Both are trending at rates that suggest  economic expansion in the U.S. will be muted in 2010, despite the 5.7% jump in GDP during the fourth quarter. So say Northern Trust’s economists (a group whose reports are among the best in terms of clarity and cogency, in my opinion).

As they note: bank credit contracted at an annualized rate of 6.1% (in real terms) during the 12 months to Jan. 31 — the sharpest decline since President Carter imposed credit controls in 1980. Growth in M2 money supply over the same period registered a “paltry” 1.9% annualized rate.

Northern Trust economists had expected the Federal Reserve to begin raising interest rates in August. Now they think Fed rates won’t start rising until early 2011.

Many people may disagree that the economic lift-off is being pushed back. Look, they say, at U.S. retail sales — which have advanced in four of the past five months and are up 3.9% over 2009.

Ah, but retail sales are a coincident, not leading indicator. “While coincident indicators like retail sales growth have been rising … they are likely to start easing back by mid-year,” Economic Cycle Research Institute (ECRI) managing director Lakshman Achuthan told Reuters.

If one does look at the leading economic indicators, a less optimistic story emerges. Take the ECRI’s own Leading Weekly Indicator (WLI), one of the best around in my view. Its annualized growth rate has fallen for 12 consecutive weeks and now stands at 13.1%. In October of 2009, by comparison, the annual growth rate in the WLI had reached 28.6%.

The continued easing in the WLI, declared Achuthan, points to a slower expansion, beginning during the summer months.

“This all augurs quite well for defensive, not cyclical strategies,” observed Gluskin Sheff economist David Rosenberg. “And buying insurance right now to protect any long portfolios is dirt cheap with the VIX index sitting at 17.”

Greater volatility in the business cycle

“The so-called great moderation of business cycles since the mid-1980s is over. Not only is this because of the Great Recession, but especially because of how hard it is going to be to withdraw the stimulus smoothly. If you withdraw a little too early, the risk of another recession goes way up. If you withdraw a little too late, the risk of a really surging inflation cycle goes way up.”

More frequent recessions

“You will see more frequent recessions in the coming decade than in the last two or three…. Separate and apart from what I just described, the pace of growth of the US economy during each expansion has been falling for decades. In you combine lower trend growth expansion with higher cyclical volatility, it dictates more frequent recessions. Japan, with a 1% GDP trend growth rate for the last 20 years, has seen four recessions, about one every five years. ”

U.S. unemployment to stay high

“It’s the long term where you have quite bad news. With unemployment at 10%, the U.S. economy — even when everything is going right — on average can reduce unemployment by about half a percentage point per year. This is something that is true going back over many decades, not just recently. If you do the math, and you want to get back to 5% to 7% unemployment you would need roughly a 10-year expansion to get the unemployment rate down to what we desire it to be and to what it was just a couple of years ago. That ten-year expansion is likely to be very elusive.”

Really, there’s still no clear answer, but I’ve tried to at least lay out the relevant points and explain the differences (and similarities) between the two men. You can read the whole story here, but what struck me was just how troubled many of the people I spoke to were about the rising deficit. It seems as if that’s erased much of the pro-business moves Harper has done before the recession. It make sense — how can the PM cut taxes and make business friendly policies when he has a mounting debt to pay down — but it’s unlikely he’ll abandon his Conservative convictions all together if he stays in power. He also had to go into a deficit — all the G20 countries committed to spending 2% of their GDP on stimulus initiatives and right now Canada’s deficit is about 3% of the GDP. Does this mean Harper has abandoned his Reformist ideals? Maybe. His old self would likely be shocked at how much his new self is spending on buying car companies and propping up other failing industries.

Anyway, check out the story and please comment if you have anything to add.

You’ll recall that the PM has said, on more than one occasion, that Canada would recover faster than any other developed nation. Well, the report, which came out today, claims that the country’s GDP will contract by 2% in Q3, and will only grow by 0.4% in Q4. That means we’re going to see slower short-term growth than the U.S, Japan, the “euro area”, Germany, France, Italy and the U.K. Oh wait, that’s everyone. (See all of their numbers on page 17 of the report.)

Now, as my fact-filled colleague Phil Froats points out, there’s plenty wrong with how the OECD’s numbers are being interpreted. But, that’s besides the point for the opposition, who will tout this survey as proof that Harper has no idea what he’s talking about.

