Canadians are Adrift on a Sea of Debt (Part 2 of 2)

The Niagara Independent, November 9, 2018 – Recent government announcements and news reports have provided Canadians with an accounting of how much our Canadian governments are in debt. The current federal government, spending hundreds of billions of dollars, seemingly pays no heed to the size of their annual deficits. Add the sum of all provincial governments’ deficit budgets and one soon realizes that our governments are burying us in a deep, dank financial hole; from which no Canadian alive today will likely climb out. The reported numbers are startling.

In Ottawa, the federal government recorded a shortfall of $19 billion for the last fiscal year, repeating the deficit amount of the previous year. The government reports its federal spending continues to rise and is now $332 billion – $332,000,000,000 – the highest amount of government spending ever recorded.

Finance Minister Bill Morneau and finance officials will be quick to point out that the $332 billion figure is higher than in the past because of a change in accounting practices. But, this explanation does not address the fact that the federal government spending continues to increase.

The trend of overspending in Ottawa has resulted in the government adding almost $20 billion to the national debt in the 2017-18 fiscal year. As of March 31, 2018, Canada’s net debt is $758 billion. PM Justin Trudeau recently indicated his government will not balance the books before the election. Neither he, nor the finance minister, will offer a target date for when the Liberals can commit to a balanced budget.

In late October, an independent report on the state of federal finances assessed that the government will require deeper-than-expected deficits in each of the next few years. Canada’s federal parliamentary budget officer concludes that there is only a 10 per cent chance the federal books will return to balance in 2021-22, and a 30 per cent chance of seeing black ink in 2023-24. Are Canadians left to assume annual deficit budgets are here to stay?

In a recent Financial Post editorial, Fraser Institute economists provided no reassurances about the federal finance minister’s ability to manage budgets. They opine: “Morneau seems unaware of the risks of running deficits during periods of economic growth. Specifically, running deficits outside of recessions (or pronounced slowdowns) risks a permanent imbalance between spending and revenues, like what happened in Canada throughout the 1970s, ’80s and early ’90s. Simply put, it didn’t matter if the economy was growing, slowing or in recession. Ottawa could not balance its budget.”

At the provincial level, assessments based on past and current performances appear just as bleak. Last week, the Fraser Institute issued a report on provincial government debt which underlines “a serious problem.” Deficit budgeting appears to be systemic throughout the country – and especially burdensome in the province of Ontario. The report reveals: “Over the 10-year period from 2007-08 to 2017-18, total net provincial debt grew from $317.3 billion to $645.7 billion for an increase of 104 per cent. In addition, 50 per cent of the net debt belongs to Ontario – a proportion much larger than its population share of 39 per cent.”

Factoring in all of the latest news on our government’s finances, the combined federal and provincial debt currently stands at an astounding $1.4 trillion – a figure that has increased by more than 60 per cent in the past decade.

Canadians often hear Finance Minister Morneau crow that Canada has a very low federal debt-to-GDP ratio of just over 30 per cent. But, again, when factoring in all levels of government collectively, the Canadian governments’ debt-to-GDP in the last 10 years has risen from 69 per cent to 87 per cent.

Lots of figures. Lots of debt. Why should Canadians pay attention? Simply put, our current government spending and the national debt load directly impacts future governments’ abilities to respond to changing circumstances and global pressures. Our governments’ deficit budgeting curtails Canadians’ choices and opportunities – today, and for generations to come.

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK: https://niagaraindependent.ca/canadians-are-adrift-on-a-sea-of-debt-part-2-of-2/

Serious Challenges as Canadians are Adrift on a Sea of Debt (Part 1 of 2)

The Bank of Canada has indicated they are about to become more aggressive in 2019 and 2020 with increasing interest rates.

The Niagara Independent, November 2, 2018 – Interest rates are rising and many Canadians will begin to feel the pain. Last week the Bank of Canada hiked its key lending rate and major lending institutions followed suit, raising prime interest rates. This is the fifth time since the summer of 2017 that rates have risen and the Bank of Canada has indicated they are about to become more aggressive in 2019 and 2020. Some financial analysts point to recent comments made by Bank of Canada Governor Stephen Poloz to forecast the rate could climb as high as 3.5 percent.

What does that mean for an average household? Over the past 15 months, the Bank of Canada’s interest rate hikes have added an average of $2,500 in costs for Canadian households. Should the rate go as high as 3.5 percent, the costs would double again. If this were to occur, financial surveys indicate that one in two Canadians’ ability to service their existing debts will be directly affected. Half of Canadian households.

