FOOLS AND THEIR SPIN

Are we out of recession or not?

This is Leatherdale's August column for Canadian Business Journal. Check out the online magazine at www.canadianbusinessjournal.ca

By LINDA LEATHERDALE

August 1, 2009 — Oh, those Fools on the Hill.  And the spin they try to sucker Canadians into believing.

But don't be fooled.  As the Beatles' song goes:

Head in a cloud, the man of a thousand voices talking perfectly loud. But nobody ever hears him .... they can see that he's just a fool.”

Need I remind you?

This country will not go into recession next year and will lead the G7 countries.”  Those are the words of Finance Minister Jim Flaherty.  The date was Oct. 9, 2008. A few days earlier, on Oct. 6, Prime Minister Stephen Harper declared:  “We will not run a deficit.”

But as the world was spinnin' deeper into the darkest economic contraction since the Great Depression, just as I predicted in my “Economic Armageddon” column almost a year earlier — the fools, who daren't utter the R-word, were suddenly trying to dig themselves out.

We may well be in a technical recession,” admitted PM Harper on Nov. 15, 2008.  And on Nov. 23, his financial sidekick, Flaherty,  finally warned dark storm clouds were raining on Canada's economic parade.

Yet, still they stuck to their line of no deficits and the creation of 190,000 new jobs by 2010, as they preached Canada was the one global nation that could withstand a recession.

Now, fast forward to the summer that never was as dark storm clouds rain Canadians' vacation parade:  The promise of no deficits was quickly zapped with Ottawa's coffers $50 billion in the hole, as taxpayers forked out billions to prop up banks and bail out auto giants.  Combined annual deficits are now expected to swell to a whopping $159 billion by 2014. That's a far cry from the $4.2 billion surplus the fools predicted for 2012-2013.

Meanwhile, Canada's economy shed 454,000 positions since Oct. 2009 — pushing the unemployment rate to 8.6%, an 11-year high.

At the same time, the number of Canadians collecting EI (Employment Insurance) benefits jumped an alarming 55.6%, or by 278,300 to almost 800,000.  The biggest jumps were in oil-rich Alberta, up 16.8% and Ontario's hard-hit manufacturing economy, up 16%.

Yet, the fools can't seem to help themselves.  So, here we go again with more spin.

“The recession is over,” declares some of the same political pundits who wouldn't dare utter the “R” word in the first place.

First it was the Bank of Canada officially declaring the recession is essentially over, while predicting our economy will start growing this summer to lead most of the industrialized world next year, after suffering nine months of stagnation.

“We believe the economy will grow this quarter,” said Bank of Canada Governor Mark Carney.  “Things are unfolding a little faster in terms of the recovery in confidence and financial conditions.”

Canada's central bank is predicting annualized growth of 1.3% for this year — while the trendsetting bank rate sits at a record low of 0.25% at least until mid-2010.

A low bank rate makes borrowing dirt cheap, which should stimulate the economy.  But it's a killer for seniors who've fled the stock market and socked money into safe, interest-bearing vehicles — as they fight to keep their pension money from going up in smoke with more and more wind-ups and businesses going under.

The low bank rate may also explain why pockets of Canada's real estate sector are back to red-hot record levels, with June the best month on record for the Toronto Real Estate Board.  Even in Vancouver, where condo projects are going broke before the shovel hits the ground, the market is scoring impressive gains.

Who can resist buying in at bargain basement prices?

Or is it buyers are getting out their chequebooks before the hated GST/PST harmonization hits the real estate market, pushing affordability further out of reach?

Though homes valued under $400,000 will be exempt from the blended tax to hit in Ontario in July 2010, Ontario's Building Industry and Land Development (BILD) Association estimates harmonization will add more than $46,000 to the price of a $580,000 new home in Toronto.

Believe me, in high-priced Toronto, a $580,000 home is no mansion.

Tax harmonization has been vehmently opposed.  In fact, during a heated Ontario Tory leadership race debate, all four candidates, including Flaherty's wife, Christine Elliott, signed a petition demanding leaders back off blending Ontario 8% provincial sales tax with Ottawa's 5% goods and service tax — meaning a host of services never taxed before would now by hit with a 13% whammy.

Spin doctors want you believe this is an evil idea from loonie left provincial leaders, or misguided bunk from corporate pundits that combining two sales tax regimes will ease the administrative nightmare for businesses, even though it hurts the very consumer they count on to buy their goods amd services.