As I’ve said before, Canada’s economic performance has very little to do with Harper — a stuffed bear could have been in office and the recession would still have come and gone — but when our top politician makes a statement regarding our GDP growth, he better make sure he’s right.

Despite what the OECD says (or what other people are saying about their findings), it’s still too early to know whether or not we’ll come out of this stronger and faster than our G7 cohorts, but, hopefully for Harper, good news will come before it’s too late.

Last Friday, over 100 House Democrats including nine committee chairmen signed on to new draft legislation that would require President Obama to submit a plan to Congress to renegotiate the North American Free Trade Agreement (NAFTA) and other trade deals.

The Trade Reform, Accountability, Development and Employment (TRADE) Act of 2009, tabled on June 26, calls on the president to create a plan that would address, through renegotiations, gaps between existing deals, as well as benchmarks Congress would set on core labour and environmental standards. (”Core labour standards” are defined as minimum wage, hours of work and occupational health and safety standards.) The U.S. trading partner would adopt and maintain these core standards in return for access to the U.S. marketplace. And the bill would require that any existing trade agreements (such as Nafta) be reworked to reflect these principles.

Which, of course, is going to be interesting, given Canadian labour and environmental standards mirror and in some cases exceed U.S. ones.

As with Waxman-Markey, it’s important to stress that it remains doubtful whether this bill will actually get so far as becoming law. Right now, it is draft legislation only. But given the mood in Congress these days, all bets are off. And if TRADE ‘09 does make it into some form of law, it strikes me Canada should seize the opportunity to do a bit of renegotiating of its own, once we have a leader whose idea of a foreign and trade policy involves a bit more than simply following the Americans, as they make 180 degree turns on everything from energy to market access.

A congressional super committee, to be chaired by the House Ways and Means and Senate Finance committees, would formulate the plan. It also calls for a new “fast-track” law that would require Congress to vote in favor of a new trade agreement before the president offers his signature.

According to a report in TheHill.com, primary sponsor Rep. Mike Michaud (D-Maine), described it as “consistent with what the president said he would do before he was elected.”

Oops. Guess this is what happens when politicians use fiery election rhetoric without considering the consequences.

The new trade legislation is similar to a 2008 bill, but that measure attracted only 74 co-sponsors and did not make it out of committee. The rising number of co-sponsors on the legislation reflects both the larger Democratic majority in the House and increasing skepticism about trade amid a global recession.

Among the bill’s less obvious opponents, curiously, is the Washington, D.C.-based National Association of Manufacturers, a manufacturing lobby group.

On Friday June 26, National Association of Manufacturers (NAM) Vice President for International Economic Affairs Frank Vargo issued the following statement:

The anti-trade legislation introduced in the House on Wednesday would subvert our nation’s historic commitment to international commerce and wreak havoc in major parts of our economy at a time when we should be doing everything we can to encourage growth and job creation. The architects of this extremely unwise proposal would do well to remember that the U.S. exports about $80 billion in manufactured goods each month and that millions of American jobs depend on those exports.

We have had time enough to review the impact of free trade agreements, and the verdict is unequivocal: we have a trade surplus in manufactured goods with free trade nations. The sum effect of free trade agreements is to give U.S. exports the same access to foreign markets that their manufacturers have to our domestic market. Approval of the pending free trade agreements would lead directly to more U.S. exports to those countries, and hence more jobs in the U.S. One can reasonably ask why the sponsors of this legislation are opposed to creating jobs in the U.S.

Good question. More to follow…

]]> http://blog.canadianbusiness.com/new-trade-bill-would-require-obama-to-renegotiate-nafta/feed/ 0 http://blog.canadianbusiness.com/iggy-waits-to-bring-down-harper/ http://blog.canadianbusiness.com/iggy-waits-to-bring-down-harper/#comments Mon, 15 Jun 2009 18:14:43 +0000 Bryan Borzykowski http://blog.canadianbusiness.com/?p=2715 If you were wondering when you might have to leave the cottage to come into the city to vote in a federal election, you’re not any closer to finding out. Michael Ignatieff’s big announcement on whether or not he’ll support the government’s economic update turned out to be more of a maybe than a definitive no.

