Don’t let the depression get you down

By Scott Feschuk - Monday, October 10, 2011 at 10:10 AM - 3 Comments

Getty Images; Photo Illustration by Taylor Shute

During a recent lecture in Ottawa, a prominent British commentator offered his assessment of the global economy. Martin Wolf referenced debt loads, bailout funds and all that—but permit me to distill his message to its essence: EVERYBODY RUN FOR YOUR LIVES!!

Indeed, by the time Wolf was done speaking of likely default in Europe and a potential worldwide depression, it felt as though nomadic Huns were poised to smash through the walls and make off with our animal skins and womenfolk. His vision of the future made The Road sound like a buddy comedy.

Wolf is by no means alone. These are prosperous times for pessimism. Pretty much every day now we wake up to news that the Hang Seng is down three per cent, which is a bummer because hearing “Hang Seng” used to be so much fun, in that it sounded like a bounty hunter from Star Wars. When it comes to retirement, many of us have given up on the dream of Freedom 55 and now grudgingly accept the reality of Freedom Andy Rooney, wherein we position ourselves behind a desk and keep working until we’re 92.

Continue…

Reality will bite back in Ontario

By Richard Warnica - Friday, October 7, 2011 at 2:34 PM - 8 Comments

Blair Gable/Maclean's

The Twitterati in my home province of Alberta made a lot of hay this week over a headline in The Globe and Mail that presented the election of Alison Redford, a centrist former justice minister and now provincial premier, as an evolutionary step forward for the knuckle draggers of the Prairie politic. “Alberta steps into the present,” the headline read, to which the easily offended replied, “So where were we before, the past?” Albertans have an almost reflexive sensitivity to criticism from the East. It’s a bit like what the rest of Canada feels for the U.S., a mix of smug superiority and desperation to be noticed. But Albertans should relax. Ontarians seem to think worse of each other than of anybody else. And their politics, well, they’re nothing to brag about.

Take last night’s election. It was, in many ways, an odd campaign. In a province where health care eats up $46 billion a year, more ink was spilled on cross-dressing than on doctors’ salaries. Indeed, it seemed at times as if the parties had made a pact to avoid dealing with most of what a provincial government actually does. Health care? Untouchable. Education? Just keep the kissing booths out and we’re fine. Continue…

The Commons: Say everything

By Aaron Wherry - Wednesday, September 28, 2011 at 7:06 PM - 64 Comments

The Scene. A day after the Prime Minister’s Office delighted in demonstrating their man’s eagerness to meet with the Governor of the Bank of Canada and the Finance Minister—both of them, at the same time—the leader of the opposition stood and asked if Mr. Harper might tell the House what the three men had talked about and what plans they had made. Here is how the Prime Minister responded.

“Mr. Speaker, as I have said many times, we have an economic action plan. That’s why we received a mandate from Canadians. Obviously, we are concerned about developments in Europe and elsewhere, but at the same time, the Canadian economy has created more than 600,000 jobs. This is one of the best records throughout the industrialized world. We will continue to do so.”

Apparently this much was news to Mr. Carney and Mr. Flaherty. (Later, the Finance Minister would say he could not comment on the contents of these discussions because the meeting in question was “private.” Which is a funny adjective to apply to anything that is announced with a news release, then videotaped and photographed for public distribution.)

On matters of the economy, the Prime Minister has mostly settled on two responses: say nothing or say everything. Here, obviously, he had chosen to go with the former. It most other cases these last few weeks, the government has gone with the latter. Continue…

Can Canada avoid another recession?

By macleans.ca - Wednesday, September 28, 2011 at 4:42 PM - 5 Comments

It’s time for the truth about taxing the rich

By the editors - Monday, September 26, 2011 at 10:00 AM - 23 Comments

Jake Wright/CP

President Barack Obama’s endorsement of the “Buffett rule” for taxation has Republican legislators crying “class warfare” this week. Warren Buffett, the super-rich sage stock-picker of Omaha, Neb., has taken centre stage on the U.S. political scene by pointing out how outrageous it is that he pays a lower effective tax rate than his secretary. “Last year my federal tax bill—the income tax I paid, as well as payroll taxes paid by me and on my behalf—was $6,938,744,” Buffett wrote in the New York Times in August.

“That sounds like a lot of money,” he added. (It certainly does to us.) “But what I paid was only 17.4 per cent of my taxable income—and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” Like most Americans in his elite income category, Buffett pays little more than 15 per cent on what he makes because most of it takes the form of capital gains, which the U.S. taxes at that low rate.