The “average middle class Canadian” is anxious about what might be coming in the months ahead. The latest Consumer Debt Index by insolvency practice MNP LTD., found that approximately 40 percent of Canadians are concerned about their existing debt loads, and 43 percent regret the amount of debt that they have incurred in their lives. The index reported that one in three Canadians are concerned that rising rates could push them towards bankruptcy.

The challenge with household debt and interest rates is compounded with the increasing amounts of taxes Canadians must pay. The Fraser Institute has documented the government’s take from Canadians’ earnings through the years. The average Canadian family now spends more of its income on taxes (43.1 percent) than it does on basic necessities such as food, shelter, and clothing combined (35.6 percent). In 2017, the average Canadian family earned an income of $85,883 and paid total taxes equaling $37,058 (43.1 percent). By comparison, in 1961, the average family had an income of $5,000 and paid a total tax bill of $1,675 (33.5 percent).

Taxes have grown much more rapidly than any other single expenditure for the average Canadian family – food, shelter, clothing, transportation, health and personal care, education, and other items. (And should the new carbon tax be imposed as designed by the federal Liberal Government, this tax burden will become heavier to bear for the average Canadian household.)

In a CBC News special series entitled “Debt Nation – looking at the state of consumer debt in Canada,” Theresa Tedesco pinpoints the foreboding issue:  Canada is now a country of borrowers and accumulating high levels of household debt has become a necessity for a modern life. It is an alarming fact that Canadians owe $1.69 for every dollar of after-tax, earned, annual income – which is substantially higher than $1.00 from 20 years ago.

Again, it is the “average middle class Canadian” that has the most to worry about. Statistics Canada figures tell us that 71 per cent of all Canadian families carried some form of debt and 35 per cent of Canadian families were carrying debt worth at least two times the value of their after-tax annual income. According to the Bank of Canada, about eight per cent of indebted households owe a staggering 350 per cent or more of their gross income.

CBC’s Theresa Tedesco also makes the point that debt has lost its stigma and has become culturally more acceptable in Canada. She surmises: “Canadians are socialized into debt at an earlier age as younger people are developing an awareness of it by necessity and appear to be living with it longer. Our parents and grandparents borrowed to buy houses and cars with the intention of paying it back. We don’t think like that anymore.”

Indeed. The latest numbers from the Bank of Canada tell us that individual Canadians are swimming in more than $2 trillion of debt today. The worry is, in the months and years to come, they just may not be able to tread water given the rising interest rates and increasing tax burden.

Next week: a look at our governments’ debt levels and what that means for Canada’s future.

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS.  Contact: ChrisG.George@gmail.com

LINK:  https://niagaraindependent.ca/serious-challenges-as-canadians-are-adrift-on-a-sea-of-debt-part-1-of-2/

Legalization of Marijuana Leaves Canadians in a Haze

The Niagara Independent, October 19, 2018 – As of Wednesday this week, Canadians can possess and share up to 30 grams of legal cannabis. We can legally buy it and we can grow up to four pot plants per residence for personal use.

Reaction by our national leaders has been rather mellow. Prime Minister Justin Trudeau reassured Canadians the country is ready for this drug, admitting he has regularly enjoyed it through the years. NDP Leader Jagmeet Singh stated his greatest concern is how fast the federal government can expunge Canadians’ criminal records for pot possession.

Canadians have been reassured by Vancouver police chief Adam Palmer, who is president of the Canadian Association of Chiefs of Police. Chief Palmer stated emphatically, “I’m here to tell Canadians that police are ready.” (At the same time, he admitted enforcing new laws around legal weed will be “a work in progress.”)

One serious issue is that there is not enough trained police officers, and Canadian forces are ill-equipped to deal with drug-impairment. Currently 13,000 Canadian police officers have training in standard field sobriety testing – a number that should be closer to 20,000. Only 833 Canadian police officers have received specialized training as drug-recognition experts. Police chiefs recommended to government that 2,000 officers were required to appropriately handle drug-impaired driving. Also, the vast majority of police forces across the country are not equipped to draw a blood sample at a police station or detachment.

Ottawa’s minister-in-charge, former police chief Bill Blair, stated this week that he understands “the anxiety” associated with legalizing marijuana but insists the government has provided tools to make roads and communities safe. This past Monday, the Liberals approved a road side saliva testing device for marijuana impairment. The Drager Drug Test 5000 tool and the training to use it, will now be available as an option for police to test impairment. However, there’s no word on availability or cost. No mention of the anticipated court challenges – the constitutional challenges – that will inevitably delay the wide and consistent use of this drug test by police.

Drug impaired driving may be the most concerning of issues related to legalization of marijuana, but it is not the only one. There are many unanswered questions about retail regulations (passed onto the provinces), health effects and the effects of secondhand pot smoke, age appropriate usage, public and private spaces where pot can be banned, introduction of drinkables and edibles, and U.S. and international travel.