And that was to be expected. Ignatieff has put Harper in a precarious position — he’s demanded that the PM make some changes to the economic update — while also warning the public to expect an election sooner than later, especially if the prime minister doesn’t capitulate to the Liberals’ plans. (He has repeatedly said that he doesn’t want to call an election, so he throws the ball in Harper’s court and can blame it on him when the Liberal leader will, ultimately, send Canadians to the polls.)

The main areas Ignatieff wants changes in won’t be surprising to anyone following his rhetoric since he officially took over as leader of the opposition. He wants significant EI reform, a plan outlining how he country will get out of deficit, more details on infrastructure spending and how Harper will deal with the isotope crisis.

Considering Harper has refused to make meaningful changes to EI, it’ll be interesting to see if he backs down from his previous statements or if he goes to the polls. To me it sounds as if Ignatieff is ready;  he’s just counting down the days until he can make a run a the PM.

I tried to cut out most of the “Liberals are great, Conservatives can go jump off a bridge” rhetoric he was espousing, but not all of it. Still, that doesn’t detract from some of the more significant comments he made, particularly the parts about EI and the other economic issues the party will take on.

I would have liked him to have been more direct about what it would take to trigger an election, and how exactly the Liberals will pull the country out of debt, but that was probably expecting too much.

So, read on. If you have any comments you’d like me to pose to other federal politicians, leave them in the comments.

Michael Ignatieff could have chosen a number of different issues to champion after he became leader — why did he pick employment insurance?

This one has been gaining momentum as an issue in the minds of Canadians over the last several months as the recession has deepened. Especially since this inverse relationship has emerged that the places in the country that have been hit hardest by job losses are places in country where the old formula makes it the hardest to get EI. So as an automatic stabilizer it’s not working because the rules were designed for an entirely different set of circumstances.

As that’s become more obvious people in places like Ontario, B.C. and Alberta are finding themselves unfortunately unemployed and applying for EI only to find out they don’t qualify because rules don’t let them in. It’s an issue Canadians have identified. That’s what we’ve heard from our constituents across the country and Mr. Ignatieff has personally been traveling to every province and has been hearing about this problem in spades. It is an issue where we think we have an obligation as the official opposition to take it on. And that’s what we’re doing.

Ignatieff seems to be saying that if Harper doesn’t make changes to EI in a few weeks, this issue could bring down the government.

We’re not anxious to precipitate an election for political purposes, but we’re not afraid of it either. This is a hallmark of Mr. Ignatieff’s leadership. He’s going to deal with every issue that comes along on its merits. He’ll call it as he sees it. He will not be intimated or threatened or bullied and if the government decides to draw a line in the sand and precipitate a crisis then so be it. Bring it on. In that sense it’s a no fear situation from Mr. Ignatieff’s point of view. He’s not anxious to have a political fight about it. What he’s anxious to have is an economic solution.

He has not been bellicose in what he said. It’s a serious issue. Not just an issue of the social security system, the safety net to catch people when they’re going through rough times, as important as that is. It’s also an economic issue because people without appropriate EI benefits lose their purchasing power and their disposable income. If you’re able to replace that with more appropriate EI rules so that they qualify and they get the benefits that they paid for, that money goes directly back into the economy. In fact, it would be more simulative by adding that disposable income, and adding that purchasing power, than anything else the government has done so far.

Ignatieff wants the number of qualifying hours worked for EI eligibility to be streamlined across the country at 360. Is he firm on that number?

In our consultation we concluded that 360, during the course of a recession, is the right number. If you look at different ranges across the country now, 360 works out to about 45 weeks (of work) there about. At (420 hours worked) it works out to 52 weeks. So there’s not a huge gap between 45 and 52. It’s relatively close. We think while the country is going through this rough patch, 360 would be right number.

What if Harper decided to make some changes, like reducing the eligible hours worked to 420 across the country?

We would have to judge at that time how sincere and effective what he’s proposing would be, but so far he’s proposed nothing.

What will it take to trigger an election?

It’s not totally our prerogative. This is a minority parliament. Just as Mr. Harper can’t have everything all his own way in a minority situation, no other party can either. It would take a collective decision among the three political parties to bring down the government. When you draw that line in the sand it’s always a very delicate judgment call that the leader of the opposition will fundamentally have to make. It’ll be up to the other party leaders to decide whether they’re in the boat or not, that’s up to them. But Mr. Ignatieff will have to make the judgment call that the government has crossed the line, that the government has taken a position that is just untenable, that it’s not in the public interest of the country and on the accumulation of evidence they’ve got to go.

