By Kevin Milligan - Thursday, May 16, 2013 - 0 Comments
Christy Clark and the B.C. Liberal government begin a new term facing a propitious fiscal situation, arguably second in Canada only to Saskatchewan. Net debt as a share of GDP is low (only Saskatchewan and Alberta’s are lower), and B.C. has a shot at balancing the budget in 2013-14 – along with Saskatchewan, Quebec, and Nova Scotia. The Liberals made a few big-ticket election campaign spending promises, but, on the tax side, they also indicated they intend to pad revenues over the next few years with higher tax rates for personal and corporate income. In short, the new government has much freedom to work on new projects without having to fight festering fiscal fires.
That said, budgets must still be watched, lest the current advantages be frittered away. Below, I outline the main challenges on both the revenue and expenditure sides.
By Erica Alini - Wednesday, May 15, 2013 at 9:52 AM - 0 Commentsof Photos
By Stephen Gordon - Monday, May 13, 2013 at 11:44 AM - 0 Comments
Tom Mulcair’s recent article for the Institute for Research on Public Policy (IRPP) raises perhaps more questions than it answers about the NDP’s positions on the economics of energy and the environment. Here are a few key passages:
An NDP government would establish a comprehensive upstream cap-and trade system to meet our international commitments to fight climate change and rigorously enforce environmental laws here in Canada.
We’ve heard this before, but we still don’t know very much about what this system would look like. Does “comprehensive” mean “applicable to all GHG emissions”? What are the estimated costs to consumers? What measures will be taken to compensate low-income households for these costs?
By Mike Moffatt - Monday, May 13, 2013 at 11:01 AM - 0 Comments
The government’s favourite talking point on recent tariff hikes is that the existing system represents a “special tax break for Chinese companies.” I have already addressed the tax fairness issue, but there is also an underlying assumption here that Canadian tariffs on Chinese goods are wholly or mostly paid for by Chinese companies. The reality is that very little of the tariffs placed on Chinese goods are paid for by Chinese companies.
The argument made by the government is not one about laws as the tariff is not placed on the Chinese manufacturer. Rather, the tax is placed on the Canadian importer of the good, since the manufacturer is outside of Canada’s jurisdiction. However, the importer will likely share this burden with other parties including the retailer (through higher wholesale prices) and the consumer (through higher retail prices).
On our radar this month: Australia’s $5-million visa and Tim Hortons vs. Highfields Capital Management
By Econowatch - Sunday, May 12, 2013 at 12:00 PM - 0 Comments
•In the wake of Pershing Square’s shakeup at Canadian Pacific, another activist investor from the U.S. has set its sights on an iconic Canadian brand. The hedge fund Highfields Capital Management is pushing for change at Tim Hortons, including scrapping its unsuccessful U.S. expansion strategy. Highfields owns four per cent of the coffee and doughnut chain’s outstanding shares.
• Passengers on Frontier Airlines who buy basic fares can now expect to pay as much as $100 to put a carry-on bag in the overhead bin, where finding space for luggage has become “unacceptably difficult,” the U.S. company says. Meanwhile, a new British study shows several budget airlines have been dramatically hiking baggage and booking fees this year. Those extra costs can make up 65 per cent of total ticket prices.
By Econowatch - Saturday, May 11, 2013 at 3:00 PM - 0 Comments
By The Associated Press - Saturday, May 11, 2013 at 2:28 PM - 0 Comments
AYLESBURY, England – Japan convinced its partners in the Group of Seven leading industrial economies Saturday that it was not manipulating its currency as part of a bold attempt to get its economy out of a near two-decade period of stagnation.
At the conclusion of a two-day meeting of leading financial representatives from the G-7 countries — the U.S., Germany, France, Italy, Japan, Canada and the U.K. — host British Treasury chief George Osborne said there was a formal acknowledgement that each member needed to secure their own countries’ growth by balancing austerity measures with growth-enhancing policies. The meeting also agreed on the importance of finding measures to deal with failing banks and working collectively to stop companies and individuals from dodging their tax bills.
The global recovery from recession over the past few years has been patchy. While the U.S. economy, the world’s largest, appears to be gaining traction, many European countries are in recession as they try to get a grip on their public finances through deep spending cuts and tax increases.
