Investors create a budget wish list
By Bryan Borzykowski - Thursday, March 21, 2013 - 0 Comments
There hasn’t been much to wow investors in recent budgets. Here are a few appealing ideas.
Getty Images; Photo Illustration by Taylor Shute
Over the years, the Conservative government has thrown investors the occasional bone—the biggest being the introduction of the tax-free savings account in the 2008 budget—but since then it’s done little more than tinker when it comes to helping the plight of Canadian savers. And in the lead-up to the 2013 budget, Ian Russell, president and CEO of the Investment Industry Association of Canada, doesn’t expect the government to suddenly shift course. “They’ve brought down seven budgets so far and they’ve been very careful and cautious in terms of new proposals,” he says. “Everything has been quite modest, so I wouldn’t expect a lot.”
There are always rumours of some grand gesture to investors, such as increasing the TFSA limit to $10,000 (it’s currently $5,500), raising RSP contribution room or lowering capital gains taxes, but with the government still trying to wrestle its deficit under control, Russell says not to expect any measure that threatens its tax haul.
Still, there are some more minor changes investors could at least hope to see. In the 2011 budget, the government introduced the Pooled Registered Pension Plan (PRPP), which was supposed give small-business employees access to a low-cost pension plan. Two years later, and the PRPP hasn’t gotten off the ground. Like many in the industry, Russell doesn’t know when the program will get regulatory approval, but in the meantime he’d like the government to give business owners a tax deduction on EI and CPP for contributions they make to a group RSP. Under the proposed PRPP, owners would get a tax deduction if they match contributions to those types of savings plans, but they don’t get it with a group RSP plan. A deduction would encourage owners to match contributions and therefore boost employee savings. Continue…
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A schooling in America’s finances
By Tamsin McMahon - Tuesday, February 19, 2013 at 10:25 AM - 0 Comments
How complex financing deals between banks and U.S. cities went bad
Andre Jenny/Newscom
As the hometown of Penn State University, the municipality of State College, Penn., is no stranger to bad publicity. But its announcement last month that it was paying a Canadian bank $9 million as part of a failed plan to raise money to build a new school has placed the town at the centre of a national debate over a type of high-risk debt that critics claim has helped tip hundreds of American cities, schools and transit systems into financial ruin.
In 2006, State College’s school board planned to issue bonds to raise $58 million to replace its aging high school. The board’s financial adviser suggested it hire the Royal Bank of Canada to do the deal, and protect against the prospect of rising interest rates on its bonds by locking into a complex deal known as an interest-rate swap with the bank.
The school board would pay RBC a fixed interest rate and RBC would pay the board a floating rate, which the board would then use to pay its bond investors. If rates rose, the board would pocket the difference. If they fell, the school would owe the bank. But in a twist, the community voted not to build a school and the board never issued the bonds. After interest rates plunged in the wake of the 2008 financial crisis, the board missed its first interest payment of nearly $1 million to RBC. It launched a lawsuit to try and back out of the agreement but lost the court case and last month announced it had reached a settlement to pay RBC $9 million of a termination fee between $10 and $11 million.
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With inflation stuck, expect interest rates to stay at rock bottom
By Erica Alini - Friday, November 23, 2012 at 12:04 PM - 0 Comments
As TD Economics’ Francis Fong put it this morning, “Canadian inflation was stuck in neutral in October.” Consumer prices edged up a meagre 1.2 per cent last month compared to the same month in 2011, Statistics Canada said today. Meat and gasoline prices provided some upward pressure, rising by five and four per cent respectively on year-ago levels, but natural gas costs offset that, continuing a trend of steep year-over-year declines with a 11.6 per cent fall in October. Lower mortgage interest costs, which decreased 2.6 per cent, also helped keep a lid on consumer prices, as did “heightened retail competition (domestically and from the lure of cross-border shopping),” said BMO’s Robert Kavcic.
Consumer prices have been declining since May 2011. The Bank of Canada’s measure of core annual inflation, which strips out volatile energy and food prices, is registering similarly paltry growth, edging up 1.3 per cent in October. That’s well below the BOC’s target of 2 per cent inflation, meaning there’s ample margin for the Bank to keep its benchmark interest rate at rock bottom for the foreseeable future.
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The BOC: Rates stay at one per cent, household debt will keep rising
By Erica Alini - Tuesday, October 23, 2012 at 10:01 AM - 0 Comments
As expected, the Bank of Canada has kept its benchmark interest rate at one per cent, but this morning’s press release did include the hint at future rate hikes that many were hoping for. “Over time,” the Bank said, “some modest withdrawal of monetary policy stimulus will likely be required.” Some version of that statement had appeared in all of the BOC’s major policy reports since April, but it suddenly disappeared in Governor Mark Carney’s Oct. 15 speech, signaling that the Bank’s position had become somehwat more dovish.
