Canada economy 2017 (Part 2) – 2018

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See Canada economy 2016-17

BDC: 2018 economic outlook: Global growth brings good news for Canadian entrepreneurs
Economies everywhere are having a banner year, and there’s more to come

3 December
Alberta oil cuts will slow Canadian growth next year, banks say
By Greg Quinn Bloomberg
(TorStar) Alberta’s decision to order oil production cuts will weigh on Canada’s economy next year, according to some of the country’s biggest lenders.
Alberta Premier Rachel Notley said Sunday night oil producers will need to cut output by 325,000 barrels a day, or 8.7 per cent, starting in January. The discount on Western Canadian Select to U.S. benchmark prices widened to $50 a barrel in October, which Notley says is costing Canada billions of dollars in lost revenue. Oil cutbacks add to strains such as slowing consumer spending and the scheduled shutdown of a General Motors Co. plant east of Toronto ahead of the central bank’s next rate decision Wednesday.

27 November
GM’s Oshawa Shutdown: What Will It Cost Canada’s Economy?
Oshawa and surrounding areas are about to lose $300 million a year in pay, but the impact on the rest of Canada won’t be catastrophic.

21 November
Liberals deliver tax breaks for businesses in response to Trump’s rate cuts
(Globe & Mail) The Liberal government has delivered billions of dollars in tax breaks for businesses in an economic update that gives priority to incentives for new corporate investment over shrinking the federal deficit.
Finance Minister Bill Morneau said Ottawa needed to address the real concern that tax cuts enacted this year under U.S. President Donald Trump could shift profits and investment south of the border.
Wednesday’s fall economic statement revealed Ottawa now expects billions more in revenue over the next five years than it was counting on at the time of the February budget thanks to stronger economic growth. But the new tax breaks for businesses, and spending announced since the budget, mean future deficits will be slightly larger.
Fall Economic Statement Unveils 3 New Tax Credits To Save Canadian Journalism Industry
The measures will cost an estimated $595 million over the next five years.

Canada – Economic forecast summary (OECD November 2018)
READ full country note (PDF)
Growth is on course to moderate to slightly below 2% by 2020, with consumption slowing in response to smaller increases in housing wealth, and employment and exports moderating as US growth declines. Unemployment is projected to remain near record lows and inflation to edge up to slightly over 2%. The Bank of Canada is projected to continue withdrawing monetary stimulus to stabilise inflation around the mid-point of its 1-3% medium-term target band. While fiscal policy is projected to remain neutral, reducing the structural budget deficit would ease the burden on monetary policy and create more room to support the economy in the event of an unexpected downturn. Macro-prudential policies have been tightened and housing markets are stabilising. The government should monitor the effects of recent tightening, especially the prevalence of highly indebted borrowers, and act if it does not decline significantly.

14 June
Canadian economy headed for solid, albeit slower 2018 – RBC Economics
Canada’s economy started 2018 on a soft footing and growth will likely pickup modestly in the quarters ahead: RBC expects GDP to grow 2.0 per cent in 2018
Recent U.S. tariffs have relatively small impact on Canada: Steel and aluminum production account for just 0.5 per cent of Canadian GDP and jobs
Provincial economic growth slowing: All 10 provinces are expected to see their economic growth rate slow compared with last year

1 March
Philip Cross: Statscan’s latest report shows how badly our governments demolished business investment
Investment has fallen steadily since 2014, with a total decline of almost 18 per cent, making it one of the weakest in the G7
(FP) There is no clearer sign that Canada’s long-term economic prospects are diminishing than yet another drop in business-investment intentions. But that’s exactly the dismal news delivered by (FP) Statistics Canada’s annual survey, released Wednesday. The steady erosion of business investment in the country, even as it strengthens in the U.S., offers a blanket condemnation of our federal and provincial policy trajectories.
Investment in Canada has fallen steadily since 2014, with a total decline of almost 18 per cent. Once the strongest in the G7, it has been the weakest over the past four years. This latest decline will surprise the Bank of Canada, whose own most-recent survey revealed “broad-based positive investment intentions” returning investment “back to near post-recession highs.” Why are the two reports so different? The Bank of Canada’s covers 100 firms; Statcan’s includes about 25,000.