But you’ve supported the government on a number of things that the party has criticized. The budget for example.

The last budget vote was six weeks ago, and there hasn’t been anything since of that order of magnitude. There will be some others in next couple of months and if the house gets that far there will be some others in the fall. It’s a very weighty responsibility of any leader of opposition. For Mr. Duceppe and Mr. Layton, their tactical consideration is largely how do they rearrange the configuration of opposition because that’s as far as they can go. For Mr. Ignatieff, he has no interest in simply shuffling the deck chairs in the opposition. His objective is, obviously, to form a government. That’s what makes his decision making process different from Layton and different from Duceppe. He has to take into account what is the very best result that can be achieved for country.

OK, so what other economic issues is Ignatieff going to bring up?

We would renovate the way government is dealing with infrastructure. For this construction season it’s almost too late. But at the very beginning the government should have taken the advice of the Federation of Canadian Municipalities, which said if you’ve got three to $5 billion extra that you want to invest in infrastructure and that amount is available for this construction season, then send it as a direct transfer to municipalities. They know what streets need to be paved, what water mains need to be replaced, where the bridges need to go. The most efficient way to get shovels in the ground is to empower municipalities to do it. We have the model for that in the gas tax transfer. That’s the most efficient and effective way to do infrastructure projects. So our advice to prime minister would be to give up your project by project application process, which is very political and hasn’t delivered any results yet. Give that up in favour of the transfer and it will get better results.

We also think the government needs to turn its mind on the pension crunch. The severity of that one hasn’t dawned on most Canadians, but as soon as the initial trauma of job loss gets absorbed, I think you will see more and more attention paid by ordinary citizens about their long term personal and family security. Their savings retirement plans, their pensions — the monthly statements for last six months have not been a pretty picture. That’s a real locomotive coming down the track.

Ignatieff said he’d reveal his platform in June. Is he still working towards that?

He told party officials and caucus members who are working on the platform that he wants it to be ready in June. That is not a signal that he’s necessarily going to announce and publish a platform in June. He simply wants all the homework, all the background to be done. So whatever circumstance may come along in the summer or fall he’s ready.

The Liberals have been very vocal about the growing deficit, but what would you have done differently? Nearly every country offering stimulus initiatives has gone into debt, so is it realistic to think Canada should be in a different situation?

The fact there is a deficit now is understandable. What bothers us is this: it’s about 40% bigger than it needs to be compared to the stimulus it is creating. The reason is, Harper’s bad fiscal management before there was a recession put this country into deficit. The country will carry that excess non-recession related deficit through this whole period of time. That Mr. Harper would incur a deficit to fight the recession is explicable. That he would have a deficit 40% bigger than it needs to be compared to the stimulus it is creating is inexplicable.

He’s dug the hole deeper than it needs to be. That leads to the other question: so far there is no game plan for getting out of it. Every other country that’s going through this experience now is at least talking about the way back to some sort of fiscal responsibility. Mr. Harper has not produced a plan yet.

So, what’s your plan then?

That’s going to be part of what we have to put before Canadians at the time of an election. How we will deal with the immediate crisis; how we will deal with the future; how we will make the country entrepreneurial and more productive and sustainable for the long term. We’ll have a very exciting economic plan that will get Canadians revved up about the future. That’s what he’ll be describing in the weeks and months ahead.

Do you have any concrete ideas right now?

I’ll leave it to Mr. Ignatieff to bring the details to the table. I’ve learned from my long experience to never pre-empt the leader.

He sort of pre-empted himself when he made those remarks about raising taxes in order to pay down the deficit.

He never said in those remarks anything about raising taxes during a recession. The Conservatives have so totally distorted that situation. It’s really a very dishonest campaign on their part. They raise that issue every day in the commons and not one single soul reports on it because they know it’s such a nonsensical position for the Conservatives to take. Think back to the last recession we inherited in 1993 and ‘94 that we had to dig our way out of. We did so with virtually no tax changes. We’ll cross those bridges as we come to them.

You see American politicians talking about the economy on a regular basis — both Democrats and Republicans — but you don’t hear much from Canada’s leadership. Now that Ignatieff is the official opposition leader, what will be his role in talking about the economy?

