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September 21, 2008

Canadian federal election: Week 2 recap

Posted by cultureguru under Economy, Food, Politics
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The Liberals were much more visible this week, taking my advice by taking on Harper on a number of fronts, including childcare. The Liberal team was emphasized, which seemed wise. Dion explained the Green Shift on the Current (podcast here), and was, to my mind, clear and convincing.

The NDP and the Conservatives, meanwhile, were busily injecting a rare note of humour into the campaign. The NDP experienced the resignation of not one but two, toke-smokin’, car-drivin’, former members of the Marijuana Party as candidates for the party in BC, because they apparently didn’t bother to YouTube them before offering them the nomination. And the Conservatives, of course, had the whole “death by a thousand cold cuts” kerfuffle. Am I a bad person because that made me chuckle?

Anyway, this inspired the fourth apology by Harper since the campaign began (emphasizing why he’s so reluctant to let his candidates speak to the media), but the first that seemed to stick. And stick. Please, enough with the calls for his resignation, already! Lack of regulation might be a serious issue here. A dark sense of humour is not.

The US economy provided some excitement, with huge companies collapsing and stocks going on a roller-coaster ride in the wake of the sub-prime mortgage crisis. It ended only when the Bush government reversed its laissez-faire policies and stepped in with massive investment. (Fun fact: $1 trillion could buy you 5 billion iPhones. Or 1 war in Iraq.)

Canada never allowed sub-prime mortgages, and so isn’t at risk of this exact same crisis. But there’s a more general lesson here about what happens when governments aren’t involved enough, when companies (banks, meat) that need regulation don’t get it, when governments are downsized to the point of ineffectuality.

[Harper's] inability to think in a positive, passionate way about large political projects shows starkly at this tense economic moment. In policy, he prefers to act small. His favourite word is modest. “Our plan is simple, modest and practical,” he said about a tax break for home buyers. As if he’d rather do nothing but, in a pinch, will settle for the least possible. His modest GST cuts give little relief, but they whittle government revenues down so he can claim we can’t afford much anyway. This week, he announced a ban on tobacco ads, which are already banned, and sales to kids, ditto. I know this “modesty” reflects Stephen Harper’s political philosophy and he could rattle on passionately about why government should do the least it can, for the good of us all. It’s the reason he wants a majority: so he can do even less and eliminate more. But he may be the wrong leader at the wrong time.

– Rick Salutin, Globe and Mail

 

September 20, 2008

Reason of the day to not vote Conservative: Ontario bashing

Posted by cultureguru under Economy, Politics, Uncategorized
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Dalton McGuinty’s been fighting for a more equitable share of federal resources for a long time now—did you know there’s a whole, official Ontario government website on this topic? I didn’t, until today, but it is informative. For example, while I already knew that Ontarians got considerably less per-person health care funding than other Canadians, I didn’t realize that Ontarians have to work longer to qualify for EI, and are eligible for fewer weeks of payout.

So twisted is the equalization formula, in fact, that even even if Ontario were to become a poor, “have-not” province, its residents would continue to be net contributors to the system. In other words, if Ontario’s economy were to tank to the extent that it qualified for equalization payments, that additional money would actually come in part from — Ontario.

So no wonder some argue that the system makes Ontario the “patsy” of confederation.

Now, much as I’d like to, I can’t really blame all of this on the Conservatives. They didn’t write all these rules, it is a long-standing problem, and I’ll accept that these things are complicated and expensive and can’t necessarily all be fixed in two years.

I’m just not so sure, given their track record, that they’d start fixing them in the next four years, either.

You will recall Flaherty helpfully saying that Ontario is the “last place” that businesses would want to invest, as though he were any kind of example to follow in tax policy.

And you might not recall this, but they’re also trying to pass Bill C-22, which tries give Ontario less representation in Ottawa. The proposal gives BC and Alberta 1 new federal seat for every 100,000 increase in population, while Ontario gets half that — one new seat per 200,000 increase. Hmm. Couldn’t be because the westerners are more inclined to vote Conservative, is it? No, it just means that McGuinty is a “small man of Confederation”, according to Conservative House Leader Peter Van Loan.

 

September 19, 2008

Reason of the day to not vote Conservative: Income trusts?

