Out of curiosity I looked into if there are forecasts for EI rates for the next few years and the results are not exactly encouraging.  First there was this recent forecast which projected the maximum increase ($0.15/year) until 2015, which actually tracks fairly closely to this older but more detailed forecast (see chart 2 on page 3).

Overall the  numbers will looks something like this (rate per $100 of earnings):

• 2010/11 - $1.73
• 2011/12 - $1.88
• 2012/13 - $2.03
• 2013/14 - $2.18
• 2014/15 - $2.33

So we are looking roughly at a 35% increase over the next four years and this according to our government is not a tax but rather a premium increase.  Which since it looks like my total EI deduction will easily be in excess of $1000/year when the current maximum is just under $750 doesn’t provide much comfort for me.  For employers, by the way, the matching rate is just 1.4 times the above numbers.

Overall expect to pay more for EI for many years to come.  The only good news in the longer term is if unemployment goes down we should see those premiums come back down by 2017 or so.  So at least I should see some lower rates before I plan to retire in 2023, I hope at least.

“We have [taken] extraordinary measures to protect the Canadian economy,” Flaherty told MPs in the House of Commons.  “Like virtually all other countries, we needed to run a substantial deficit to do so. But unlike other countries, we are in a position to ensure our deficit will be temporary.” (Flaherty, March 5, 2010)

Everyone seemed so happy in the House of Commons - there was clapping, back-slapping and cheers.  I’m not sure if I’m the only one to ask this question, but is a $53 billion deficit something to get super excited about?  This is the best that our leaders can do - adding $160 billion to our debt over the next 5 years?  Really?

Admittedly I know very little about domestic finance, but what I do know is that if I applied the same methodology being used by the Federal Government to my own finances, I would be more than bankrupt pretty quickly.  I realize that the goal of government is different than my personal goals, but here’s what I see from the current budget as well as the projected deficits going forward:

1. Projected revenue is $213.9 billion;  projected deficit = $53.8 billion. If this was my house, I would be in big trouble - 25% of my income being spent on “stuff”, that may or may not better my financial position at the end of the year.
2. With income decreasing, spending increases? Does this make sense to you?  Is this how you run your house?  It seems contrary to any financial plan that I’m aware of.
3. Canada’s debt will have increased from $517.5 billion in 2009/2010 to $622.1 billion in 2014/2015. Does it really seem like a good idea for our Government to plan to overspend for the next 5 years (which is seen as temporary)?  This spending spree is really the best idea we can come up with?  I don’t really know what I would say if my wife sat me down and said she was planning on overspending for the next five years, but it was “okay” because by year 6 we’d be back to just spending what we were making (because we would definitely not make plans to repay what we’re borrowing anytime in the future).

As previously noted, I am not an expert in getting a country out of a recession, maybe the only way to do so is to spend your way out.  If so, I guess I’m fine with that.  My main problem with the whole thing is that the Government seems so proud of itself for overspending.  After handing down a budget showing the first deficit since the mid-1990s I think a more appropriate reaction by the finance minister and MPs would be to at least act apologetic.  For 35 seconds (after a rousing 2-minute finale) rather then act apologetic our Government stood and cheered. I don’t have $53.8 billion, I’m pretty sure that readers of this blog don’t have $53.8 billion, but our government thinks that at some point in the future we as a country are going to get together $53.8 billion (and interest) to pay down what they’ve decided to spend this year.

In response to this budget, the opposition parties responded by saying they wanted the Government to spend even more money on such things as pensions, climate change, health care, culture, job creation, tuition fees…….  I’m not really sure what the opposition parties are looking for here - do they figure we’re already in bad shape and we might as well hit rock bottom?

I don’t know where our government gets their ideas from, but maybe they need some new ones?  Am I alone in this, or is there similar sentiment out there?

***As an aside, I’d like to state that I am not really for or against any party.  I generally vote with the one that makes sense to me on the majority of the issues.  This post was not meant as an attack on the Conservative government, more of an address to our current fiscal policy, which doesn’t make sense to me.  To me, it would have made more sense for the Minister of Finance to come out say -
“we’re kind of broke right now and can’t afford to do anything, everyone who wants money, they’re just going to have to wait until we get some” - that is something I can understand.***

Well with tax software on the shelves and ads everywhere for RRSP contributions you know we have hit: tax preparation season.  So while you wait for all those slips to come in you might want to consider doing a little pre-tax warm up.

What do I mean by a warm up?  Well rather than waiting to the last minute to find all your paper work and entering everything in to a program (if you use one) you start now and make your life a bit easy.