Buffett takes glee in telling the American masses what they want to hear in a time of frighteningly high unemployment that looks increasingly invulnerable to the everyday tools of U.S. fiscal and monetary policy. Rich folks like me, Buffett says explicitly, really are avoiding sacrifice. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” he wrote in the Times. He wants rates on income from all sources increased for individuals with million-dollar incomes, and still more for those raking in $10 million.

Continue…

The wrong medicine

By Aaron Wherry - Monday, September 26, 2011 at 9:46 AM - 4 Comments

Douglas Porter quibbles with the Prime Minister’s prescription for economic woe.

“We could be making some of the same mistakes. Certainly, there are echoes of 1937,” agreed Douglas Porter, deputy chief economist at the Bank of Montreal. Last week, Prime Minister Stephen Harper and British Prime Minister formed an unusual alliance of debt hawks, coming down firmly on the side of stricter austerity as the way out of the crisis – at least in Europe … 

Mr. Porter said Mr. Harper’s call for global austerity is “precisely the wrong medicine at this time.” Government bond yields in Canada, and in most other countries, have sunk to multi-year lows in recent days. That’s a sign that financial markets are stressed about economic growth prospects, not government deficits or inflation, according to Mr. Porter. “Governments shouldn’t be aggressively cutting spending when the economy is gasping for air,” he said. “That’s certainly the wrong prescription.”

Cutting the right taxes

By Aaron Wherry - Friday, September 23, 2011 at 11:00 AM - 61 Comments

Scott Clark and Peter DeVries propose a new tax plan to fix the government’s structural deficit.

First, the current plan has only slightly reduced the high effective marginal tax rates imbedded in the personal income tax structure, which seriously inhibit labor force participation. Without getting into detail, what is required is a lowering of the marginal tax rates. This could be expensive. Lowering all rates by 1 percentage point could cost $5 billion annually. Getting rid of all the special tax preferences introduced over the past five years would be a start.

Second, the government should restore the two points to the GST bringing back the $13 billion that was lost. This would more than pay for the cut in tax rates for all Canadians but would also allow a larger reduction in the corporate tax rate than is currently planned.

The Commons: The Finance Minister goes rogue

By Aaron Wherry - Wednesday, September 21, 2011 at 6:36 PM - 80 Comments

The Scene. Bob Rae was making fun—pointedly, but sarcastically, mocking the government’s decision to spend $20 million for advice on how to reduce spending. It was, if nothing else, a decent bit of amusement for a Wednesday afternoon.

“Mr. Speaker, a review of public accounts show that the government spending on professional and special services, including the use of consultants, has gone up from $7.24 billion to well over $10 billion, a cumulative increase of over $7 billion,” the Liberal leader informed the House. “I’d like to ask the minister of finance, what does he think the chances are that the $20-million consultants he’s just hired are going to come back and say, ‘You know what a good way is to save money, cut the use of consultants?’”

Here Mr. Rae returned to his seat and here the Finance Minister stood. And here—after some superfluous mocking of Mr. Rae’s time as premier of Ontario—are the altogether remarkable sentences that Jim Flaherty offered in response.

“Yes, we are having experts from outside look at government spending. Yes, we should. Government should not be the sole judge of the way it’s run. We need advice from the outside.”

Had he mispoken? Had he momentarily lost control of his mouth? Did he realize people could hear him saying these things?

Apparently not, because a a few moments later he was saying such things again. Continue…

The Commons: Jim Flaherty against the world

By Aaron Wherry - Tuesday, September 20, 2011 at 6:18 PM - 13 Comments

The Scene. Once more Jim Flaherty finds himself with so much to answer for.

“Mr. Speaker, more bad economic news,” lamented Nycole Turmel this afternoon. “The Conference Board of Canada dropped Canada’s rating on income equality. The middle class is falling further behind. Inequality has increased in the past 10 years. Surprise, surprise. It is the same 10 years of the big tax cuts for the big corporations. Is this not another example of the Conservatives’ economic inaction plan?”

She drew out this bit about it being an inaction plan, lest anyone miss the wordplay.

“Mr. Speaker,” Mr. Flaherty responded, “our Conservative government is focused on what actually matters to Canadians, creating jobs and economic growth.”

For sure, Canadian families are likely not meeting around the dinner table each night to discuss inequality coefficients and peruse the latest line graphs. But surely those at the poorer end of the equation are at least vaguely aware of this issue.

