Four things that will affect your personal finances in 2015.
Is a prime minister’s four-year-old election promise made, a promise he’ll keep? We’ll find out in the spring, when the federal Conservatives table their long-awaited balanced budget.
If the books really are in good shape, then Stephen Harper will double the Tax-Free Savings Account (TFSA) limit, making good on a pledge he made in Vaughan in 2011. That would increase the limit from $5,500 a year to $11,000.
That possibility is one of four events that affect your personal finances in 2015. Another is whether the Conservatives win the fall election. If they lose, your TFSA increase goes out the window, but there’s a better chance the Ontario Retirement Pension Plan (ORPP), due to launch in 2017, might be folded into the Canada Pension Plan. That makes it cheaper, easier and a better plan all round.
Related: Hey, where’s my $11,000 TFSA limit
We also have to watch inflation and interest rates. Inflation will influence rates and rates will influence stock market returns and the temperature of the housing market. The collapse in oil is the wild card. It helps keep a lid on inflation, makes it cheaper to drive and fly and gives us more money in our pockets. But oil companies borrow big money from our banks and employ a lot of people, so the ripple effect is huge.
Here’s a closer look:
A TFSA promise kept? The TFSA was introduced in 2009. Anyone over 18 can open one and the unused room adds up. The lifetime limit in 2015 is $36,500.
If the Conservatives keep their promise, it will be among the last of major goodies to be handed out before the election.
When asked whether he plans to make good, finance minister Joe Oliver has repeatedly said we should stay tuned for the budget. A spokesman for his office says there’s nothing more than that to be said for now.
Related: Test your TFSA smarts
Peter Bowen, a vice president and tax specialist with Fidelity Investments in Toronto, believes the benefit will be significant. It offers seniors a way to shelter income that must come out of Registered Retirement Income Funds (RRIFs). It offers those in higher income brackets a way to put a bit more aside.
“It’s a good thing,” Bowen says. “The impact is small initially but it will grow over time. The more vehicles we have that encourage people to save, the better.”
Prediction: The TFSA limit will double in the budget, but not be effective until 2016 as an incentive to re-elect the Tories.
ORPP pension puzzle: After a decade in which Ottawa and the provinces dithered over expanding the Canada Pension Plan (CPP), Ontario has decided to go it alone with the Ontario Retirement Pension Plan (ORPP).
The province introduced the first piece of legislation in early December to start building the ORPP for 3 million Ontarians without a company pension. It will be paid in addition to CPP, aiming to replace up to 15 per cent of earnings to a $90,000 annual income level.
If you’re between 25 and 45, the plan will help you. If you’re over 45, there won’t be enough time to build a meaningful pot.
Starting from scratch is expensive. You need an administrative machinery to collect the money, store personal information and pay the benefit. You need a bureaucracy to administer the plan and professionals to make sound investments.
The CPP Investment Board has all that, but piggybacking on the national plan needs Ottawa’s approval. The Conservatives aren’t interested.
Related: 6 things to learn from the CPP’s investment strategy
Ottawa likes voluntary retirement savings plans like RRSPS, TFSAs and the newer pooled retirement pension plans (PRPPs). The problem is many people don’t have the discipline to contribute to voluntary plans. Ontario believes a better way is through collective effort.
Prediction: The province will get going, but things will firm up after the election outcome in November.
Inflation moves up: One of the great mysteries of the past five years is the inflation disappearing act. Central bankers have been printing money as fast as they can to ease a credit crunch. They’ve created trillions out of thin air in so-called quantitative easing experiments. Experiment is the key word.
We should be drowning in a sea of inflation. As the U.S. economy picks up steam, inflation there will start to creep up. Ours, at 2.4 per cent is in the mid-range of the Bank of Canada’s target. The steep drop in oil and most metal prices may keep a lid on inflation in the short term.
Cheaper gasoline for one gives us an instant raise. The average Canadian uses about 80 litres of gas a week, says Dan McTeague, a former Liberal MP who founded the price-tracking website Tomorrows Gas Price Today. meaning they will save about $20 a week compared with a year ago.
TD Bank economist Leslie Preston said in a recent commentary that the drop in oil will put more downward pressure on prices.
“We don’t think it’s time to worry about inflation,” she wrote. But, October’s inflation does underscore the case for higher interest rates next year.”
Prediction: Modest rate hikes, modest inflation.
Housing anxiety: The housing boom shows no sign of letting up in the GTA this year.
In the GTA we’re looking at another year of price records. A shortage of listings pushed up detached home prices sending buyers into condos. The average price of a detached house in the 416 region was $935,122 in November and $672,825 in the 905. The average cost of a Toronto condo was $394,225.
Jason Mercer, director of market analysis for the Toronto Real Estate Board sees strong price growth well into 2015. And the man who should know, Bank of Canada governor Stephen Poloz keeps saying he’s in no rush to raise rates.
Those looking to invest in real estate will not see the price appreciations of years past. For those who plan to live and work in Canada’s largest and most desirable city, waiting probably won’t help, even if the market is overvalued by 30 per cent as the Bank of Canada suggests.
Buying a first house is always too expensive.
Related: This couple waited and is stuck on the sidelines
If they’re forming households or just tired of paying rent, they might as well pay themselves first.
Prediction: A small increase in interest rate sends a message that may slow the rise in house prices, but there’s no crash in sight.
Nobody can see the future, but as always it pays to keep an eye on the horizon where trends form and take shape. In the meantime, have a great holiday.
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