By Econowatch - Saturday, May 11, 2013 at 12:31 PM - 0 Comments
By Econowatch - Saturday, May 11, 2013 at 9:00 AM - 0 Comments
By Chris Sorensen - Friday, May 10, 2013 at 5:40 PM - 0 Comments
Outgoing Bank of Canada governor Mark Carney’s stick-handling of the 2008 financial crisis was widely viewed as a central-banking success story; it helped him snare his new gig as governor of the Bank of England, starting on July 1. But in many ways, Carney’s replacement, Stephen Poloz, the head of Export Development Canada, has an even more vexing task in front of him. Whereas Carney moved swiftly but predictably to drop benchmark interest rates when faced with the global financial crisis (and, somewhat less predic ably, announced he intended to keep them there for an extended period), Poloz faces several smaller, but no less troublesome threats: an overheated housing market, soaring personal debt, stubborn unemployment and anemic GDP growth. And they come at a time when conventional monetary policy has far less influence, given that money has been so cheap, for so long.
By Erica Alini - Friday, May 10, 2013 at 10:02 AM - 0 Comments
- The economy added some 12,500 jobs in April, roughly in line with expectations. The uptick in employment comes after a steep 54,500 dip in March.
- The gains were just enough to keep the unemployment rate steady at 7.2 per cent.
- Beyond the headline numbers, the details of the report were more positive. The job gains, for example, were mostly in full-time work.
- Also, manufacturing churned out some 20,600 new positions, the largest increase since May 2012. In general, the goods-producing industries delivered a strong performance, with 24,500 jobs added, whereas the service sector shed 12,000.
- Surprisingly, it was the public sector that lead the overall employment increase, with gains in public administration and health care.
- Provincially, employment rose in Alberta, declined in Manitoba, New Brunswick and Newfoundland and Labrador, and remained roughly unchanged in Ontario and Quebec.
By Erica Alini - Thursday, May 9, 2013 at 5:17 PM - 0 Comments
It must be a singular experience to be overshadowed by someone who isn’t even there—anyone wishing to know what that feels like can turn to Jim Flaherty.
Canada’s finance minister was the sole representative from North America at a conference on trade and investment sponsored by the U.K. government today in London. The other illustrious panelists included British Chancellor of the Exchequer George Osborne, German Finance Minister Wolfgang Schäuble and International Monetary Fund Managing Director Christine Lagarde. And yet, Canada’s man was unmistakably outshone by Uncle Sam—in absentia.
“This is, if you like, for the West and countries like Britain a sink or swim moment,” British Prime Minister David Cameron told the very same audience a few hours earlier. And no one in the room made any effort to conceal that the U.S. is a much bigger buoy for Europe than Canada when it comes to boosting growth by negotiating free trade deals.
In questions from the audience—made up largely of the London financial elite—and answers from the European trio on stage, the trade accord Ottawa hopes to soon ink with the European Union sounded almost like an afterthought compared to the parallel agreement the EU has more recently begun negotiating with the U.S.
The Conservatives desperately need to close the deal, which the two sides started discussing in 2009 and which is supposed to generate around $28 billion in new business a year. But Europe’s attention has unmistakably shifted to the larger U.S. prize.
By James Cowan, Canadian Business - Thursday, May 9, 2013 at 10:26 AM - 0 Comments
Tim Hortons appointed Marc Caira, as its new CEO on May 8, a mere 714 days after the departure of its last chief executive.
The leisurely pace of its executive search process was widely attributed to two factors. First, the company initially thrived under interim leader Paul House, a 25-year veteran of the company who previously served as CEO between 2006 and 2008. But perhaps more importantly, Tim Hortons needed a leader with experience in the U.S. market. Canada is quickly reaching its double-double saturation point. By its own estimates, there’s a market for about 4,000 Tim Hortons in the country; there are now 3,453 with 24 opening in the last quarter alone. As it outgrows its home market, the coffee chain has naturally looked south. But its American expansion has, so far, been wobbly at best. It was forced to close 36 stores in the northeastern United States in 2010 due to poor performance. Same-store sales were down 0.5% in the United States in the first quarter of 2013, compared with 0.3% in Canada.