Given a moment to think about it, Mr. Flaherty decided he might at least venture an answer to this concern. ”Mr. Speaker,” he said in response to a question from the NDP’s Peggy Nash, “the most important equality plan for Canadians is a job.”

Continue…

The quiet cuts

By Aaron Wherry - Thursday, September 15, 2011 at 3:53 PM - 18 Comments

Among various cuts at Environment Canada, the government is apparently about to eliminate an ozone monitoring program.

The British journal Nature says scientists and research institutes around the world have been informally told the Canadian network will be shut down as early as this winter, putting an end to continuous ozone measurements that go back 45 years.

“People are gobsmacked by this decision,” Thomas Duck, an atmospheric researcher at Dalhousie University, said in an interview with Postmedia News. He and his international colleagues say they’ve been told the network and a related data archive will be closed down as part of the Harper government’s deep cuts at Environment Canada, where hundreds of jobs are being are eliminated.

See previously here, here, here, here and here.

About that world debt

By Aaron Wherry - Friday, September 9, 2011 at 3:08 PM - 1 Comment

Scott Clark and Peter DeVries have some questions for Jim Flaherty ahead of the next meeting of G7 and G8 finance ministers.

President Obama has said that he wants a balanced approach to solving the US deficit and Debt problem. This would require both expenditure cuts and tax increases. Mr. Flaherty has said that he would never raise taxes to deal with a deficit problem.  Lower taxes are needed for growth. This sounds very Republican if not Tea Party. What advice will Mr. Flaherty tell the Secretary of the Treasury regarding taxes to reduce the US deficit?

The Prime Minister claims great success for his leadership at the G-20 in getting countries to commit to reducing their deficits in half by 2013.  What has happened to that commitment?

How we really beat the deficit: or, revisionism revisited

By Andrew Coyne - Wednesday, August 17, 2011 at 5:26 PM - 82 Comments

Once again my colleague John Geddes has written a sensible, sober reminder that not all is as we imagine it to be, that things are not as simple as they appear. And once again it falls to me to point out that, actually, they are.

Last time out, John convincingly demonstrated that cutting spending is not as easy as certain ideologues would have you believe. Except, as I later showed, it is in fact quite easy.

This time, John’s point is not that spending can’t be cut, but that it wasn’t cut. Or not as much as people say. Contrary to the received wisdom, much repeated these days by our admirers in other countries, that Canada balanced its books in the late 1990s through deep spending cuts, John argues that in fact economic growth did most of the job. To be sure, “spending was restrained,” but “by far the main reason the red ink evaporated… is that the Canadian economy grew smartly year after year during that period, and tax revenues more than kept pace.”

“The real history of the Canadian fiscal reversal,” he summarizes, “is that firm but hardly harsh spending restraint proved sufficient because the economy cooperated by expanding steadily and rendering up taxes.”

Okay. But this formula — moderate restraint, coupled with steady growth and rising revenues — why wasn’t it tried before? Continue…

Do you agree with Warren Buffett that the rich should pay more taxes?

By macleans.ca - Wednesday, August 17, 2011 at 12:56 PM - 19 Comments

What it takes to get back to AAA

By Erica Alini - Tuesday, August 9, 2011 at 5:50 PM - 7 Comments

By cutting the U.S. credit rating on Friday, Standard and Poor’s may well have pushed the world economy closer to a dreaded second dip into recession. Of course, downgrading the world’s largest economy is bound to have serious consequences, but Washington’s humiliation is not a first. Many of today’s AAA-rated countries have less-than-perfect credit histories. In fact, seven of the 15 nations on the AAA list of both S&P’s and Moody’s either lost their top score for a period, or had to work their way up there from lower ranks.

So how does a country climb back to a AAA rating? In one of three ways, it seems–and not all of them involve austerity: Continue…

S&P sends U.S. political leaders a message

By John Parisella - Monday, August 8, 2011 at 5:59 PM - 34 Comments

Last Friday, the Standard & Poor’s rating agency made history by ratcheting the U.S. credit rating down a notch from AAA to AA+. (The two other major rating agencies, Moody’s and Fitch, kept the U.S. at AAA.) The Obama administration argued S&P overestimated the U.S. debt by over $2 trillion. And though S&P recognized the error, it argued the debt ceiling deal was inadequate to maintain an impeccable credit rating.