First of all, I don’t think Mr. Harper and Mr. Flaherty really believe in a stimulus budget. I think they’re going through the motions. They can’t stir up the emotion, the excitement, the personal commitment in what they are doing. They don’t believe in what they are doing so you get these erratic behaviors and contradictions between Mr. Flaherty and Mr. Harper. In Obama’s case he clearly believes in his plan and he wants to tell everyone about it. He believes in it, he’s enthusiastic about it, he’s going to make it work and he’s out there as the leading American salesman. Harper has largely been absent so there’s a big vacuum there and that presents a huge opportunity for Mr. Ignatieff to say that these guys don’t believe what they’re doing and they’re botching it up as they go along but we will give you the road map.

But will he actually get out there and talk about the economy?

He’s doing it already. During the last parliamentary break he was all over southwestern Ontario with his message. In the six months he’s been leader he’s been out to B.C. seven times. He’s been into every province. In the first instance listening, as would behoove the leader of opposition to listen, but then more and more as we’ve done on infrastructure and on EI as he started to do at the convention on learning and education, as he’s started to do on the issue of pensions, he’s asking questions and laying out our alternatives. It’s beginning to take shape; the momentum is gathering.

What sort of economic team is he building?

There is a strong team of very able people. He’s given both of his leadership rivals, Bob Rae and Dominic Leblanc very senior responsibilities. He has a very wise and senior economic adviser in John McCallum. He’s harnessed the economic expertise of John McKay — he was my parliamentary secretary when I was minister of finance. I’m there as house leader and actively involved in a whole range of issues including economic ones.

Are there any behind the scenes economic advisers? And who are they?

Their value is in their ability to be completely candid with the leader and with caucus on any issue at any given time. Therefore it is wise to keep their counsel confidential otherwise they become conflicted and stop offering advice. But, there are people who were previously very senior in the government, people who have provincial, municipal and territorial expertise. People from the academic world and people from the business community. Some of them I think will end up being candidates too, so they’ll blow their own cover and publicly take a stand. Their advice is very helpful on tax policy, on economic modeling, the forecasting we have to do and on macro and micro economic effects.

People know that Michael Ignatieff has a lot to say about foreign affairs, but most Canadians don’t have a sense of his economic credentials. What will he do to change that perception?

I think his overall very distinguished reputation for competence and skill will stand him in very good stead, but you will see him become increasingly engaged in economic issues and economic leadership. He has led the effort in the commons on EI. As other issues emerge and the whole program develops, people will see him demonstrate tangibly that he knows exactly what he’s doing and doing it right.

And what exactly are you doing when it comes to developing an economic plan?

As house leader you have the opportunity to do a little bit of everything, because that’s the function of the house. Whatever comes up in the house you do a bit of stick handling. So I have the great privilege of being actively involved in most of the issues. But the house leader’s function, and the leader’s function, is not to interfere with or pre-empt the responsibility of the critics. They do their job and you have input. You’re able to participate, including in the daily strategy meeting the leader holds at 8:30 every morning. At the end of day, this is a team that is gelling well. There’s some WD40 on the threads and it’s all tightening up really nice.

Q) In your book, you say the big monetary ease in 2001-2003 played a role in the formation of the housing bubble. Will the big easing in monetary policy in 2009 lead to another bubble?

A) First, we have to get through a difficult period and produce a recovery in the economy. After that happens, the Federal Reserve will need to rein in liquidity to keep inflation from becoming a problem. Then the risk remains of creating another bubble like the ones seen over the past ten years. This time, though, I don’t see it happening because I believe central bankers have learned from the financial crisis that they need to conduct monetary policy with an eye on more than just wage and price changes. They’ll also be looking at leaning against excessive risk taking and rising asset prices before they get too far out of line.

Q) In your book, you say the Savings and Loan crisis of the late 1980s and the recession of 1990-91 coincided with the beginning of Japan’s descent. Is China’s investment boom and “heady rates of growth” similarly at risk now that they can’t rely as much on exporting to U.S. and other developed countries?

A) China is definitely feeling the pinch. I was in Hong Kong recently and people there were remarking on how the air was so clean these days. It appears that the factories nearby in China had curtailed production substantially. But the drop-off in exports has led to the Chinese authorities launching a huge fiscal stimulus to build infrastructure and keep the economy running. They appear to be in the midst of replacing export-led growth with consumer-driven growth.