Outgoing CEO House conceded to Canadian Business earlier this year that the U.S. remains a problem: “I won’t lie to you. I wish were making more money down there,” he said. In the 2012 annual report, the company states: “Operating income in our U.S. segment has not kept pace with our overall growth in that country, and improving it is one of our top priorities.” Continue…
By Erica Alini - Wednesday, May 8, 2013 at 5:00 PM - 0 Comments
Officially, the Great Recession in the United States ended in June 2009. For the following 2½ years, though, the recovery has only blessed the rich. For the rest of America, it felt like the recession kept on going.
That’s according to research based on the latest available data on the wealth of U.S. households. At the height of the financial crisis, the economy spared few American families, rich or poor. But once it started growing again, relief came unevenly. Only households in the top seven per cent of the income ladder saw their net worth—assets minus debt—grow between the second half of 2009 and the end of 2011, the recent Pew Research Center analysis shows. For the bottom 93 per cent, wealth continued to decline, shrinking by four per cent—more worrisome evidence, say economists, of rising inequality in the U.S.
Blame goes to the opposite trajectories of financial assets and real estate. Rising stock prices and soaring gains in bonds gave a quick lift to America’s top earners, for whom wealth is mostly concentrated in financial holdings. For most people, however, their homes are their most valuable assets and the housing market kept sliding through 2011. With bond prices at record highs and stocks up 34 per cent in December 2011 from June 2009, America’s eight million richest households saw their mean net worth grow to $3.3 million from $2.6 million. For the other 111 million households, mean net worth fell by $6,000 to an average of $136,426, as home prices declined five per cent in the first 30 months of the recovery.
By Stephen Gordon - Wednesday, May 8, 2013 at 10:00 AM - 0 Comments
I wrote a lot about the decision to cancel the mandatory long-form census and replace it with with the voluntary National Household Survey (NHS) in 2010-2011 (see here: , , , , , , , , , , , ), but that was all prologue. The real implications of the new survey are only now being played out with the release of the the numbers – I can’t bring myself to use the word “data” – collected by the NHS.
Here’s what Statistics Canada has to say about the quality of NHS numbers:
By Mike Moffatt, Canadian Business - Friday, May 3, 2013 at 11:31 AM - 0 Comments
This article first appeared in Canadian Business.
The government’s latest position on Budget 2013’s tariff changes is that the modifications are necessary to ensure that China does not receive special treatment. As the prime minister put it, “we do not think it is appropriate to have special tariff reductions only for companies from countries like China.” This is problematic and not simply because these changes affect 72 countries, of which China is only one. The truth of the matter is that the existing treatment of imports from China is not particularly favourable but there is a much better way to ensure that imports from China receive Canada’s least favourable tariff treatment.
The Customs Tariff is exceedingly complex, with up to 16 different tariff treatments (rates) for each product, based on the country of origin of that product. Countries can be assigned multiple tariff treatments and, for a given product, are assessed the lowest of the multiple rates that apply.
By Stephen Gordon - Friday, May 3, 2013 at 10:49 AM - 0 Comments
It is frequently remarked that Canada fared “relatively” well during the economic and financial crisis. And it is also frequently remarked that current and projected short-term Canadian economic growth rates are relatively weak. Both statements are true. But it’s important to make the distinction between the level of economic activity and its growth rate. An economy that is still climbing out of recession has a lot more room to grow than an economy that has already fully recovered.
We’re used to measuring ourselves up against the U.S. economy, and sometimes the other G7 countries, but what about a broader comparison?
By John Geddes - Thursday, May 2, 2013 at 7:31 PM - 0 Comments
On Stephen Poloz’s big day, as he basks in the media attention that comes with being named the next Governor of the Bank of Canada, let’s not resort to words like “dull.” There’s no need for that sort of talk. “Stolid” serves and doesn’t sound nearly as harsh.
Still, there sat Poloz in the National Press Theatre this afternoon, right beside the departing Mark Carney. It was impossible not to sag a bit at the thought of Ottawa reverting to being just a bit more its own cliché. You judge me shallow for dwelling on Carney’s performance style? Show a little pity. Consider those of us who jobs entail listening regularly to what’s intoned by the less, shall we say, dynamic of our current federal cabinet ministers.