27 February
Federal government to scrap Phoenix pay system, invest in better customer service at CRA
(Global News) In the 2018 federal budget, the government announced that it intended to “eventually move away from Phoenix” and explore the “next generation” of the federal government’s pay system. This won’t happen anytime soon though. The budget allocates $16 million over the next two years to researching a new pay system.
Not only that, the government is also planning to invest $431.4 million over six years to try to fix the existing Phoenix system.
Added to the hundreds of millions the government has already invested in fixing Phoenix, that puts the total bill at roughly $900 million – on a system that will ultimately be dumped.
READ MORE: Federal Budget 2018: Some (lesser-known) highlights, from Pharmacare to service dogs

2017

1 December
Power puzzle
The Desmarais family’s Power Corp. empire has been treading water since the financial crisis. Now, as a third generation gets ready to take the reins, investors are losing patience. Can one of Canada’s most influential families return the country’s biggest conglomerate to its former glory?
(Globe & Mail RoB) The game plan is based on embracing new technology, returning to the bold dealmaking that was Paul Sr.’s legacy and doubling down on the Desmarais way of doing business – using relationships to unearth investment opportunities.
But the world has changed a lot since 1996. Technology and consumer tastes are shifting rapidly, and the financial services sector is facing its equivalent of a Netflix moment. Most of the great Canadian business dynasties that have thrived for the long term have done so by adapting to changing times and circumstances. The Thomsons switched to specialized publishing and information services and sold virtually all of their newspapers (though they still own The Globe and Mail); the Westons did a massive overhaul of the Loblaw chain and expanded into drugstores; the Rogers family shifted focus from media to cable television to wireless.

23-24 November
Andrew Coyne: Bewitched and bewildered by the Liberals’ National Housing Strategy
It may be part of the role of government to build social housing. But is it the role of the federal government, specifically?
It’s a national housing strategy. It’s a national strategy, for housing. It’s a housing strategy, only it’s national. It’s a strategy for national housing…
That gives you the flavour of much of the coverage of the Trudeau government’s new National Housing Strategy. Had it simply been billed as a plan to spend more money on housing it might not have excited quite such admiring notice. But somehow those two words — “national” and “strategy” — seem to have a peculiarly bewitching effect. It is enough to recommend it that it is, or is called, a national strategy. What’s actually in the strategy? Who cares!


(Globe & Mail) The Trudeau government’s announcement of a $40-billion housing strategy sets off negotiations with provinces to determine where the funding will end up – and how much provincial governments will need to chip in. Prime Minister Justin Trudeau heralded the plan as a chance to have a “lasting impact” on the national housing picture, with programs such as a $4-billion housing benefit for low-income renters. But the 10-year program assumes provinces will be willing to match federal spending plans in some areas, and key elements, including the renters’ housing benefit, won’t begin until 2020. Several premiers quickly praised the announcement but stopped short of saying what their governments are prepared to contribute. In British Columbia,  where a tight real estate market has pushed the housing market into crisis, politicians and advocates say the federal announcement was simply too vague to determine who will benefit.
‘Absolutely historic’: Federal government launches ‘human rights-based’ housing strategy
(The Current CBC)The federal government has unveiled its new national housing strategy, eliciting strong reactions across the political spectrum.
The 10-year plan includes the introduction of a housing benefit for families and the building of 100,000 new affordable housing units.
This move to address the housing challenges of low-income Canadians is long-awaited with 1.7 million Canadians currently unable to find affordable housing.

Jack Mintz: Heads up, Canada! America’s about to trounce us on tax reform
U.S. taxes on new investment will fall from the third to the 14th-highest rate, better than Canada
(Financial Post) It’s now very possible that the U.S. will accomplish a better tax structure that reduces distortions, minimizes complexity and is fair. Since tax reform is political, the plan is inevitably a mixed bag, but overall, the reform would be a major success.
On the plus side, both the House and Senate bills differ little in creating a more competitive and neutral business tax system. Both reduce the federal corporate rate to 20 per cent (only the start date differs, with the Senate implementing it a year later, in 2019) and reduce taxes in a less straightforward way for other businesses. Both introduce a new limitation on interest deduction that will discourage excessive corporate leverage. Both will expense rather than depreciate machinery investments for five years (which favours one type of investment over another, contrary to the goal of minimizing distortions). As a major reform, both will enable U.S. companies to repatriate dividends from foreign affiliates without paying U.S. tax, a system used by all advanced countries including Canada today.

