After the rapid rise in interest rates in 2022 and soaring inflation, many households will need to make adjustments to their personal finances for the new year.
“In 2023, we will continue to see the pressure, the delayed effect of interest rate increases, warns Desjardins Group chief economist Jimmy Jean. This will continue to be felt as more and more people are in a position to renew their mortgage. »
This scenario is very concrete for Mr. Jean, who finds himself in this situation. “I did the math, and it’s still not a trivial situation,” he says on the phone.
“There may be people who have already made their calculations, but there are those who may be surprised at the renewal, adds the economist. They will have to make adjustments. It may mean using some of their savings to pay the principal or it may mean taking on higher payments and cutting other expenses. This is why we anticipate an economic slowdown. »
The difference could represent several hundred dollars in the monthly budget of some households, abounds an adviser to TD Wealth Management, Carl Vignola. For example, at a rate of 2.77%, a mortgage of $300,000 amortized over 25 years would have monthly payments of $1384. At a rate of 5.17%, which is similar to market conditions in mid-December, the monthly payments would be $1,773.
Often neglected, the budget thus becomes more relevant than ever, insists Mr. Vignola. “People rarely do it, we will tell the truth. When the cost of living increases like last year, it becomes a favorable context for saying: “OK, I really have to take the time to redo my budget”. »
Borrowers who have a variable rate mortgage should not wait for their renewal or to reach the trigger rate (the threshold where their payment no longer covers all the interest) before revising their financial strategy, suggests the adviser.
When the variable interest rates on a mortgage loan increase, the owner pays more interest and repays less principal, if the amount of the payments remains unchanged. When the time comes to renew, the individual risks having much higher payments. “These are the people who are most likely to have a bad surprise,” warns the adviser.
A big grocery bill
The good news for 2023 is that short-term indicators point to a moderation in inflation, Jean said. Despite higher monthly highs, inflation has averaged 5% in 2022. He anticipates it will decline to 3.2% on average for the year 2023.
The price of the grocery basket will, however, continue to give headaches to many households in 2023, concedes the chief economist of the Mouvement Desjardins. Inflation in the food segment will reach 5.6% in 2023, on average. From 10.1% last October, the pace should moderate to 3.2% in December 2023.
A moderation in inflation does not mean that we will find the prices before, underlines Mr. Jean. Prices will only increase more slowly. “Even if we economists will say that inflation has moderated in food, for ordinary mortals, they will still find it expensive because we will not have reversed the price increases. »
Payroll won’t follow, but…
Even if they have not been so generous since 2008, wage increases for most workers will not make it possible to catch up with the increase in the cost of living over the past year.
Quebec employers plan to grant salary increases of 4.1%, on average, according to a survey by the Order of Certified Human Resources Advisors, released in September. The Order could, however, make slight adjustments to its forecasts in January or February, underlines its director general, Manon Poirier, who does not yet know the result of this revision.
“Few employers have the ability to keep up with inflation,” explains Ms. Poirier. It should be remembered that for several years inflation was close to 1% while wage increases were higher. It wouldn’t have paid [pour les employés] to keep up with inflation [à ce moment-là]. »
Tax promises to be confirmed
Two tax promises will be worth watching in 2023: the tax cut promised by the Legault government and the creation of the tax-free savings account for the purchase of a first property (CELIAPP).
During the election campaign, the Coalition avenir Québec (CAQ) had promised to lower personal income tax by 1 percentage point for the first two tax brackets (from $15,000 to $92,000 in income) as of 2023. The promise should be in the budget presented next spring.
However, the effect would not be visible from the first payrolls in January, according to tax expert Sarah Phaneuf of Raymond Chabot Grant Thornton, who points out that from a financial planning point of view, this promise remains hypothetical as long as it is not is not confirmed in the budget.
It is possible that the entire tax reduction will not be recovered until the time of filing the declaration for 2023, i.e. in the spring of 2024. “The year will already have started and employers have no choice but to operate with the tables that currently exist [pour déterminer le montant de la retenue salariale] “, notes the tax expert, who adds that we will know more when the budget is tabled.
The entry into force of the CELIAPP, which is the subject of a federal bill presented in November, is expected during the year 2023. The conditions may change if changes are made to the bill, but the registered account would allow prospective first-time buyers to make an annual tax-deductible contribution of up to $8,000 for a cumulative total of $40,000. In addition to the tax deduction, the returns would be tax sheltered.