And Carney’s ability to command willing attention—whether on stage in Davos or in studio with Strombo—wasn’t merely diverting. Because it was the charismatic Carney talking, we paid a tad more attention to, for instance, dire warnings about consumer debt loads. Even policy issues that touch that so intimately on the financial lives of most Canadians can’t compete for public attention unless leaders show at least a bit of flare.
Typically, we’d look for those skills in elected politicians. But there aren’t many in Prime Minister Stephen Harper’s Ottawa with that sort of knack. And now there will be one fewer in the senior ranks of the Canadian public service—though one more at the Bank of England, where Carney takes over next month.
In fact, Poloz lands the top job at the Bank of Canada in the wake of, not just one unusually watchable performer, but two in a row. If Carney was all cool urbanity, his raspy-voiced predecessor, David Dodge, projected an avuncular quality that was powerfully reassuring—a pretty handy trick for a central bank gov.
Now, Poloz, 57, is no slouch. He’s not a Harvard and Oxford man like Carney, but is a respected economist with a PhD from University of Western Ontario. He has deep Bank of Canada roots, having worked there for 14 years, including a stint in the 1990s as chief of research, running the shop Carney calls the bank’s “engine room.” Poloz later joined the federal Export Development Corporation as its chief economist in 1999, before taking over as EDC’s president and CEO in 2011. That put him in close contact with the CEOs of many Canadian exporting companies.
Not surprisingly, he was ultra-cautious at today’s news conference, laughing off some questions until he’s had time to settle into the job, or just avowing that he likes the way Carney has run things. Perhaps his most emphatic answer came late, when Poloz drew on his recent EDC experience to highlight the prime importance of a U.S. recovery, and the resulting boost in demand for Canadian exports, in Canada’s outlook.
“What we’re looking for is that the engine of growth on the demand side gradually shifts into the export side of the economy,” Poloz said, citing the EDC’s recent global export forecast. “It shows pretty strong growth in Canadian exports for next year, on the back of the recovery that we are seeing in the United States in particular, which has been the lacking bit in the story until recently.”
That explicit reference to the perspective he brings from his last job served as a no doubt unintentional reminder that Poloz is an outsider, chosen to succeed Carney over a strong internal Bank of Canada candidate—senior deputy governor Tiff Macklem. Carney was, to my ear at least, at his polished best today fielding the awkward question of whether Macklem will stay on. “Tiff is very much looking forward to working with Steve,” he said in part, lapsing into first names since these are, you know, old pals who get along famously.
Financial market insiders will be arguing for days over what it means that the Conservative government picked Poloz over Macklem. Was it mainly a matter of policy bent, a preference for Poloz’s export orientation? Was it an Ottawa culture issue, a sign that the Harper crew saw Macklem as too much the consummate mandarin?
These can be interesting questions, if you like that sort of thing. (I do.) But for most Canadians, the noticeable part of today’s handoff won’t really be about monetary policy, much less about Ottawa’s arcane inner workings. The change that matters will be how a face and voice, which sometimes, against all odds, actually captured the attention of those who are susceptible to paying attention between elections to the way the country is run, isn’t going to be around anymore.
That’s not the new guy’s fault. He’s there to do a job, and he has the credentials to do it. But with a government in power that controls its own message (and messengers) so tightly, Carney’s ability and willingness not to be boring is certain to be sorely missed.
By Tamsin McMahon - Thursday, May 2, 2013 at 7:08 PM - 0 Comments
Finance Minister Jim Flaherty has named Stephen Poloz the next governor of the Bank of Canada. The announcement shocked analysts who had thought that long-serving senior deputy governor Tiff Macklem was a front-runner. Poloz, head of the federal trade agency Export Development Canada, has a low profile in financial circles.
Here’s a primer on who he is and what he might bring to the job:
1. He is 57 and married to Valerie Poloz. The couple has two children.
2. He spent 14 years at the Bank of Canada, rising to chief researcher, before being appointed chief economist at Export Development Canada in 1999. He is currently the agency’s CEO.
3. During the 1990s, he was managing editor of the Montreal-based International Bank Credit Analyst, an influential financial publication that long warned against jumping into frothy, dot-com fuelled stock-market bubble before it burst.