Yet, buried in federal budget numbers is the $4.3 billion Flaherty has earmarked to blend the two taxes, as harmonization began on East Coast a few years ago and is now being pushed coast to coast, with B.C. even contemplating it.  The only province unscathed is Alberta where there is no sales tax.

Bottomline is the last thing over-taxed, overly-indebted Canadians need right now are higher taxes, even though in fairness Flaherty has cut taxes, with Tax Freedom Day now falling in early June.

Which leads to this:  Is this spin, or finally have the fools come to their senses?

Both Flaherty and Harper are now cautioning Canadians not to be overly optimistic that the recession is over, even though the Conference Board of Canada jumped on the bandwagon predicting Ontario's battered economy will grow by 3.1% in 2010, after shrinking by 3% this year. Scotia Economics is also optimistic, predicting Ontario — once Canada's economic engine and now a have-not province — will enjoy 2.2% growth next year.

“I know there are some signs of optimism,” said Harper, but he cautions, “the so-called recovery at this point is extremely fragile.  We're still in the middle of a major global economic crisis, the biggest economic crisis since the Second World War.”

Flaherty is echoing Harper's sentiment.  It's just too early to say the recession is over.

Meanwhile, the latest recession map by Moody's Economy.com has most of the globe drowning in a sea of red, including Canada.

The Economist (www.economist.com), commenting on the Moody's map, reports that all of North America is in recession.  In Europe, only Norway, Slovenia and Slovakia have avoided recession, though Moody's believes these countries are on the brink.  Small export-led economies of Singapore and Hong Kong are shrinking, as are Malaysia and Thailand.  Brazil and Russia are suffering downturns.

South Africa is also in a recession.

The only bright spots appear to be China and India, says The Economist.

That could be a silver lining, except for one thing.

China is heavily subsidizing many industries, including oil, automotive, mining and now the latest fad.  According to media reports, Canada's home-grown granite industry is getting slaughtered by government subsidization and cheap labour in China, even though we're rich in the resource.

Media reports say production costs are so low in China and government assistance so generous, Chinese firms can buy granite from around the world, including Canada, ship it to their country, cut it into finished products and ship it back, and still sell 40% cheaper.

So, here's my spin, and this spin I believe: If we are to come out this mess in our new global trading world,  we need “fair trade.”  Not just free trade.

But that's a whole other column.

 

Linda Leatherdale is one of Canada's most trusted financial columnists, who can be read at lindaleatherdale.com.  She is also Vice-President, Marketing and Business Development in Canada for Cambria, North America's leading manufacturer of natural quartz products.

 

 

 

 
WHAT ARE THEY SMOKING?

Higher taxes last thing Canada needs

This is my July column for online magazine, The Canadian Business Journal.  To check it out, go to canadianbusinessjournal.ca

BY LINDA LEATHERDALE

July 1, 2009 — Oh Canada — we live in a great country. Or as rockabilly icon Rompin Ronnie Hawkins says, Canada is the “promised land.”

In his newest song, Ole Love, to be released soon, the rock 'n roll legend who lit up Toronto's Yonge Street in the 1960s and 70s, pours out his love for Canada, which he made his home after moving from Bill Clinton's Arkansas to find fame and fortune.

It's true, Canadians can pride themselves on living in one of the wealthiest nations in the world, as well as enjoying one of the highest levels of economic freedom.

But, Canada is also home to big governments, big bureaucracies and big oligopolies, all with a big price.

As the slogan goes, “Tax Me, I'm Canadian.”

Advocates of lower taxes and smaller governments claim the more money you leave in consumers pockets, the better the economy.  And hence, governments will net more tax revenue – particularly when all sectors are firing on all cylinders.

But, like every other developed nation, Canada has been hit hard by a global economic tsnaumi, sparked by greed and corruption in the U.S. subprime lending crisis, plus fallout from yet another world energy shock with black gold hitting a record US$147 a barrel last July.

This year, Canada will be lucky to see 0.5% GDP (gross domestic product) growth — the lowest in 60 years, while doomsayers warn it's not the GR (global recession) word we need to fear, but GD (global depression).

So, it boggles the mind that political leaders remain determined to lift more money from the pockets of hardworking families, many who've been hit with a job loss, as pink slips replace pay hikes and Freedom 55 is a boot out the corporate door on your 55th birthday.