There is also the serious issue of workplace safety. The federal government is not updating the Canada Labour Code despite calls for clearer guidelines on cannabis use and workplaces. The line from officials is it will fall on employers “to develop, implement and evaluate a hazard prevention program to monitor and prevent hazards.”

Derrick Hynes, president of FETCO, an association of federally regulated companies that oversees about 500,000 transportation and communications employees, openly questioned the government’s lack of guidance, “We’re talking about airlines, railways, trucking companies and the like, where clearly there is not only a workplace risk when somebody is impaired on the job but there is, frankly, a risk to the public at large.”

(Health Canada provides this interesting aside: the psychoactive effects of cannabis generally last six hours; likewise, the Centre for Addiction and Mental Health recommends waiting six hours before driving or operating machinery.)

Dr. Gerald Thomas, the director of alcohol, tobacco, cannabis and gambling prevention and policy for the BC Ministry of Health, made this observation about government policy surrounding pot: “What we have been saying for the past eight months is that we are building the plane as we are flying it. Please keep us in your hearts because those of us in the civil service are doing our best to make sense of this insanity and it is insanity because we haven’t handled it well to date, that’s the truth.”

All this uncertainty is background noise to the Liberals’ claim that they kept a key election promise. Which itself is interesting… a recent DART Insight national poll found that 52 per cent of respondents agreed that legal weed would cause more harm than good. DART Insight CEO John Wright observed, “There’s a sense that the government of Canada, while it’s brought this in, has left it up to everybody else to work out the details… This is going to affect employees, kids, local crime — you just go down the list and this has got a serious implication for our society.”

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. Contact: ChrisG.George@gmail.com

LINK:  https://niagaraindependent.ca/legalization-of-marijuana-leaves-canadians-in-a-haze/

The Trade Deal from America’s Perspective is: “A Win”

The Niagara Independent, October 5, 2018 – Tuesday morning the CBC ran a headline story: “‘Yay!’: How the Canadians won the argument that opened the door to a NAFTA deal” reporting a confident Prime Minister Justin Trudeau saying, “There was [on Saturday] a sense things were falling into place.” In most news reports this week Canadians have been reassured that PM Trudeau and Foreign Affairs Minister Chrystia Freeland (dubbed “the warrior princess”) were victorious in wrestling U.S. President Donald Trump to concede to Canadian terms on an improved NAFTA deal.

That is the Canadian story. But, how is this 11th hour deal being received south of the border? (Warning: Americans have a remarkably different take.)

The Washington Post called President Trump one of the big winners with the agreement: “USMCA does make substantial changes to modernize trade rules in effect from 1994 to 2020, and it gives some wins to U.S. farmers and blue-collar workers in the auto sector. Trump beat his doubters, and his team can now turn to the No. 1 trade target: China.”

Bloomberg News assessed the deal will be seen as a trade win for the president in the run-up to November’s midterm elections. The NY Post Editorial furthered this praise:  “We’ll admit that the president’s approach left us nervous, but it’s hard to argue with the result: Trump has once again delivered on a campaign promise that his rivals called a fantasy. A politician who does what he says he’ll do: Imagine that.”

The most pointed accolade was on the front page headline of Monday’s NY Post:  “Trump wins revised NAFTA with Canada.”

Robert Lighthizer, the U.S. lead trade negotiator, gave full credit for the success of the deal to the President: “Your leadership, vision and grit made this agreement possible. No other person could have done it…”

The President, in his hyperbolic style, called the deal “the single greatest achievement of all time” as he claimed victory for the American worker with a deal that will “pour cash and jobs” into the U.S.

Political and economic analysts immediately recognized in the USMCA text that Americans got major concessions, the biggest being improved access to Canada’s dairy market. The Wall Street Journal observed the deal provides US dairy farmers access to about 3.5 percent of Canada’s $16 billion dairy market. “It gradually opens the Canadian market to more exported American dairy products, including fluid milk, cream, butter, skim milk powder, cheese and other dairy products.”

There are significant incentives for more American auto production as cars imported from Canada and Mexico will now need 75 percent American content (up from the current 62.5 percent). This will force automakers to source fewer car parts from Germany, Japan, South Korea or China. Mr. Lighthizer stated these changes will result in bringing more car production back to the United States.

U.S. got significant provisions to extend to 10 years the intellectual property protections of American pharmaceutical companies selling prescription drugs in Canada. The result is Canadians will pay more for biologic drugs. A new IP provision also impacts Canadian copyright law, which will now need to protect creative works to 70 years after the artist’s death.

Behind these headline issues, Americans received these concessions from Canada.

