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Ottawa’s latest fiscal report paves path for rising rates

Canada's economy is growing and this paves the path for a possible federal spending spree (before next year's election) and increasing interest rates
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The Federal Department of Finance just released its fiscal report for the months of April and May 2018 — and the future looks bright for Canada’s economy.

A large increase in revenues for start of federal fiscal year

Turns out there was a budgetary surplus of $3.2 billion CDN in April and May (the first two months of the fed’s 2018/19 fiscal year). This year’s surplus was much larger than the surplus recorded last year, during the same time period (recorded at only $68 million). The revenue increase was due, primarily, personal and corporate taxes and GST and Employment Insurance (EI) revenues.

Despite the recorded increase, the revenues reported in the months of April and May were offset by a $0.1 billion reduction in revenue, due to consolidation in Crown corporations, sales of goods and services, return on investments, net foreign exchange and miscellaneous revenues.

A small increase in expenses

Expenses for in the first two months of the 2018/19 fiscal year topped out at $46.9 billion — an increase of 1.6% year-over-year. Factors that contributed included:

  • Major transfers to persons up by $0.1 billion
  • Major transfers to other levels of government up by $0.4 billion
  • Direct program expenses up by $0.2 billion
  • An increase in public debt charges of $0.5 billion, due to higher Consumer Price Index adjustments on Real Return Bonds

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Overall outlook

The report provides a glimpse into the spending and budget projects for the upcoming fiscal year — an important year considering the looming federal election (slated for October 2019).

This recent report also lends credence to comments made in May by Bank of Canada’s Deputy Governor Lawrence Schembri when speaking to the CFA Society of Ottawa. “The higher the projected growth rate of potential output, the faster the economy can grow without inflation rising persistently above our target.”

This optimistic outlook isn’t surprising for many in the real estate marketplace. Housing starts and building permits were up in many areas across Canada, a signal that builders are still very optimistic about the ongoing demand for home ownership.

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For prospective home buyers this means there will be more overnight rate hikes in the near-future — and this means rising variable rates for personal loans, HELOCS and mortgages.

Even with an expanding economy, the BoC isn’t rushing its rate increases. The nation’s central bank is still concerned — and still monitoring — the overall high levels of consumer indebtedness. In its May report, BoC analysts continued to point to Canada’s housing market and high levels of consumer debt as “top vulnerabilities for the financial system.”

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Misael Lizarraga
Misael Lizarraga

Misael started as an English teacher in Mazatlan, Mexico but his passion was in real estate. Now, he works with a handful of clients reporting on real estate news from across the world under his primary business:

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