Q) If China is replacing export-led growth with domestic-sourced growth, could this mean U.S. interest rates might ratchet upwards since China won’t have as great a need to peg its currency and thus won’t be buying U.S. dollars as much as before and parking them in U.S. treasuries?

A) I see domestic stimulus by China and other emerging countries as a good thing. For thirty years, the U.S bailed out the world economy by easing its fiscal and monetary policies in response to downturns, which stimulated exports from Asia and elsewhere. We can’t do this again because it will worsen already tenuous structural imbalances. Asia and other emerging countries have to engineer their own growth. China’s fiscal stimulus will help the global economy recover in a way that should reduce structural imbalances such as chronic trade deficits and surpluses. China may buy fewer U.S. treasuries but other buyers will emerge – just the mix of owners will change.

His relative silence (he has commented on a few things, such as the Alberta oil sands), is due to a few factors. He doesn’t want to give the Conservatives any fire power as Dion did with his carbon tax plan;  he’s waiting for Harper to make enough mistakes that Canadians will default to the alternative; economic conditions are rapidly changing, so why say anything when it will be out of date in weeks or months?

Another reason he’s keeping quiet, explains lawyer and Liberal insider Rob Silver, is that he’s not required to say anything at all. “His official role is to hold the government to account,” he told me in an interview yesterday. “In an election campaign Canadians have a right to accept a detailed platform from the guy. Typically, he’s not expected to have policies in place before an election.”

It’s a good point, but I’m with the view that Iggy should be a bit more vocal on the economy. He doesn’t have to go so far as to release an alternative budget, like the Republicans did in the U.S., but it would be nice to hear his thoughts on where the Canadian economy is going, what can be done to help it along and what he’ll really do to pay down the deficit. (Beyond maybe raising taxes.)

Still, Silver’s right, there’s pretty much no chance he’ll say anything substantial before an election is called — it’s far too risky — but let’s hope he at least speaks up when we’re getting ready to go to the polls. (And he might stay quiet even then, as you’ll read in my story.)

Link: Ignatieff quiet on economy

Toronto Star — Duncan picks bad time to have a good idea: So when provincial Finance Minister Dwight Duncan said yesterday that transforming Ontario’s old-fashioned PST into a value-added tax would put the province in sync with most of the industrial world, he was correct. The problem, however, is timing. The worst recession since the Depression is not the time to discourage people from spending.

London Free Press — Let’s call this tax exactly what it really is — larceny: So what to call this new tax? Duncan got touchy when one reporter quipped it should be the Sales Harmonization Tax. We all know what THAT would be for short. So, is it the DST – Dwight Stiffs You Tax? The Dunkin’ for your Dollars Tariff, or, simply, the Dwight Duncan Tax? (both would be DDT) How about the Dalton Rip-off?

Toronto Star — Duncan’s budget misses too many opportunities: In some places it was bold, in some places it merely did what it had to do, and in other key areas it fell flat on its face.

Globe and Mail — Trying to crank the sputtering old engine of Canada’s economy: Make no mistake: Taxes are going to go up in Ontario. Precisely when and how cannot be predicted. But when a government adds $50-billion in debt, as the McGuinty government is doing, and runs six consecutive years of deficits, as the government intends, the fiscal piper will demand payments at some point.

“This government, I’m sure, all governments, will consult with various private forecasters as we go through, revise our forecasts, see if we need to revise our plans,” Harper told a reporters in Levis, Quebec.

His comments come the  day after Kevin Page, the country’s independent parliamentary budget officer, said the Canadian economy would crumble a lot quicker than what the government predicted in its budget.

“Recent economic data and the parliamentary budget office’s updated survey of private-sector forecasters suggest a further significant deterioration in the outlook for the Canadian economy relative to budget 2009’s fiscal planning assumptions,” Page revealed to the House of Commons.

Page says the GDP will contract by 15% in Q1 and 4% the next quarter and that the deficit will end up being about $73 billion. The budget predicts the GDP will fall by 1.2% in 2009, while the deficit is pegged at $64 billion.

This is another blow to Harper’s rosier economic outlook and puts him in a politically precarious position. Does he try to stay positive to keep Canadians from getting even more anxious about the economy? Or does he follow the consensus and risk being a downer?

