“What? Are you kidding me?”
Save for an expletive inserted into those two questions – the kind we publish as #!%$! – we can expect a response of shock and dismay as a common chorus in months ahead as taxpayers learn their newly elected councils are not the change agents they wanted and anticipated.
The bill is coming due and it is probably much larger than most would have envisaged.
There is a world of financial stress out there that almost no one electioneering, courting and seducing municipally cared to discuss in recent months. After all, making any place smaller suggests a lack of vision. A fresh-faced elected official wants constituents to believe there are big, important, enriching ideas in the pipeline.
To level with people, it would have required talk in the campaign about curtailing civic amenities and jobs, deferring promises the wannabe leaders were eagerly making, disappointing those looking for more from government when it will need to make do with less. Anyone remember hearing that?
The 2022 municipal elections were at an economic remove from the taxpayer, trapped in 2019-speak. The pandemic has softened many of us to spend-now, pay-later public finances because, well, the underlying economic conditions just seemed so ideal to deal with whatever was thrown our way. We had low inflation, low interest rates and jobs galore to fill, so we took subsidies in many places and rebalanced in many cases the week to accommodate structured remote work, time with the family, to walk the dog, get to the dentist and supermarket.
Then it became clear as the pandemic failed to vaporize that it had a dark side beyond its health impact. We had to wait weeks and months to see the doctor, service at a restaurant was not what we remembered, we couldn’t get our cars repaired and the cost of housing soared through the proverbial roof.
And then the price of anything started to grow. The lightning strike of the coronavirus, coupled with a war and catastrophes in supplying energy and food, produced the thunder and rain we now endure in the form of a substantially higher cost of living.
For the mayors and councils, the shoes are about to drop. Budget time is nigh.
And the first challenge of resolve will test councils that likely feel more loyalty to their self-interest of fulfilling their pledges than in setting them aside to address what is bound to infect communities economically in the short- and medium-term.
In good times, property tax and municipal fees already were inflation-plus. Surely we can’t be about to let that happen, but we aren’t hearing anything different in the plans. Apart from their own schemes, there are multi-year commitments from previous councils difficult to undo.
How they contend at council with what we contend at home and work will be the litmus of their leadership.
Consider why this is a priority.
We now have had a six-pack of interest rate increases. An unlucky seventh is due in December.
A variable rate mortgage today – the kind most Canadians bear, by the way, as a saving at the moment and a gamble on the future – is three-and-a-half points higher than it had been for more than two years until this past March. Consider what that meant in terms of housing purchases and mortgage renewals.
Look longer back, and consider that the central bank rate of 3.75 per cent is higher than it has been any time since March 2008. Canada may have dodged the worst of the 2008 financial crisis, but we went on a borrowing spree. Borrowing has been cheaper ever since until now.
Most any initiative you have to start a business or to refinance one to modernize is coming with sticker shock. The prime lending rates at most institutions now are nearly six per cent.
The Economist this month declared Canada the country most at risk with our housing debt, ahead of 16 other developed nations in a combination of rate hikes (three per cent), household debt as a percentage of disposable income (186 per cent), and housing price increases from 2019 to the second quarter of 2022 (41 per cent).
Price growth, borrowing levels and the speed with which interest rate increases hit the borrower factor into a serious threat. “Bring this together, and all the ingredients for a deep housing slump are in place,” it warned the wider world.
More and more Canadians are learning that the Bank of Canada governor is named Tiff Macklem, and not for particularly ideal reasons. He is the regular Gloomy Gus all of a sudden, the public face of a central bank tightening its monetary policy in its waging of war on a sustained inflation (still near seven per cent) neither he nor pretty much all the economists thought would be with us.
We have to go back four decades for inflation to be so persistently high, and really, apart from the opportunity for a better hair line and waist line, who wants to go back four decades?
Today’s inflation arises from a supply chain bottleneck and commodity price increases abroad and consumer and labour demand outpacing supply at home. Rates won’t come down until there is material progress on those four fronts.
There is some evidence that the inflation train is slowing, but then again, that would bring on a host of other problems. The hot economic engine would go cold. The central bank is predicting GDP growth will go from 3.25 per cent this year to one per cent next year and two per cent in 2024, just as inflation is predicted to be three per cent at the end of 2023 and two per cent by the end of 2024. If true (and the bank keeps darkening its message and missing its forecasts), that ought to bring some rate relief along the way for our household budgets – as long as our employers stay open and we have our jobs.
The largest mistake any incoming council can make is to sustain its passivity in passing along its costs. Take a break from the big plan, take a scalpel to the budget to remove all distractions and preserve the central functions and bring in a tax plan that contributes to the wrestling and not further unleashing of the inflationary menace.
We’ll see soon enough. Join me in crossing fingers.
Kirk LaPointe is publisher and editor-in-chief of BIV and vice-president, editorial, of Glacier Media.