Bottom line is we are over-taxed, with an average Canadian family earning $88,432 this year paying out $37,699 in total taxes.  That's a obscene tax rate of 42.6%.  Or put another way, we have to work until June 6 to hand over our pay to foot the tax bill, meaning we're working for the taxman for almost six months of the year, then we get to keep our hard-earned money.

Meanwhile, south of the border, Tax Freedom Day for our largest trading partner, the U.S., falls on April 13, for a total tax rate of 28.2%.

To see just how highly taxed Canadians are, go the Fraser Institute's website, www.fraserinstitute.org to view a video. It may be humourous, but believe it's no laughing matter.

If there is a silver lining it's that Tax Freedom Day now falls on June 6, which makes us better off than a few years ago when it fell on June 21.

Federal finance minister Jim Flaherty, the hard-nosed Tory finance minister from the days of Ontario's Common Sense Revolution who believes in lower taxation, credits his cut in the hated GST (goods and services tax) from 7% to 5%, plus cuts in personal income taxes, the new child tax credit, pension income splitting, seniors' tax savings, his new tax free savings account, plus other tax saving initiatives like the home renovation tax credit.

But while Flaherty speaks of the benefits of lower taxes, he's behind a push for all provinces to follow the lead of the East Coast, and harmonize that hated GST with provincial sales taxes.

Lobby groups, like the Ontario Chamber of Commerce, want us to believe this move will be good for businesses.  Afterall, in 1990 when Brian Mulroney's Conservatives refused to listen to 90% of Canadians who said “no” to a GST or value-added tax — Canada became the only nation in the free world forced to collect, remit and administer two sales tax regimes — one federal, one provincial.

What a nightmare for businesses.

The only province to escape this madness was Alberta, where there is no provincial sales tax.

The architects of the GST tried to convince us this new tax would be good for Canada, since it replaced the hidden manufacturers sales tax.  But, what they didn't want taxpayers to know was how Ottawa quietly hiked the MST to 13.5%, to make it more palatable to usher in the 9% GST which was later reduced to 7% and promoted as a debt-slaying tax.

Voters weren't fooled.  Their anger reduced the Conservatives to a Party of Two when the next election rolled around.

Now, with harmonization, taxes surely will head higher as services never hit by a PST will now be taxed.

In Ontario, for example, where the 5% GST will be harmonized with the 8% PST in July 2010, a host of services like lawyers' fees, will now be slapped with a 13% tax.  The Ontario Real Estate Association estimates the cost of a real estate transaction will jump by $2,000.

Worse, though homes valued under $400,000  will be exempt from the blended tax, Ontario's Building Industry and Land Development (BILD) Association estimates harmonization will add more than $46,000 to the price of a $580,000 new home in Toronto.

Believe me, in high-priced Toronto, $580,000 is an average home, not a mansion.  Add in Toronto Mayor David Miller's new municipal land transfer tax, that's doubles the pain of Ontario's land transfer tax — and it's like nailing the coffin shut on one sector of the economy that seems to be weathering the storm, even though sales and price gains have dropped off.

This spring we've watched the market limping to a recovery.

At a recent Ontario Home Builders Association seminar, experts warned harmonization will kill the golden goose, and force the industry, especially home renovators, into the black market.

Now, here's where it will also hurt — especially in Canada's manufacturing heartland, that's bleeding from job losses in the  auto sector.

The price of gasoline — which is again flirting with record highs, even though oil prices have dropped from US$147 a barrel to the $73 range — will head higher as the GST at the pumps is blended with the PST.  Heating fuels will also rise.

Electricity prices, which have been going through the roof, will no longer be exempt from the PST, making hydro more expensive.

Also no longer exempt will be tobacco, personal services like haircuts, membership fees for clubs and gyms, newspapers and magazine, taxi fares and the professional services of lawyers, architects and accountants.  Real estate commissions will also be taxed.

The only things to remain exempt will be children's clothing and footwear, children's car seats and car booster seats, books, diapers and feminine hygiene products.  Basic groceriess, rent, condo fees, prescription drugs, and medical devices also will remain exempt from both PST and GST.  Buying a resale home will be exempt from PST.

The Ontario Chamber of Commerce estimates a fully blended tax system would cost consumers $905 million in higher taxes, but save companies $1.6 billion a year.