Politicians from both the Democratic and Republican parties have blamed one another for the decision by S&P. GOP presidential candidate Michele Bachmann attributed the downgrade to President Obama, while Obama advisor David Axelrod blamed the Tea Party for toying with a default to force spending cuts. Continue…

Buying opportunities

By Aaron Wherry - Monday, August 8, 2011 at 10:31 AM - 14 Comments

Bruce Anderson considers the political possibilities of economic turmoil.

The NDP faces a quandary that goes well beyond the distressing absence of its most popular figure, Jack Layton. Or his temporary replacement by Nycole Turmel, whose ambivalence towards federalism or separatism (whichever it is, or both) has more or less ended her future in Canadian politics before it really began. Mr. Rae has essentially laid out the position that would logically appeal to moderate NDP voters. And the more radical left? Ideas that might appeal to them, at this moment, would be repellant to most other voters, and create great brand risk for the NDP…

For the NDP, the speedy return to health of Jack Layton, a hope shared by a great many people, will not change the fact that the dilemma of how best to position that party, (in a world where China excoriates the U.S. for engorged entitlement programs and a lack of money-sense), may be the toughest assignment of all.

Who really won the U.S. debt debate?

By John Parisella - Tuesday, August 2, 2011 at 2:30 PM - 22 Comments

I followed the debate over the debt ceiling in the U.S. from Europe, where the commentators were perplexed about why the U.S. government would risk a default for the sake of purely partisan politics. With the deal done and a possible catastrophe is averted, the discussion has shifted to who won and who lost.

Conservatives like columnist Charles Krauthammer have supported raising the debt ceiling all along while acknowledging the work done by Republican negotiators. Others, such as Utah Senator Mike Lee, a leading Tea Party activist, and most GOP presidential hopefuls, opposed it. Respected liberal economist Paul Krugman wrote in the New York Times that President Obama had surrendered. So, who actually won? Was there a winner?

Clearly, this was a manufactured crisis, as raising the debt ceiling has never stirred so much down-to-the-wire confrontation in the past. President Reagan raised it 18 times and he is the darling of the Republican right to this day. Continue…

The rhetorical deficit

By Aaron Wherry - Tuesday, August 2, 2011 at 10:10 AM - 46 Comments

Tabatha Southey considers the rhetoric of public debt.

It’s easy to alarm people over a deficit. It’s a high number and people are forever being told that it’s theirs and their children’s debt and specifically how much of it is theirs, per capita. But no one ever tells them how much highway they own, per capita, or what section of the Grand Canyon is theirs. It’s a very one-sided, frequently opportunistic way of expressing the situation.

The consequences of playing a game around the largely artificial debt ceiling are very real. This is politics triumphing over economics, but without the triumph.

Mind the infrastructure gap

By Aaron Wherry - Wednesday, July 27, 2011 at 2:26 PM - 10 Comments

Daryl Copeland argues the federal government’s priorities have left little room to deal with national infrastructure needs.

At a time of robust economic growth, Canada’s federal government cut personal and corporate taxes, and reduced the GST by a few percentage points. These actions eliminated several tens of billions of dollars per year in revenue, and, with that, the government’s capacity to raise and retain funds that could later be deployed in support of the public interest. At the same time, the government dramatically increased spending on the armed forces, accumulated the large ancillary expenses associated with going to war in Afghanistan, and presided over the unprecedented militarization of Canadian society.

Meanwhile, Postmedia finds that the $3.1 billion spent to upgrade water treatment plants in recent years may not bring such infrastructure up to new federal standards—standards that may require another $20 billion in upgrades. Municipalities put the total infrastructure deficit at $123 billion.

China piles on the debt

By Erica Alini - Wednesday, July 20, 2011 at 8:12 AM - 0 Comments

Can China save the world? At the height of the global economic meltdown, many Americans and Europeans believed it might. China sailed through 2009 with an estimated annualized GDP growth of over nine per cent. In 2010, it posted 10.3 per cent growth, and early this year elbowed out Japan as the world’s second-largest economy. The People’s Republic seemed the economic engine that would pull the West out of its quagmire.

That once-firm belief, though, is starting to crumble. Traders and analysts are wondering whether Beijing isn’t heading for its own housing market bust and massive debt mess. Alarm bells are sounding about the real estate frenzy that’s been filling even smaller Chinese cities with luxury apartments that local income levels likely can’t sustain. In the mainland, bank credit is at 120 per cent of GDP, and in Hong Kong, where borrowing rules are laxer, it stands at 240 per cent, the Financial Times reported. Even more unsettling is the size of local government debt, which an official auditor’s report recently tagged at US$1.6 trillion, or 27 per cent of GDP. The true figure could be even higher, according to Moody’s Investors Service, which said it believes Chinese authorities have failed to account for another US$540 billion of debt.