To help you out I’ve written up a list of steps I’ve done in various years:

1. Write a list of slips you expect to get. There is nothing worse than missing a slip because you forgot to change an address or someone wrote down your wrong address.  That way you can follow up in a timely fashion to file your taxes on time and ensure you get all your deductions and income in.  By doing the list now you can slowly add to it as you think about it and you recall all the paperwork you will need for some of those odder tax credits.  For example, I should look up my boys swimming lessons since I got a tax deduction for that in 2009.
2. Gather all related forms/slips into one or two folders. That way you don’t have to look around you entire file system for one slip later one.  Or if you get audited you will already have all the information in one place.
3. Estimate your T4. If you buy software consider entering in your information on your last pay statement for the year as an estimated T4 slip (if you have year to date totals).  It likely won’t be exactly right, but should give you a ballpark estimate of where you stand prior to getting all your final slips.   You can even do this for other slips if you have a good idea what they will be.  That way you can actually have a bit more time to think about any RRSP purchases you might need to do.
4. Read up on Tax Deductions.  Yes I know reading tax information is boring as hell, but if you save a lot of money it can more than pay for your time.  So try to find a good summary of tax deductions and read up on anything that might apply to you.  If you are looking for a place to start check out this site.

So that’s my ideas on a pre-tax warm up.  What have you done in the past to get ready? Or are you a last minute kind of person?

Another day and another interesting question from a reader.  This one comes from Andy Royer who wrote:

One question I hope you haven’t answered yet. You (and several others) keep
mentioning it’s not worth it to invest in RRSPs if you will be in the same tax
bracket or higher.

“Now in this income level you will most likely want to avoid RRSP’s as you
likely to be in the same tax bracket in retirement.” — Your March 27, 2007 blog
posting for example.

Has anyone ever done the math on this? I’m thinking the Tax Credit gives you
more money to invest now, plus the money grows tax free into retirement. So even
though you may pay more tax later are you really worse off?

My personal plan is to have 100% of my income when I retire, so this is quite
relevant to me. If you don’t have the numbers I may have to sit down and figure
this out when I get some time.

Damn I hate when I write things that come back to haunt me, but Andy brings up a good point that I shouldn’t be using a blanket statement.  In that post I was referring to the fact you need to be careful about assuming a RRSP is a good thing.  In some cases it isn’t, it depends on the numbers.  For example, a TFSA might make more sense when you are just starting out in investing than an RRSP, since it is more flexible to be used for saving for a house down payment or retirement.

In that specific case I was referring to the fact that depending on the type of investment you make it might make more sense to hold something in a taxable account rather than an RRSP.  For example, a Canadian dividend paying stock if your marginal tax rate on dividends are negative.  This happens for my wife, she gets a tax credit that is greater than the tax owning so hence the negative tax rate. When that happens you are hard pressed to make up that advantage.  If you don’t believe me check out my math here (I just assumed a zero tax rate on the dividends to try and make the results closer.  Also anyone is free to copy the sheet and play around.  Please advise me if you find a formula error).  If on the other hand you were taking about interest income you likely would be correct, an RRSP would likely be better.

So really the answer should be: it depends.  Check out the math for your specific case and see what makes sense to you.  Hope that helps more than it confuses people.

Well if you don’t have a TFSA (Tax Free Savings Account) don’t worry because apparently you are not alone.  Over at the Wealthy Boomer there is this post which reports that only 34% of people have set up a TFSA so far in 2009.  Another 11% plan to do so by the end of the year, while 49% are going to do it in 2010.

So why are the numbers so low right now?  I would suspect that most people are actually focused on debt reduction right now rather than actual saving money into an account.  Realistically this makes sense since the payback on debt greatly exceeds most fix income type savings products (ie: high interest savings account, GIC…) even if you use a TFSA.  The Great Recession woke up a lot of people to the fact the party is over and maybe it is time to get rid of their debt hangover.

What I found really interesting about the post was the fact if you add up the percentages you get 94% of people either have an TFSA or plan to get one by then end of 2010.  Of course their is the fact that intentions don’t always translate into action, but that is a stagging amount of people that obviously have some interst in getting one.  This would mean that TFSA’s in theory should out pace RRSP as a savings account type of choice post 2010.  In 2007 88% of people could have contributed to an RRSP of those only 31% actually did so (see here).

So who knows perhaps TFSA’s might actually get most of us saving again.  In any case it’s a good thing.