4. He has also been a visiting scholar at the International Monetary Fund and the Economic Planning Agency in Tokyo.
5. He was previously rumoured to be on the short-list of candidates to replace David Dodge as Bank of Canada governor in 2008.
6. He warned early on of a potential for a major financial crash:
In 1998, after Long-Term Capital Management went bust, requiring a $3.6-billion U.S. government bailout, some analysts shrugged off the episode as the workings of a rogue hedge fund. Poloz was among those who predicted the fund’s failure was more likely a sign of a financial system that was working itself into a bubble built on complex and opaque derivatives, which would eventually require more bailouts. “I think there will be lots more” fund failures, he predicted in 1998.
7. … and then got it wrong after it happened.
In 2007, Poloz predicted the financial crisis would be short-lived. “A key source of comfort during the financial turmoil of recent weeks has been the consensus that the world economy remains strong,” he wrote in an analysis. “This is important, for it means that even if the financial contagion continues to spread, the world economy will prove resilient to the shock.”
8. He helped set the framework for Bank of Canada policies largely seen as successful in helping Canada stave off the worst of the global recession.
In 1994, while still at the Bank of Canada he co-authored a paper describing in detail the central bank’s approach to its medium-term forecasting. It may sound dull, but the paper was a critical step in the bank’s sweeping shift away from clandestine operations and toward more transparency in how it sets monetary policy.
It’s an approach strongly supported by outgoing governor Mark Carney and one that he has signaled he’s bringing to the Bank of England. Carney is a vocal a proponent of more communication and forward guidance from central bankers — signaling to investors where interest rates will likely be headed in the future —arguing that it can be calming on the markets and perhaps induce consumers to adjust their spending.
9. He disagrees with Carney on a few key issues.
Unlike Carney, who has criticized Canadian corporations for sitting on “dead money” instead of investing, Poloz warned in a 2011 speech that the stockpiles of cash were a “necessary insurance against the next black swan” in an era of deep uncertainty about the future of both the Canadians and the global economy.
Carney has also openly dismissed the “Dutch Disease” argument that Canada’s high “petrodollar” is harming the manufacturing economy. Poloz, on the other hand, has publicly warned that the rising Canadian dollar was harming the economy, mainly because it exacerbated the widening gulf between Eastern manufacturing-based economies and Western commodity-based ones.
He has cautioned that such economic divergence would become a long-standing problem in Canada and that similar conditions in the 1970s had led to “stagflation” when inflation rises rapidly but economic growth stalls.
“This two-speed economy thing is enormous,” he told a 2008 conference on how energy industry affects the economy, arguing that the Bank of Canada should pay more attention to the dollar’s exchange rate when setting interest rates.
10. Perhaps he’s so vocal because he initially got it so wrong when it came to the dollar:
In spring 2007, Poloz proclaimed that the Canadian dollar, then sitting at 94 cents, would fall to 84 cents U.S. by the end of the year because the weak U.S. and global economy would hurt demand for Canadian exports. “There is a global slowdown that is grinding through the system, and oil prices are probably going to drift lower rather than higher, and in that context you get the Canadian dollar going down not up.”
Instead, the dollar hit a high of $1.08 in November. It took roughly two years for his prediction to come true — the dollar dropped in 2009 — though the loonie has been stubbornly sitting around par since 2010, thanks largely to strong oil prices.
Some analysts rushed to describe Poloz as an “outsider” whose appointment signals a morale crisis at the Bank of Canada and a push by the Harper Conservatives for more control over monetary policy. Indeed, the Canadian dollar fell on news of his appointment. But Poloz could also be viewed as one of Harvard Business School professor Joseph L. Bower’s “inside outsiders” — the kind of leader who has both deep institutional experience and knowledge, but not so much that he’s become part of the establishment.
A good example of such a leader, according to the Harvard Business Review? Mark Carney.
By Erica Alini - Wednesday, May 1, 2013 at 10:50 PM - 0 Comments
Bank of Canada Governor Mark Carney has 30 more days on the job, and he is determined to avoid the question that every journalist and MP would love to get him to answer: What does he think his legacy is? He dodged it at his last hearing before the Finance Committee last week, and aptly deflected it again this evening in Edmonton, where he was speaking at the University of Alberta: “I’m a member of a team, the Governing Council of the Bank of Canada,” he quipped, “if my legacy turns out to be bad, I’m taking them down with me.”