Notably, the Bank said it expects household debt to continue to rise and signaled for the first time that considerations over Canadian families’ balance sheets will influence key monetary policy.
The Bank also said it expects inflation to rise to the its target of two per cent and economic growth to return to full capacity by the middle and the end of 2013 respectively.
Here’s the full text of the release, with the key statements highlighted:
Ottawa, Ontario – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economy has unfolded broadly as the Bank projected in its July Monetary Policy Report (MPR). The economic expansion in the United States is progressing at a gradual pace. Europe is in recession and recent indicators point to a continued contraction. In China and other major emerging economies, growth has slowed somewhat more than expected, though there are signs of stabilization around current growth rates. Notwithstanding the slowdown in global economic activity, prices for oil and other commodities produced in Canada have, on average, increased in recent months. Global financial conditions have improved, supported by aggressive policy actions of major central banks, but sentiment remains fragile.
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The idea of the Bank of England tampering with LIBOR isn’t as crazy as you think
By Andrew Hepburn - Monday, July 23, 2012 at 4:59 PM - 0 Comments
The Bank of England, London June 15, 2012. Paul Hackett/Reuters
I wrote about the private-sector side of the LIBOR scandal in my previous article for Maclean’s. Now let’s turn to the more intriguing part of the whole affair: How the Bank of England itself at one point supposedly started to encourage Barclays to fiddle with the numbers.
Even if the allegations proved to be true, you’d be excused for scratching your head in puzzlement. What’s the big deal with a central bank engaging in manipulation for the sake, supposedly, of the health of the financial system?
With governments trying to contain the effect of the financial crisis first and now the eurozone mess, we hear of central banks tampering with the markets almost every day. And, really, governments have always intervened in the economy to influence–manipulate if you will–outcomes. When a central bank adjusts short term interest rates, it is using its longstanding, legitimate power to artificially tip the market one way or the other. And, in a closer-to-home example, rent control is another form of market manipulation at the hands of the government.
We generally accept various forms of manipulations because we think the government can and ought try to influence certain markets in ways that produce beneficial outcomes for society. Take the case of monetary policy: The widespread consensus is that central banks can cushion recessions by lowering interest rates and help calm roaring inflation by raising them.
And because monetary policy is largely viewed as a reasonable area of government intrusion, interest rate changes are announced publicly. Market watchers and the general public may disagree about the need for rate cuts or hikes at any moment, but, for the most part, the government’s right to make the decision goes unquestioned.
Now, that’s not what happened with LIBOR. In this case, if the Bank of England did indeed instruct Barclays to submit artificially low rates, it had no choice but to convey such directions surreptitiously. According to the allegations, the very goal of Barclays providing false submissions during the financial crisis was to deceive the market into believing the bank was healthier than it truly was. Had the Bank of England publicly told Barclays to submit lower LIBOR figures, the charade would have been self-defeating. Everyone would know that LIBOR didn’t represent the true rate of borrowing.
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Are you smarter than a central banker?
By Erica Alini - Tuesday, November 29, 2011 at 4:46 PM - 12 Comments
At first glance Economia, a video game created by the European Central Bank, looks like an ingenious device to help laymen grasp the basics of monetary policy. The iPhone app (which you can also play on your computer) is sleek, and the game–which NPR dubbed “angry bonds”–is actually fun.
The goal is to keep inflation just below two per cent, and the only way to do so is raising or lowering the exchange rate. As a learning tool, it’s very effective: After a couple of tries, you’ll never forget that hiking up rates brings down inflation, and cutting them does the opposite–a concept that goes a long way to helping people understand headlines featuring the likes of ECB Chief Mario Draghi, Bank of Canada Governor Mark Carney or Fed Chairman Ben Bernanke. After a while it gets so easy it’s boring, but then the game starts throwing all kinds of unpredictables at you–like a housing crisis, a stock market meltdown, rising oil prices… It doesn’t get quite as real as the current sovereign debt crisis–and you don’t get to behave as a lender of last resort–but you’ll have your hands full. If there’s even a little bit of nerd in you, you’ll like it.
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The Commons: In search of loose change
By Aaron Wherry - Tuesday, June 1, 2010 at 6:17 PM - 49 Comments
The Scene. Michael Ignatieff began with an attempt to weave together various disparate strands to form a basket. A basket within which he could carry his message from one middle-class suburban door to the next.Or something like that.
The Bank of Canada, he reported, had today hiked—the only word one can use when describing this action—interest rates. Canadian families are already more indebted than households anywhere else in the G20. The government is spending a billion to secure three days of meetings of G20 world leaders later this month. How, he wondered, could the government explain putting so much into the latter in light of the former?
Here, though, the Prime Minister stood with his own basket to weave. The interest rate hike, he said, was due to Canada’s sound economy. The G20 meetings, meanwhile, would bring as many delegates as the Olympics had athletes with even greater security risks. Ipso facto, the money simply has to be spent. Continue…
