tax-free RRSP money and the Liberal pledge to issue tax credits to cover most closing costs, the election stands to make real estate considerably stupider than it was.

And it does not end there.
The Liberal plan is to run a deficit of $150 billion next year and there’s no commitment to bring the budget into balance. The Liberal plan details 102 new program spending initiatives adding $78 billion over the next five years. Revenue increases are pegged at $25 billion, about half of that coming from the banks. There is no provision in the budget for higher interest charges on $1.3 trillion in debt, which are a certainty by 2025. Deficits are now structural while routine spending (like $30 billion for subsidized child care) will never be rolled back. Meanwhile 40% of Canadian families pay no net income tax. How is this even remotely sustainable?

Meanwhile the crazed People’s Party polled 5% of the vote and a CBC analysis indicates this may have kept 24 ridings from going Conservative. So Trudeau won, and not a single PPC candidate was selected. Even Max failed – because the people where he lives know him best.

Hmm. Maybe this wasn’t an election about nothing, after all.

About the picture: “No doubt it was an exciting night for you with the election,” writes Ian. “Long time blog reader. With the election I got to thinking “Jasper”, our family Golden Retriever, loves to walk and run around Ottawa.  So with that here is a photo taken on one of our walks around Parliament Hill. A typical cold, crisp winter evening – the kind that has downtown Ottawa quiet, but otherwise peaceful and calm. We’ll get back there soon. “