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The Caswell Team

The Caswell Team

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Compounded Into The Ground

(Published on - 2/18/2020 3:04:01 PM)

Compounding interest is a great thing.  The more you save, the more interest you make.  In essence, you make interest profits on the interest profits.  It is a fantastic asset and the Time Value of Money can be a wonderful thing when it’s in a positive direction.

But compounding works both ways.  And it seems that no one, at any level of government, public utility, public services or boards that make rate decisions, get it.  It’s as though every decision that is made is done with complete horse blinders on.

I’m going to use some examples here.  But, before anyone gets in too big of an uproar and “offended” by these comments, note that every level and party of government is represented in these examples.  You can cherry pick what you like to form your own narrative if you'd like.  But this commentary is meant to be a show of support for the property owners and taxpayers out there to show how all these rate decision makers work in unison, either knowingly or unknowlingly, to bury us by way of "death by a thousand increases".

To be honest, I don't envy those in these positions.  They are tough choices to make.  Unfortunately, instead of looking in the mirror as to where the problems lie and making the truly tough choices about skyrocketing government and public spending at unsustainable levels, they simply take the easy way out by assuming the taxpayer always has that little bit more for another "insignificant" increase.

Let’s start by looking at Greater Sudbury property taxes this year.  After all the dog and pony shows of foot stomping and “trying to do what’s best for the taxpayer”, they approved an increase of 4.8% for 2020.  On their pretty mailouts and online information, they use a house valued at $230,000 that would now owe an additional $12 per month.  Notice how they soften the blow by breaking it down to a month instead of telling you it’s an additional $144 for the year.  Remember – this is “in addition” to what you paid last year which includes the “compounded increases” from the previous years before that – so you’re paying 4.8% on last year’s 3.6% increase…..

Here’s the problem with their presentation - the average sale price for 2019, according to our MLS™ statistics, was slightly above $290K for residential properties.  So, they use a property value that’s more than 20% lower than the average property sold last year to help with their sales pitch.  More realistically, a homeowner will see an increase closer to $200 for the year.

But they’re not done yet.  They also added on a 4.8% increase to our Water/Wastewater bills.  On their claims online, they state that the “average property owner spent $1277.41 for Water/Wastewater.”  How does that $106.45 a month compare to your bills?  Does this sound right?  I think this is another case of a “skewed average” to throw some polish on their pile.

Let’s be realistic, an average family of four in a house is probably closer to $150 a month at least.  So, they’re adding another $86 a year to your bill.

Current standing, with just the property tax and wastewater increases, is only $286 a year for the average house.  To most, that wouldn’t seem like much – “Meh, another $24 a month isn’t worth the fight” is how they present it to you and they allow our own complacency in letting them get away with it year after year win us over.  But this is just the beginning of how we get compounded into the ground.

Heading over to the provincial issues, but still keeping with the Greater Sudbury theme, Greater Sudbury Utilities has requested an increase that they claim will add $6.50 a month to your bills.   I guess this is because our hydro bills aren’t high enough already and haven’t increased drastically over the last 10-15 years.  This is a provincial issue as the Ontario Energy Board approves the increases.  And they do it without a care in the world about the taxpayers and homeowners by completely ignoring the tax and wastewater increases you’re also getting hit with.

So, we know the rate increase will be approved.  And, because I couldn’t find an actual article that stated what the percentage increase they were asking for, let’s take what they consider the “typical customer” value they’ve mentioned at face value - although I'm sure it's a fictional average based on padding the stats to sell it.  Add another $78 to your total this year, and that’s on top of their past increases.

So, we’re sitting at $364 for your taxes, water and hydro bills.

If you hope to get around somehow, we know the new GOVA upgrades cost money and, in turn, they had to increase the rates to cover the new paint.  But this is a local issue.  If you own a vehicle, however, the Ontario Government has just approved rate increases for auto insurance.  Some of the increases per company are substantial, but they say the average is going to be close to 2%.  I’ll believe that when I get my renewal invoice.

Currently, the average cost of vehicle insurance in Ontario is $1505 per year – second highest in Canada next to BC.  With a 2% increase, we’re looking at $30 more.  Doesn’t sound like much, but this is a compounded increase as auto insurance in Ontario has been on a steady run of annual increases.  So, you’re paying 2% more this year on top of the 2.7% in 2019 on top of the increase in 2018 and so on…… And I highly doubt there won't be an increase in premium for you property insurance as well.

With the auto insurance increase, which would probably reflect the increase in public transit rates as well, we’re now at $394 for the year total.  But whether you use public transit or own your own vehicle, we’re still primarily tied to the oil at the pumps.

Sudbury’s gas prices are bizarre.  Sure, we all believe that there’s some form of price fixing happening, but we just gripe and groan, get fed some nonsense from the politicians to keep us in check and then pull up to the pump to complain again.  Repeat the cycle. 

We’re limited on choice.  But oil is an amazing commodity.  Very few items in this world can increase in value when the raw product increases in value AND also increase in value when the raw product plummets in value!  Amazing stuff!  How we’re paying the same for a commodity when it was over $100 USD a barrel and now sits just north of $50 USD a barrel defies all logic.  But the powers that be can rarely be accused of being logical.

