Efforts designed to address affordability may be 'too little too late' as CPI drops, but advisors can still help their clients even if government hasn't
Tuesday afternoon’s federal budget update added $20.8 billion in net new costs over the next six years. The primary focus of the so-called mini budget was housing affordability. Finance Minister Chrystia Freeland announced an additional $1 billion in the next three years to build more than 7,000 new affordable homes as well as $15 billion in new funding to build more than 30,000 new rental homes in Canada. That comes with announcements about crackdowns on the tax status of short-term rental housing like Airbnb, as well as some tweaks to the carbon tax. To one advisor, however, the mini budget feels like too little too late.
Shiraz Ahmed, Senior Financial Advisor & Senior Portfolio Manager of the Sartorial Wealth Team at Raymond James, sees a lot of politically pointed noised about helping with the cost of living crisis in Canada in this mini budget. However, this announcement comes on the heels of CPI falling faster than expected and a potential end to the most rapid interest rate hiking cycle we’ve seen in decades. The initiatives, therefore, might be too little too late. If taken a year ago, they might have made a difference on the issue of affordability, but as of now Ahmed sees more politics than anything else in this new spending plan.
“I think a lot of this was more political in nature than necessarily trying to really help Canadians as much as possible,” Ahmed says. “There are a handful of new potential programs on the housing front that I think are interesting but need to be fleshed out more, that’s I think where a lot of us are left asking ‘what’s actually going to happen here.’”
Ahmed sees potential for more immediate impact in changes to the Canadian mortgage charter, with the potential for extended amortization periods and the option for lenders to eliminate stress test requirements for certain qualified borrowers. When mortgage renewals come, Ahmed thinks there could be some sticker shock and these measures may help somewhat with that problem in the short-term.
There was more that Ahmed wished he saw in the update. For all the noise the Feds have made about grocery prices and considerations like amending the Competition Act to bring food prices down, we haven’t seen anything to that effect in this announcement. The same goes for the carbon tax, which Ahmed notes is increasingly unpopular and a driver of inflation. He believes that the small tweaks in the minibudget didn’t go far enough to deal with this additional expense during a difficult period for Canadians.
While the bank of Canada rate increases have been aimed at controlling inflation, it’s notable that an increase in government spending could have an inflationary impact on the overall economy. While Ahmed accepts there’s an element of contradiction between BoC and government policy, this is far from the most egregious spending increase he’s seen from the Feds, even in recent years.
If government has not done enough to manage the cost of living crisis for Canadians, Ahmed believes their advisors can step up to help. He thinks advisors can “put their planning hat on” and come up with strategies that will allow their clients to cope with high cost of living and high costs of borrowing.
Learn which provinces have the highest cost of living in Canada here.
While budgeting and spending controls are a useful tool, after a point people need to spend money to live. Advisors can also step up in this environment to help clients find ways to earn more. Ahmed suggests helping them prepare to negotiate for raises or more income, or encouraging them to start a side hustle can result in better outcomes for clients. An advisor can act as a coach and encourage an increase in income that can help clients manage moments like these.
There are also opportunities to help with client income through asset allocation. Those clients might be retirees or just individuals in need of extra income. GICs are yielding near 6% which Ahmed says is a “layup” for a low-risk rate. He thinks that government bonds offer a conservative position with attractive income yields, as do some dividend paying securities for clients with higher risk tolerances.
Overall, despite what he sees as budgetary measures coming too late, Ahmed thinks that advisors can step up and help their clients in ways that government simply can’t.
“I couldn’t stress the need for financial planning more today than I have ever done in my career,” Ahmed says, “You have to have an idea of where people’s money is going, what their goals and objectives are, and what levers we can pull to get there.”