Much of that red ink, say analysts, is the result of Beijing’s own generous lending policies and the US$586-billion stimulus package that was meant to spare China from the economic crisis. But public coffers have also been pillaged by the government’s own employees, according to a report last week by the Bank of China. It estimated that up to 18,000 corrupt officials and white-collar workers at state-owned enterprises have lifted as much as $123 billion of public money (roughly two per cent of last year’s GDP) since the mid-1990s.

Yet a global economic crisis 2.0, or at least one precipitated by China, seems unlikely. With an economy still growing strongly, Beijing can afford a high debt-to-GDP ratio, and it needn’t worry about owing money to foreigners (like the United States must), as much of its public borrowing is funded by domestic savers. There will undoubtedly be some bumps on the road, but likely not an engine breakdown.

Why we don’t have a debt ceiling

By Aaron Wherry - Thursday, July 14, 2011 at 1:57 PM - 4 Comments

Peter Devries explains why the government no longer has to ask Parliament to borrow more money.

In the March 2007 Budget, the Government proposed to amend the FAA by removing the existing statutory limit on borrowing.  It argued that since it was again undertaking borrowings for certain major Crown Corporations, it needed increased flexibility.  This proposal was outlined on page 322 of the Budget Plan.  The proposed amendment was contained in the Budget Implementation Act 2007 Bill C-29, which received Royal Assent on June 22, 2007.  The Opposition, along with political and financial commentators, did not focus of this change.  It was not until after the fact that the Parliamentary oversight consequences were raised by the Senate but by that time it was too late.

Although the Government indicated that improved and timely information would be contained in its Debt Management Strategy and the Debt Management Report, the government no longer has to seek Parliamentary approval for its borrowing requirements. This has seriously reduced the financial oversight responsibility of Parliament. 

How politics have come to dominate the debt ceiling debate

By John Parisella - Monday, July 11, 2011 at 4:43 PM - 38 Comments

Even though we have heard countless references and discussions about the risks associated with rising the US debt ceiling, we should not be surprised that there is still no deal as the supposed deadline of August 2 looms. The debate over a compromise solution has become so politicized both sides are now hardening their positions rather than looking for compromises.

The Republicans have staked their positions: no new taxes and massive spending cuts, in particular to entitlement programs. The presence of a vocal and uncompromising Tea Party contingent makes it difficult for the more moderate Speaker of the House, John Boehner, to deliver votes on a compromise deal with Barack Obama. Consequently, the odds of an historic deal between Obama and the Republicans appear very remote. Continue…

The quiet cuts

By Aaron Wherry - Tuesday, June 28, 2011 at 12:39 PM - 3 Comments

Bill Curry finds more than two dozen jobs eliminated at Industry Canada.

But the timing of the news is being questioned given that many of the cuts stem from restraint plans launched more than a year ago – not the government cuts promised in the 2011 budget. “People didn’t know that these plans were in place, of course, until after the government was elected, so I find that whole thing rather distasteful,” said Gary Corbett, president of the Professional Institute of the Public Service of Canada. “People knew what was going to happen, but they saved announcements until after the election.”

The Commons: Philosophical riddles

By Aaron Wherry - Tuesday, June 21, 2011 at 6:35 PM - 12 Comments

The Scene. Bob Rae called it deception. The government, he said, had promised during the election campaign to achieve necessary public service savings through employee attrition. Now, he noted, they were dismissing civil servants by the hundred.

“Why,” he asked, “did the government deceive the people of Canada before the election?”

Here the Prime Minister, like the Public Works Minister the day before, declined the opportunity to loudly champion his recent achievement in the pursuit of proudly held principles.

“Mr. Speaker, the Government of Canada employs hundreds of thousands of people,” he said. “When it is necessary to make adjustments to ensure that taxpayers’ dollars are well spent, we always make sure, wherever possible, that we do that through attrition or reassignment.”

It is in this case an odd quirk of the system —a philosophical riddle—that ensuring taxpayers’ dollars are well spent involves eliminating a department—Audit Services Canada—that was created for the expressed purpose of ensuring taxpayers’ dollars are well spent. Continue…