When he says things like this though — “Forecasts are going to change very rapidly in this environment. Our forecasts were based at the time on the best assessments of those who specialize in this business” — it makes me wonder what’s the point of telling Canadians the country will bounce back stronger than everyone else? It’s impossible to know, and whatever he says will be out of date tomorrow anyway, so telling it like it is, I think, would be better than telling people how he wants things to be.

Much of the $108.9 billion budget will go toward infrastructure projects and other economy boosting initiatives.

The government will combine the GST and HST and they’re also cutting corporate income taxes to 10% by 2013, down from the current 14%.

I’ll take a closer look at this tonight and tomorrow (I wasn’t in lock up so I’m sifting through this for the first time), but for now here’s a great recap by The Canadian Press and quicker hit from CBC.

In an article I wrote today, I briefly mentioned that it will be a boon for businesses and potential trouble for consumers who will have to pay extra tax on things like food and diapers. But, it could have a devastating affect on the investment industry.

Yesterday, I spoke to Dean Paley, a senior planning specialist at Edward Jones, who pointed out that management expense ratios (MER), or the fees mutual fund companies charge people to manage their investments, will be taxed at a higher rate, since they aren’t subject to PST right now.

“We did a quick calculation on a retirement account of a person who makes a contribution of $5,000 a year over 25 years,” he told me. “If a fund currently has an MER of 2%, the impact of the HST would lower retirement value by $25,000 over 35 years.”

That’s a big difference, especially these days when investor sentiment is about as precarious as it has ever has been. And it’s not just Ontarians who could be affected by this. Because fund companies are based in Ontario, there’s a chance (it’s not for sure by any means) that people outside of the province will have to pay the higher tax rate if they’re purchasing a fund from any Toronto-based company.

The HST could also impact people who are in the market for a newly constructed home. That extra 8% might make the RRSP home withdrawal plan irrelevant. (The plan lets people who are buying or building a home take out up to $20,000 from their RRSP tax free, as long as they pay it back by a certain amount of time.)

Paley points out that this is only for newly constructed homes prices at $400,000 or above, but it could still hurt the housing market nonetheless.

“Anyone withdrawing from their RRSP under the homebuyers plan would have to withdraw more, and if they didn’t have enough to take out, it could knock them out of home buying market all together,” he explains.

With investors worried and homebuyers being more cautious anyway these days, the HST could spell more trouble from the economy, even though it should help out the manufacturing sector. Let’s hope the government takes some pro-active steps to ease the extra financial burden on not just the average Ontario, but the investing public as well.

That’s because the Manitoba government, which announced its budget yesterday, is hiking cigarette taxes yet again, by a penny per stick, to make sure the province can stay in the black. OK, the cigarette tax isn’t the most significant part of the story — I just wanted my friends in my former hometown to chuckle when they read that lede — what is important though is that Gary Doer’s government is projecting a $48 million surplus in 2009-2010, due in part to that increase in cigarette prices. Not bad considering how many times we’ve heard the word “deficit” from other premiers and politicians over the last few months.

However, just because Manitoba is making money doesn’t meant it’s resting on its laurels. Doer announced that the government will reduce its debt payments to $20 million this year, as opposed to $110 million in 2008.

The NDPers  are also taking $110 million from the province’s rainy-day fund to make sure money for health care and education services stays topped up. (That’s in addition to the $98 million they’ve already taken from the $818 million fund.)

Like other provinces, Doer is increasing infrastructure spending to $1.6 billion — a $625 million increase over 2008 — to keep the economy moving and jobs flowing.

Overall, it’s a relatively safe budget, but one Manitoba should be proud of. It should be noted that while it’s important the province is drawing from its emergency fund and has upped capital investments, it really isn’t feeling the effects of the economic downturn. Unemployment in February was 4.8% (the national average is 7.7%), most houses are selling above asking price and retail sales only dropped a half a percent, compared to 5% across the country. A big reason for the province’s success is that they don’t have a stake in oil and gas or manufacturing industries like Alberta and Ontario, respectively.

Of course,  Manitoba doesn’t grow as quickly during boom times for that same reason (to put it in investing terms, think of the province as a balanced mutual fund, whereas Alberta would be an aggressive equity portfolio), but right now, when beleagured Ontario is about to release its fiscal plans for the years ahead, an even keel economic climate — and a safe budget — is exactly what Canadians in other jurisdicitons wish they could have too.