17 November
Andrew Coyne: Economy is hot, but Liberals not? Maybe voters have realized limits of PM’s powers
Whatever might be claimed to the contrary, beyond not stepping all over it, there is not much governments can do to make the economy grow faster.
It is in the long run that government matters — matters, not in the pull-a-lever-on-the-wall, hey-presto-a-recovery sense that politicians pretend, but in the compounding over time of small annual improvements in national productivity, the sum of a hundred little changes in policy. These are not the sort of big-ticket measures — Thirty! Billion! Dollar! Deficits! — so spectacularly deployed at the aggregate or macroeconomic level. They are rather the stuff of microeconomics: changes in tax rates, in trade and regulatory policy, that are concerned with how markets work, or could be made to work better.
Again, these are mostly in the nature of tearing away the accumulated underbrush of past, ill-considered policies. But they are of far greater impact in the long run. Alas, as the long run is typically taken to mean “after the next election,” these tend to be little discussed. I recall seeing it once put this way: Economists know the most and are in most agreement about microeconomics — for example, on the benefits of free trade, or the evils of rent controls — matters on which they are routinely ignored. By contrast, they know the least and are least in agreement on matters of macroeconomics — on which they are treated like seers.

9 November
‘From ebullient to dreadful’: That’s the economic sentiment, not the reality
(Globe & Mail) Economic growth is certainly slowing – it would have been damn near impossible to match the second quarter’s annual pace of 4.5 per cent – but we haven’t suddenly gone “from boom to bust.” …
yes, there’s a lot out there to fret about, including what’s expected to be a consumer pullback, but, like BMO, Bank of Nova Scotia sees some bright spots, as well.
Just look at record auto sales, for one thing, said Scotiabank deputy chief economist Brett House and senior economist Adrienne Warren.
“Service-sector activity remains brisk, with notable gains in wholesale and retail trade, transportation and warehousing, and financial and professional services,” they added.
“Business earnings and capital goods investment are advancing at the fastest pace since 2011. Exports have weakened in recent months, due in part to temporary production shutdowns in a number of sectors, but are expected to rebound later in the year given strengthening global industrial activity. Infrastructure spending remains supportive of growth.”

22 October
All in the name of saving some $$ – very sad
A piece of Canadian history, for sale to the highest bidder
An auction for the Canadian Coast Guard Ship Matthew closes Friday with a minimum bid of $1M
(National Post) Canada is selling its last inshore coastal surveyor ship … Its loss also “decimates” a crucial maritime capability, to map the sea floor off Canada’s coastline, according to people who sailed on the CCGS Matthew over its quarter century of service.
“It’s absolutely appalling,” said Michael Lamplugh, a retired hydrographer with Canadian Hydrographic Service, who led the team on the Matthew for ten years until 2012. Just the sonar on board is worth more than Canada is asking, he said. And with no replacement, Canada risks not only domestic maritime safety, such as for cruise ships in the Northwest Passage, but also its geopolitical credibility in disputes over sovereignty in the Arctic Ocean.

21 October
A finance minister under siege: What’s next for Bill Morneau?

19 October
Morneau’s latest ‘step back’ on tax proposals seeks to ease concerns from family farms, fishers
Finance Minister Bill Morneau climbs down on tax changes that triggered backlash from farmers, fishers
Morneau said the government is abandoning the proposed tax reform that would have restricted the conversion of income into capital gains.
“We’re going to take a step back and reconsider that aspect of our tax proposal,” he said.
The proposal would have made it more difficult for farmers and other business owners to pass on their businesses to their children.
Liberals continue tax change tour
Proposed reforms had raised fears they could add significant costs for some business owners who hope to keep certain types of businesses — like farms — in the family. Morneau has already said he has listened to the worries and that technical fixes were likely on the way to address the issue.

10 October
What ARE the Liberals thinking of?
CRA under fire for new rule to tax employee discounts
The Liberal government has ordered the Canada Revenue Agency to back away from its plan to tax employee discounts, following strong objections from the business community.
The office of National Revenue Minister Diane Lebouthillier said it has heard “loud and clear” from Canada’s retail advocates who warned that the most recent CRA guidelines would create an unworkable burden for employees and employers.
The latest tax controversy involving the federal government came after the CRA recently updated its written interpretation of existing tax laws by stating that employee discounts should “generally” be reported as income, meaning they should be treated as a taxable benefit.
[Rachel De Grâce, manager of advocacy and legislative content with the Canadian Payroll Association] said employee discounts are sometimes included as part of collective bargaining agreements, raising questions as to how the CRA expected that it could change its policy as of Jan. 1, 2018. She also questioned how the CRA would enforce whether or not employee discounts are treated as income. She also questioned how the CRA would enforce whether or not employee discounts are treated as income.