But the governor took Wednesday’s lecture as an opportunity to look back at the “fascinating, sometimes harrowing” five years he’s spent at the helm of Canada’s central bank—and in that sense he delivered the closest thing to an assessment of his own legacy that we’ll get from him for quite some time. Here’s the gist of it:
By Stephen Gordon - Wednesday, May 1, 2013 at 12:17 PM - 0 Comments
Going into the economic and financial crisis of 2008-09, Mark Carney had several advantages that most other central bankers did not:
- The Bank of Canada had accumulated a not-inconsiderable amount of institutional credibility after almost twenty successful years of inflation targeting.
- Canada’s banking system was highly regulated and more than solid enough to withstand the crisis.
- The housing sector was still in a position to respond to lower interest rates.
- Commodity prices bounced back rapidly a few months after the financial crisis hit.
By The Associated Press - Wednesday, May 1, 2013 at 6:08 AM - 0 Comments
WASHINGTON – The Federal Reserve is widely expected Wednesday to stick with its aggressive efforts to strengthen a still-subpar economy.
The Fed will likely end a two-day meeting with a statement noting that job growth remains modest and that it’s standing by its campaign to keep loan rates at record lows to help ease unemployment.
The central bank’s efforts include buying $85 billion a month in Treasurys and mortgage bonds to try to keep long-term borrowing costs down.
Investors will have only the Fed’s brief statement to study for clues to its thinking. This isn’t one of the four policy meetings each year that are capped by a news conference by Chairman Ben Bernanke.
By Erica Alini - Tuesday, April 30, 2013 at 1:22 PM - 0 Comments
Look at a new Canadian banknote and thou shalt see wonders.
At least that’s what one would think reading the Bank of Canada’s reports on how focus groups reacted to each of its new polymer banknotes. The studies were meant to “disaster test” the bills, as one BoC official put it, and avoid PR slips—but controversy arose anyway, as the media got their hands on the Bank’s internal documents discussing feedback on early drafts of the bills. The last two plastic banknotes, the $5 and the $10, are out today, so here’s a fond look back at the awkward debut of Canada’s Monopoly money:
The $100 bill: sex toys. Some focus group members spotted nothing less than a sex toy in the first polymer bill to be unveiled. The banknote, though, is most famous for the controversy that ensued when it emerged that the BoC has redrawn the bill after receiving complaints that the female scientist depicted on it looked too Asian. The Bank hastened to make the woman peering through the microscope look more Caucasian (the “neutral” race, as all Caucasian Canadian know).
By Erica Alini - Tuesday, April 30, 2013 at 11:43 AM - 0 Comments
- The Canadian economy beat the forecasts in February, growing 0.3 per cent following an upwardly revised gain of the same magnitude in January. It was the strongest two-month period of growth since July-August 2011.
- Most of the growth came from goods-producing industries, where activity rose 0.9 per cent. The strongest gains were in the resource sector, with output in mining, quarrying and oil and
gas extraction jumping 2.2 per cent compared to January.
- Manufacturing also delivered a remarkable performance, with production rising 0.8 per cent.
- The service sector was overall virtually flat, inching up a mere 0.1 per cent. The arts and entertainment industry, however, bucked the trend, with a 3.3 per cent gain that likely reflects a recovery from the NHL lockout.
What the analysts are saying:
- The February release was “a ray of sunshine in an economy that needs all it can get,” wrote CIBC’s Avery Shenfeld, who predicts first-quarter growth of two per cent. TD revised its expectation for the first three months of the year to two per cent as well, up from 1.6 per cent.
- Growth for the year seems to be on track to come in slightly above the latest Bank of Canada projection of a 1.5 per cent expansion, noted RBC’s Paul Ferley. The pickup, however, is unlikely to be enough to significantly reduce unemployment.
- “It’s not time to break out the champagne just yet,” warned TD’s Leslie Preston. There are signs that the U.S. economy is slowing down, which could put the breaks on Canada’s momentum.