Posted by cultureguru under Economy, Politics
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You know, I wasn’t going to do this one.

Yes, it was a broken promise. The Conservatives promised not to tax income trusts, and then they did it anyway, basically rendering them extinct by 2011.

But see, I’m not against politicians second-guessing themselves once out of the election heat, really researching the issue, getting advice from experts. And if they determine that their promise really isn’t in the country’s best interest — that it could actually be harmful — then I’m all for them breaking it.

And I actually thought this was one of those cases.

An article by the quite conservative Al Coates, in the KW Record, of all places, had caused me to reconsider this.

The rational for banning income trusts — the reason I thought it might have been wise — was to avoid two problems:

  1. Tax leakage, because the trusts pay no corporate tax — all profit go directly to investors.
  2. The “hollowing-out” of corporate Canada — great Canadians corporations being converted into trusts.

But as with so many of the Conservative actions, the decision was a complete surprise to the investors and companies involved. Investors were hurt financially (famously, a lot of seniors), and companies counting on funding from them were left vulnerable.

And Coates argues that the widespread, unintended effect of the decision was this:

Many of those trusts have become takeover targets by giant private-equity players. They are being taken off the map and the radar, folded internally into big pension plans, never again to be seen as income-producing opportunities for Canadians.

He gives the example of BCE, one I’m very familiar with, having relatives living through the nightmare of BCE’s takeover by the Teacher’s Pension Plan.

The buyout will be financed through borrowing and BCE will be taken private, dismantled, chopped into pieces and perhaps sold off in parts. Already, thousands of BCE mid-level jobs have been whacked and there will be more to come. [It's so true!]

BCE is a cash-flow machine and its free cash will be used to finance the debt. The new owners of BCE — teachers and its American partners — will pay no corporate tax because, in the first place, pension plans don’t pay tax, and for the other buyout partners, there also are offsetting cash-flow and debt-service factors at work. Ottawa will be lucky to see a wooden nickel in ongoing corporate tax proceeds.

I’m so far from an expert in this stuff, it’s not funny. But it sounds like, just maybe, this is not a case of “tough but necessary” decision-making, based on sober second thought and analysis; it could be yet another hasty and myopic decision that will only weaken Canada’s economy in the long run.

And that’s a lot worse than just a broken promise.

 

September 18, 2008

Reason of the day to not vote Conservative: The GST tax cut

Posted by cultureguru under Economy, Politics
[2] Comments 

An easy one for today: Cutting the GST, a policy so bad it actually united right and left in opposition to it.

I think Jeffrey Simpson’s “A triumph of politics over economics” summarizes the issue best:

Personal and corporate income tax cuts, as every economist knows, tend to stimulate savings and investment, which is what an economy needs to become more productive and competitive, thereby raising overall living standards. Lower consumption taxes stimulate more – wait for it – consumption, some of which leaks out of the economy in the form of purchasing imports and taking trips abroad.

The GST cut is the triumph of base politics over sensible economics.

Thus far, the Harper government’s tax and spending policies have been deeply disappointing for the country’s competitive position.

The government will have drilled a $10-billion hole in federal revenues through the two-point GST cut that will do nothing for productivity and competitiveness when compared with every other available tax cut, as the economists interviewed by the ROB illustrated this week.

Both policies represented the triumph of politics over economics, and short-term political considerations over long-term economic thinking.

Instead of this nonsense, tax policy should involve raising the GST, introducing carbon taxes, and then offsetting these new revenues by reductions in personal and corporate taxes to make Canada more efficient, competitive, fair and green.

(And as an aside, CBC’s Marketplace did an interesting story this year where they showed that, in many cases, the GST was just swallowed by rounding, giving more money to the seller and less to the consumer. Examples included movie and theatre tickets, whose “price includes GST” didn’t check a whit as the GST rate did. The companies just made more profit on each ticket.)

Sigh. So more’s the pity that we pretty much stuck with this 5% rate now. Though both the Liberals and the NDP argued against the cut, neither will take the political risk of undoing it (despite Conservative ads claiming the contrary). Only the Greens, bless them, are willing to to pledge to raise the GST back to 6% and use the increase to fund mass transit in cities.

 

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