Yet, many business owners remain skeptical.

One remarked on a website, “It is the end consumer that will end up paying more and it is the end consumer who will decide whether they are willing to pay more tax on something that is not a necessary need or want.  In the end businesses may end up losing.”

Canada's economy is often referred to as a resource-rich economy.    The oil patch and Saskatchewan's potash keep money flowing.  But the manufacturing sector and its high-paying jobs are dying, while Ontario, the most populated province and once the country's economic engine, is now a have-not province.

The reality is while Bay Street and Wall Street get bailouts paid for by taxpayer dollars, Main Street's taxpayers are losing jobs and drowning in a sea of household debt, now over $1 trillion.

These consumers account for two-thirds of our economy.

Higher taxes are the last thing Canada needs, especially now.  Revolt anyone?

 

TAX FREEDOM DAYS AROUND THE GLOBE 

India – March 14

Australia — April 22

United States – April 13

Estonia — April 24

Uruguay — May 11

South Africa — May 12

Hungary — May 20

New Zealand — May 21

Spain — May 21

Slovakia — May 22

Bulgari — May 27

Brazil — May 27

Lithuania — May 23

United Kingdom — June 2

Belgium — June 8

Czech Republic — June 11

Crotia — June 13

Canada — June 6

Slovenia — June 17

Poland — June 25

Germany — July 8

France — July 16

Israel — July 15

Sweden — July 29

Norway — July 29

 

Linda Leatherdale is one of Canada's most trusted financial voices, who can be reached at lindaleatherdale.com.  She is also Vice-President of Marketing and Business Development for Cambria Canada. (www.cambriacanada.com)

 

 

 

 

 


 

 
TIME FOR RECESSION BUSTERS

OWNER OF DAM PUB SPEAKS HIS MIND

By LINDA LEATHERDALE

May 29, 2009 — I've said it before, and I'll say it again.  Hurray to Canada's gutsy Recession Busters.

There are many of them.  Entrepreneurs like Ron Foxcroft, founder of the Fox 40 Whistle and owner of Fluke Transport, who forges ahead in these tough economic times, and, like so many others, shakes his head over bailouts with our hard-earned tax dollars for big Bay Street players, while Main Street (where the real jobs are created) is left to survive on its own. Foxcroft has an exclusive club, called the Eagles.  I am proud to say I am one of his Eagles.  So is outspoken radio talk show host Roy Green, whose hard-hitting commentaries can be heard on the Corus Radio network on the weekends.

Well, I say it's time to also induct Gord, owner of the Dam Pub, in Thornbury, where I spoke last fall.  Gord is a fiesty entrepreneur who writes on his website, www.thornburypatriot.com, about how Main Street will lead us out of this mess and small town and cities are doing it.

On his website, I've added this comment:

"Hurray for Canada's Recession Busters.  And hurray for Gord, owner of the Dam Pub, who is one of them.  Always able to dig through the hype to give us "common sense", this entrepreneur rightly claims it will be Main Street (who's suffering the big tax squeeze from idiot politicians while Bay Street gets bailouts with our tax dollars) that will lead us out of this mess.

It's the entrepreneurial drive in our gutsy business owners that made this country a wonderful place to work and live.  They are our biggest job creators - a tough feat considering too many layers of governments have their hands in these entrepreneurs' pockets, who are also smothered to death by a mountain of bureaucratic red tape.

Gord is right that our small towns and cities will rally to the cry.  But as I write in my editorial for Canadian Business Journal, there are still many dragons to be slayed.  A greedy oil cartel, a greedy banking oligopoly, and greedy traders who manipulate prices and destroy capitalist dreams.

David took on Goliath and won.  Main Street can take on Big Government and Big Monopolies and win.  So, bring on the dragons."

And speaking of Recession Busters, hurray for Cambria (www.cambriausa.com) a U.S.-based firm that manufacturers Canadian quartz into upscale natural quartz surfaces and who's investing big-time in Canada.  Cambria CEO Marty Davis also doesn't believe in government handouts, and he's forging ahead to build a empire.  I'm glad to be part of his team.

So is Rompin Ronnie Hawkins, the rock legend from Arkansas and friend of Bill Clinton, who made Canada his home and made dreams come true for so many.

Here's to the Hawk, the Eagles and all the Recession Busters out there.

 

 

 
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