Mortgage borrowers will foot the bill for government GST cuts and other rebates
“What thy government giveth, thine bond market taketh away.”
If Shakespeare didn’t say that, he should have, because it’s true.
Governments’ yuletide generosity comes with a hidden price tag, and mortgage borrowers will foot the bill.
We’re talking, of course, about the GST holiday and $250 cheques that Justin Claus is giving out this Christmas, and the $200 stimulus that overindebted Ontario is doling out. These deficit funded “gifts” feel more like “don’t forget me at the polling booth” reminders than sustainable economic policy. Why we pay the government to give so much money right back to us is an interesting question, but alas, beyond the scope of this column.
Regardless, more spending means higher inflation and deficits, other things equal. And that’s not music to the bond market’s ears. It gives investors a little more reason to sell Canadian bonds, which raises interest rates. While we may not see it manifested in bond yields today — given the higher impact catalysts currently weighing on the bonds — rest assured, we’ll see the effects later.
The most relevant effect from a mortgage borrower’s perspective is higher rates. If you’re in a variable mortgage, for example, Ottawa’s new handouts could pick your pocket in 2025.
“With governments injecting more stimulus, the Bank of Canada can do a little less,” said TD in a report Wednesday. As a result, “We have removed a quarter-point cut from the forecast” for the central bank’s overnight rate, it says. “We are prepared to remove another rate cut from the profile if households spend a greater share of their rebates and tariff threats recede.”
That innocent looking quarter-point translates to an extra $700 in yearly intereston an average $300,000 mortgage. So while
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