28 September
Elizabeth May: Simplify the tax system and target the right people
(Ottawa Citizen) I am coming to the conclusion that the Liberals’ tax changes may not be directed at all the individuals and companies who are now panicking. In an attempt to capitalize on this issue, some parties are pressing the panic button hard.
It is clear the Liberals are themselves panicked about heading into the 2019 election with a deficit that could be as high as $30 billion. Reducing the deficit matters.
We need to balance the budget, but at the same time, we must increase spending. Too many areas of critical public investment have been ignored for too long. We must restore habitat protection to our fisheries; rehire federal scientists; re-open offices for veterans’ services; improve health and education, housing and water infrastructure in Indigenous communities; and address the soaring infrastructure deficit. None of this is cheap and no one wants to acknowledge the reality that the Stephen Harper administration cut taxes too deeply while increasing the federal debt.
In short, federal taxation rates are too low.

26 September
Bank of Canada walks fine line between rate hikes and high-flying loonie
The Canadian dollar is up 9% this year, threatening to put the brakes on the country’s economy just as it gains momentum
(Financial Post) While talking down the currency risks upsetting the bank’s G20 peers, rapid appreciation of the loonie could put the brakes on the country’s economy just as it gains momentum.
The currency has risen 9 per cent against the greenback this year. It jumped 2.5 cents after an unexpected Sept. 6 rate hike and bank statement that said the loonie’s appreciation reflected economic strength.

25 September
The problem with Trudeau’s high road
Paul Wells: The Liberals can’t seem to resist claiming moral superiority. But on their tax reforms, it’s not totally clear what side they’re on.

22 September
Inside the Liberals’ controversial tax changes: What’s proposed, why they’re doing it and what comes next
(Globe & Mail) Well-organized campaigns led by business and professional organizations are urging the government to back down. Other voices, including prominent academic economists and labour leaders, say the government’s proposals are on the right track.
The changes, which were announced on July 18, are highly complex. Consultations are scheduled to close on Oct. 2.
Proposal one: ‘Income sprinkling
What it is: Business owners can distribute income to family members (such as a spouse or adult children), whether or not they directly contribute to the running of the business. If the business owner, which can be a professional, is in a high personal-income tax bracket and the family member is in a lower bracket, the overall amount of tax paid by the family is lower than if all the income was reported by the professional.
What the government would change: Currently, tax rules discourage the paying of dividends to children under the age of 18 for the purpose of lowering the tax burden. This provision is known in accounting circles as the “kiddie tax.” The new rules would extend this to older children and other family members. The Canada Revenue Agency would apply a “reasonability” test to see if family members were contributing to the business. Otherwise, the family members could face a higher tax bill.
Business response: Small businesses that pay dividends to family members or trusts say that the policy recognizes the informal contributions that family members often make to a business. They also say that the new reasonability test means more work for the businesses – red tape – to show they are complying with regulations. More than half of doctors – who work as private contractors and bill the government for the work they do – use this corporate setup, according to the Canadian Medical Association. As The Globe’s Campbell Clark reported, past governments have promised doctors lower tax burdens through mechanisms such as income sprinkling as a way to compensate for not paying as much directly.

21 September
Canadian economy to outpace Eurozone, U.S. in 2017: report
(Business Vancouver) Canada can expect to see total economic growth of 3.1% in 2017, according to a Conference Board of Canada report released September 21, which is higher than the growth expected in the Eurozone (2%) and the United States (2.2%).
We can’t expect this pace to continue into next year, however, according to the report, and growth next year is expected to slow to 2%.
“Canada’s economy continues to perform well above potential and is on track to outperform most other developed economies by a sizable margin,” said Conference Board director Matthew Stewart.
“However, the recent pace of expansion is unsustainable, and economic growth will slow over the second half of this year and into 2018.”
The economy is being buoyed by consumer spending – the result of a strong labour market – but the cost of servicing debt is on the rise, and this will be a drag on spending over the second half of 2017.
Employment is set to increase 1.5% over the year, which is the strongest increase since before the 2008 financial crisis. Wage growth, however, has been “anemic,” according to the report, with a total increase of 1.4% expected this year.

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