While the blog will focus mainly on Canadian issues, I’ll discuss relevant American initiatives as well, since most economists agree that this country’s fortunes depend on how the U.S. deals with its economic setbacks.

Look for short posts linking to commentary on other writers’ blogs, quick hits like the “quote of the day” write-ups that I’ve previously posted  and more lengthy opinion pieces. I’ll try to update the blog every day, so keep checking in.

Blogging is a two way street — I write something, you comment. Or, you tell me something and I comment. To make this work, it’s imperative that I hear from readers. I welcome everyone to post their thoughts in the comments part of this blog, but more importantly, if you have a topic you’d like me to cover, or have an insider tip that I should know about, please get in touch at bryan.borzykowski@canadianbusiness.rogers.com.

Thanks and read on…

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Bryan Borzykowski is a senior editor at Canadian Business Online. Previously, he was the investments reporter at Advisor.ca and he’s contributed to a number of other publications including Maclean’s, Chatelaine and the National Post. His blog, Political Points, deals with the relationship between politics, business and the economy.

Since last October, 295,000 jobs have been lost, and some economists predict we’ll see at least 50,000 layoffs per month until the end of the year.

While Harper might want people to think things will turn out fine, when you hear his right hand man, Finance Minister Jim Flaherty, say “we’re going to continue to see job losses. When one looks at the overall figures we’re going to see continuing deterioration for several months at least,” it’s hard to not to worry.

According to Harper’s spokesman (via the Canadian Press), the PM will say that “the global economy is suffering what may be the worst combination of bad news since the 1930s — yet Canada has, in relative terms, been immune from some of the worst aspects of this. And those elements of our economy that are being hit, are being hit to a lesser degree than other countries.”

While it’s true that many financial experts say Canada is better off, it might be tough to explain that to the 129,000 people who were fired from their jobs in January. And, it might be even more challenging for him to convince the residents of Brampton — a city located in southern Ontario, the heart of car country — that they’re going to be OK.

On Friday he pushed back against criticism that the party wasn’t being transparent enough saying the government’s spending needs have to remain flexible and the opposition parties can’t have it both ways.

“There is no excuse for an opposition that has been saying ‘we need to deliver money more quickly’ to now say ‘we need to delay that money’ or say things like ‘we need to have parliamentary sign-off on every individual project,’” Harper told a crowd in Berwick, N.S.

Now the Liberals have accused Harper for calling a “phony war” and creating a fight where there isn’t one.

“I think some of the comments by some of the people out of the Prime Minister’s Office has left the impression either deliberately or inadvertently of some enormous confrontation shaping up here,” said Liberal House Leader Ralph Goodale on Friday. “We’ll cross bridges when we come to them. What I’m saying now is that there’s no need for this phony war. Surely to goodness the opposition wants, Canadians want, and the government wants to deal with the recession effectively and to make sure that all the rules about public spending are properly respected. The two objectives are not in conflict. Let’s find a way to have common sense prevail here.”

Whether you like it or not, expect this back and forth, complete with election threats, to continue as the economy worsens.

]]> http://blog.canadianbusiness.com/harper-pushes-back/feed/ 0 http://blog.canadianbusiness.com/trade-balance-break-down/ http://blog.canadianbusiness.com/trade-balance-break-down/#comments Wed, 11 Feb 2009 16:10:03 +0000 Jeff Sanford http://blog.canadianbusiness.com/?p=596 Economists at CIBC have just released an interesting report on Canada’s trade balance, which plummeted in December to a large $5 billion deficit from a massive $14 billion surplus. This is the worst reading on the national trade balance since 1976.
The take of CIBC economists is that what we’re seeing here is the “uncovering” of the long-term hollowing out of the Canadian manufacturing sector, a trend that high commodity prices had papered over.
When commodity prices were booming, as they were just six months ago, Canada was pulling in all kinds of money on those exports and we racked up all kinds of big trade balance surpluses—even though our manufacturing base, another source of export-generated cash along with commodities—had withered over the last several years. But now that the commodity boom has burst and the water has left the beach so to speak, we see what’s left, a big $5 billion deficit.
Here’s hoping the so-called “creative” service-led economy everyone seems to be talking about comes to be. Of course, a return to economic health and a rise in commodity prices would be the quickest way back to surplus.