  • American imposed steel and aluminum tariffs are not lifted as part of the deal.
  • There is no opening up of government procurement processes as Bloomberg News reports the “Buy American” rules that block cross-border procurement appear untouched.
  • American financial services companies gain better access to Canadian and Mexican markets.
  • The deal does not update the list of professions eligible to work cross-border with special visas – something Canada was seeking for IT professionals looking for easier access to work in the U.S.
  • The new deal gives the USMCA partners the right to review and assess any trade deal one country may sign with a “non-market” country (which may restrict Canada’s ability to negotiate a trade deal with China for example.)

What is as remarkable as these details made public in American news sources on Monday is the fact that, on Tuesday trade news had been buried to the back financial pages, and on Wednesday “the single greatest achievement of all time” was nowhere to be found in American media.

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. 

LINK: https://niagaraindependent.ca/the-trade-deal-from-americas-perspective-is-a-win/

 

The Canadian Government Must Address Impact of U.S. Tax Cuts

The Niagara Independent, September 28, 2018 – In December, U.S. President Donald Trump unveiled a tax plan that effectively cuts America’s top corporate tax rate from 35 per cent to 20 per cent and allows companies to immediately deduct from their tax bills the full cost of capital spending. Proponents of the tax package predict this will boost business investment in the United States and encourage U.S. companies to repatriate money they previously held abroad.

In a recently released economic report by PricewaterhouseCoopers (PwC), Canadians are warned that the American tax plan will siphon 650,000 jobs from Canada over the next 10 years as businesses shift their activity south of the border.

The PwC report was commissioned by the Business Council of Canada (BCC), a non-profit, non-partisan association composed of 150 Canadian corporate executives and business entrepreneurs. It estimates the U.S. tax cuts will reduce Canada’s economic output by some $85 billion a year and shrink our economy by 4.9 per cent. The hardest hit provinces would be Ontario, Alberta and Quebec because of their high concentrations of capital-intensive businesses. The report concludes that the U.S. tax change “has eliminated one of Canada’s main competitive advantages” and in particular has made the U.S. “a substantially more attractive place to locate capital-intensive businesses.”

Most striking statement in the report, however, is the fact that the negative impact of this U.S. tax reform on Canada’s economy could be 10 times greater than the potential fallout of a failed NAFTA agreement.

The American tax plan has altered the playing field that drastically. Canada’s combined federal and provincial corporate tax rate remains about 27 percent, a total of seven percentage points above the U.S. tax rate.

Ignoring this reality of the new tax landscape could be devastating for Canadian businesses. John Manley, BBC president and CEO (and a former finance minister in Jean Chretien’s government) puts it this way. “This report underlines the need for the federal government to respond to U.S. tax reform with a comprehensive plan to strengthen Canada’s economic competitiveness. Failing to respond to U.S. tax reform puts Canadian jobs and prosperity at risk at a time when Canada is already wrestling with rising protectionism.”

The Canadian Chamber of Commerce president Perrin Beatty says the U.S. tax changes is a wake-up call. “I believe that urgently the federal government should be pulling together the provinces and municipalities to address this issue of the tax and regulatory burden — and say, ‘What can we do in Canada to ensure that we remain competitive?’”

Foreign investors are staying away from the country and 2017 Statistics Canada figures reveal foreign investment is flowing freely from Canada at unprecedented rates.  Foreign direct investment into our country is at a low of $30 billion. In contrast, the investment Canadians make abroad has now reached a record $100 billion.

This compounds the problem that our Canadian business community is already suffering from a lack of investment. A 2017 study by Philip Cross, former chief analyst at Statistics Canada, ranked Canada 16th of 17 countries for business investment between 2015 and 2017 with this Liberal Government, compared to eighth place from 2009 to 2014.

The C.D. Howe Institute complements this study with one of its own that finds capital spending by Canadian businesses has plummeted with this Liberal Government. For every dollar of new investment enjoyed by the average U.S. worker in 2017, a Canadian worker enjoyed a mere 59 cents — by far the worst recorded performance in Canada ever.

This sets the stage for the federal government’s fall economic update expected in October. Finance Minister Bill Morneau has repeatedly dismissed across-the-board cuts to the tax rate on business income. However, in the face of mounting pressure from Canadian business leaders, finance department officials are now hinting Mr. Morneau’s update will include targeted tax measures to boost the country’s competitiveness.

So, as Canadians are transfixed by the collapse of the NAFTA negotiations, our country’s business leaders are anxiously awaiting the government’s response to a fate potentially ten times worse.

 

Chris George is an Ottawa-based government affairs advisor and wordsmith, president of CG&A COMMUNICATIONS. 

LINK:  https://niagaraindependent.ca/canadian-government-must-address-impact-of-u-s-tax-cuts/