So, in today’s state of “Climate Emergencies” (I use quotes as this definitely warrants further discussion, but not in this forum), we have added on the infamous Carbon Tax.  The magical tax that returns more of your money than you spend.  Seriously?  Anyone who believes that simply boggles my mind.

They added four cents a liter to gas at the pumps and increased our heating costs by way of the Carbon Tax.  And this will rise annually.  They state the average family of four will get back more ($307) than they spend ($240).  Even if I believe this may cover the four cents at the pump and the additional tax on the heating bill – which I do not – there are major parts of the equation they aren’t telling you.

This is where things really start to get interesting.  You know that grocery store where you get your veggies from?  Those came from a farm, on a truck, through a wholesaler/distributor and placed on the shelves in the store that all require heat, hydro, wastewater, property taxes, insurance and gas to get it to your cloth bags.  The same applies to your favourite restaurant, where you work out, where you buy your clothes, where you pick up your kids at daycare, where you….. you get the point.  These increases aren’t just happening to you and me, they are across the board.

No business could possibly be successful if they simply absorbed these costs year after year and didn’t pass them down to the consumer.  As we’ve seen, groceries have increased, restaurant prices have increased, clothing prices have increased, daycare costs have increased….. again, you get the point.  Absolutely everything has increased in price.

When you factor in all those little increases to every single thing we have to pay for in our daily lives, there is no way the Carbon Tax credit even comes remotely close to covering the actual full cost to you across the board.

Now for the real beauty, how about HST on almost all of it.  No, not the full HST on home heating or property taxes, but the HST is now applied to all of those increased prices.  Even better, you actually pay HST on the Carbon Tax and other buried taxes also have HST added to them.  The ole’ tax on a tax shell game politicos love! 

Think about this.  Let’s say the number above only jumped to $500 for the year when you factor everything in.  That’s way too low, but we’ll just use that number for simplicity.  That is actually $565 when you include HST.  Now, next year these increases all stand about the same where you’re paying increases on this year’s increases and HST on the other tax increases cause of the cost of increases.  Confused yet?  That’s what they want.  Smoke and mirrors, while they make everything seem so inconsequential with their "only a few extra dollars per month" presentations.

How about we hypothetically stick with $565 as the increase in 2020.  Let’s call it 5% of your annual budget on these items.  Next year, the increase is $594.  In 2022, sticking with the same math, $623.  And 2023, it’s $655.  2024 - $687.  And, at the end of five years of increases in 2025, you’re now at $721.

In five years, you’ve paid almost $4000 in compounded increases.  And I guarantee you this is way too low.  I further guarantee there will either be no increase or, worse, a severe decrease in services.  Which reminds me that I haven’t even touched on service fees that have all gone up or been introduced, including just trying to put out your garbage (which used to be covered by property taxes) or the new Kivi Park entry fee, for instance.

They say Canadians overall owe $1.70 for every dollar we make.  Some reports even show that over 50% of Canadians are one missed paycheque from insolvency.  Scary.  Yet, the governments have you convinced they’re our saviors, when, in fact, they are a huge part of the problem.

Instead of looking for ways to decrease spending and unbridled government debt, they put absurd Stress Tests on mortgages to stop people from borrowing.  In actuality, they’re stopping people from ever owning a home.  They play with interest rates to try and stop inflation.  Yet their own compounding is causing the inflation.  They give other countries money and corporations big bailouts.  Think us lowly taxpayers will ever see the billions in handouts given to Bombardier now that they’ve sold their rail division for $8.2B and gave away their C-Series airplane rights to Airbus for $1?  Think the millions of dollars sent abroad are going to stop the Chinese from building coal burning power plants? 

Then the politicians give themselves and the public service ongoing increases to cover all the self-induced inflation costs which, in turn, increases the taxes necessary to collect to cover the increased costs.  Which, in turn, compounds more onto everyone to pay more.  Which, in turn, causes your favourite restaurant and grocer to increase their costs to cover these increases.  Which, in turn, causes inflation and more compounding onto the backs of taxpayers.  Repeat, repeat, repeat.

It’s like a football pile-on and the taxpayer is at the bottom.  We have five players on top of us in the pile.  Currently, we’re getting squished under about 1500 pounds, but we can still survive it.  But if all five of those players gain 5% more weight per minute, how much longer will we survive?  What if a sixth and seventh player jump on the pile?

After five minutes, those five players weigh over 2000 pounds and we’ve been compounded into the ground.

If you're finding your home ownership expenses are moving into a troubling state, don't hesitate to reach out to us to see how we can help.  The time to make adjustments is before you're compounded into submission.  Contact us at caswellteam@realtyexecutives.com to discuss possible options of alleviating these issues.  For now, you can always search MLS™ listings herebe sure to check out all our other great blog topics or just browse our site for tons of great info on buying and selling in Greater Sudbury and surrounding areas.

Contributed by:

Steve Caswell

Cell - 705.561.8767

caz@realtyexecutives.com

 

Disclaimer: The views and opinions expressed in this article are solely those of the author(s) and do not necessarily reflect the official policy or position of any other salespersons, staff or affiliates of Realty Executives of Sudbury LTD. Brokerage, Realty Executives International, the Sudbury Real Estate Board, Ontario Real Estate Association, Canadian Real Estate Association or any of their subsidiaries.  For any concerns pertaining to the content herein, please contact us immediately at caswellteam@realtyexecutives.com.

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