How the new Canadian government could help you pay down debtOct 28, 2015
The votes have been counted, the campaign ads have gone off the air, and Canada now finds itself with a new majority government for the next four years. While household debt wasn’t a major topic of discussionduring the election, there were some proposals in the Liberal Party platform that, if they’re implemented, could potentially help Canadians manage their finances and pay down debt.
Less tax for the middle class
One of the main policies in the Liberal electoral platform was a tax cut for Canadians earning between $45,000 and $90,000 a year, which means you could add an additional $670 into your annual budget after it takes effect. This is said to be one of the new government’s top priorities. On the campaign trail, the newly-elected prime minister stated it would be his government’s very first bill in Parliament.
Enhanced pension income for seniors
Under the new government, the previously proposed increase of the eligibility age for Old Age Security from 65 to 67 years old would be scrapped, which would put up to $13,670 back into the pockets of lower-income Canadians over two years in retirement. This would largely benefit younger baby boomers and the older members of Generation X, who would have seen the eligibility age increase by 2023. In Ontario, the recently proposed ORPP pension plan could potentially be jettisoned if the federal government follows through on proposals to enhance the Canada Pension Plan for all Canadians.
More opportunities to tap RRSPs for homebuyers
Currently, under the Home Buyer’s Plan, Canadians can withdraw up to $25,000 from their RRSP in order to purchase their first home—helping them make a larger down payment to reduce their mortgage debt. During the campaign, the new government said it would allow Canadians to tap their RRSPs for home purchasesunder additional scenarios, including moving for work, the death of a spouse, or to take care of an elderly relative. They have also proposed tax breaks to developers of new rental apartment buildings, offering some incentive to address the high cost of rental housing.
Interest-free student loans for low-income grads
In a measure directly addressed at reducing student loan debt for future grads, the Liberal electoral platform included an exemption on payments and interest on federal student loans until graduates earn at least $25,000 per year. This would certainly help out many students and recent graduates today who struggle to find work in their field after earning their degrees.
Is an interest-rate increase imminent?
On the flipside, several economists are suggesting that interest rates might rise sooner than previously expected as the new government has promised to boost the economy through increased infrastructure spending. The need for the government to borrow money for these programs could increase the cost of borrowing, and potentially put pressure on Canadian consumers who’ve already racked up record levels of household debt. We’ve said it before, but it bears repeating: it’s time to stress test your budget to see what impact higher interest rates could have on your debt.
In this election, Canadians voted for change, with an increased national voter turnout of 68 per cent electing the first new government in 10 years. Change doesn’t occur overnight—none of these campaign promises have taken effect yet, as the new government won’t even be sworn in until November 4. But it’s still worth noting how new policies could affect Canadians’ finances, and to take a look at potential added opportunities to pay down debt over the next four years.
How would a future tax break affect your budget? Share your thoughts with BDO by joining the conversation on Twitter using #LetsTalkDebt #BDOdebtrelief