The Age of Dryden

YellowBrickRoad

A friend and I were discussing the US Presidential election and he passed me this observation from the Age of Dryden.

I think we”™ve seen this before. In 1681, John Dryden penned the following description of Donald Trump:

“A man so various, that he seemed to be
Not one, but all mankind’s epitome;
Stiff in opinions, always in the wrong,
Was everything by starts, and nothing long;
But, in the course of one revolving moon,
Was chemist, fiddler, statesman, and buffoon.”

[Pt. I line 545-550. – Absalom and Achitophel]

Liberals and the One Percenters

onepercent

Canadians elected a majority Liberal government yesterday. And the first order of business for the new government?

We will give middle class Canadians a tax break, by making taxes more fair.

We will cut the middle income tax bracket to 20.5 percent from 22 percent ”“ a seven percent reduction. Canadians with taxable annual income between $44,700 and $89,401 will see their income tax rate fall. This tax relief is worth up to $670 per person, per year ”“ or $1,340 for a two-income household.

To pay for this tax cut, we will ask the wealthiest one percent of Canadians to give a little more. We will introduce a new tax bracket of 33 percent for individuals earning more than $200,000 each year.

Fairness is a bit of a stretch in terms of taxation policy. The top 1% of income earners paid over 21% of total federal and provincial taxes in 2010 — and their taxes went up since then — and the top 10% paid almost 55% of all taxes in the same year. The bottom 50% of Canadian income earners contributed only 4%.

Just who are Canada’s one percent?

Yes, there are the bank presidents and corporate CEOs. But they are a small minority ”” they are the 0.01 percent, the “plutocrats” of Chrystia Freeland”™s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. So who are the others? There are many 1 percenters in the sectors providing services to business, such as accounting and consulting. There are many from the professions ”” law and medicine. The lawyers will most likely be mid to late career, in large firms. Most judges are in the 1 percent. The doctors will be specialists rather than family practitioners. The 1 percenters are the senior administrators of our hospitals and our universities. They are also the senior civil service and the top people in many quasi-public agencies. And there will be the star anchors and commentators from the major television networks and newspapers. The leaders of big-city museums, opera and ballet companies and symphonies are also 1 percenters. In other words, the 1 percent are the leaders in each of their sectors: the elites of the business, professional, educational, health, government, media and cultural sectors.

Probably the most insightful commentary that I have read about Canada’s one percent was published by George Fallis for the Literary Review of Canada. As George points out in his article, the problem with the one percent is not a tax problem.

Canada and the Greek Crisis

Mykonos

It was one year ago when we toured through Greece. We visited Athens, Mykonos and Rhodes. The picture above is from the Greek island of Mykonos.

Athens certainly showed signs of the financial crisis that is now in the headlines. The Greek islands, not so much.

When a given country’s economy falters, one of the easiest ways for it to adjust is for its currency to decline in value relative to other countries’ currencies. This reduces the country”™s citizens”™ real purchasing power ”” there”™s no getting around the bad news ”” but has the upside of boosting the country”™s exports and tourism.

11 Things About the Greek Crisis

Greece cannot devalue its currency as it uses the Euro.

What about Canada?

Last July, the Canadian dollar was worth 94 cents to the US dollar. Today, the Canadian dollar dropped below 79 cents. Welcome to a significant reduction in real purchasing power in Canada. But at least it will stimulate exports and tourism.

Or will it?

Toronto-Dominion is the latest major bank to declare a recession in Canada.

Our debt levels, though, are not that much of a problem.

While economist Don Drummond noted this week that Ontario”™s debt situation is nowhere near that of deeply troubled Greece, it could eventually happen if steep spending cuts and reforms aren”™t made.

Drummond Report: A reality check on Ontario vs. Greece

Is anyone concerned about Ontario’s debt level?

Standard & Poor’s (S&P) has lowered Ontario’s financial rating to A+ from AA-, citing its heavy debt burden and budgetary “underperformance” compared with peers in other jurisdictions.

In the 2002-03 fiscal year, Ontario posted a budget surplus of $117 million ”“ its fourth consecutive surplus. But in 2015-16, the province will be posting its eighth consecutive deficit. This is despite the fact that government revenues will be 16.6% of GDP in 2015-16, compared to 15.3% in 2002-03.

Ontario”™s net debt, which was at $133 billion in 2002-03, is projected to hit $320 billion by 2017-18. The debt-to-GDP ratio will have increased from 27.1% in 2002-03 to almost 40% in the next fiscal year.

Ontario is lucky its debt interest payments are not substantially higher given its almost doubled debt. That has everything to do with historically low interest rates.

Savers are penalized. Borrowers over extend. And the Bank of Canada devalues the currency and hopes for the best.

And what happens in Toronto? The average house price breaks one million.

Madness.

What Could Go Wrong?

housing

A message from the Bank of Canada:

The Canadian system of housing finance proved to be resilient and efficient during the global financial crisis and its aftermath. The system”™s effectiveness is the result of a rigorous prudential regulatory and supervisory regime coupled with targeted government guarantees of mortgage insurance and securitization products. In the post-crisis period, household debt levels and house prices have risen, owing, in part, to accommodative monetary conditions necessary to support the economic recovery. These vulnerabilities were mitigated by tightening macroprudential policy, specifically mortgage insurance rules, and strengthening mortgage-underwriting standards. Looking ahead, the housing finance framework needs to be adjusted and strengthened by rebalancing the risk exposures away from the government toward the private sector participants in the housing finance market. Although some measures have already been taken for this purpose, more adjustments may be needed to create the right incentives and achieve a sustainable rebalancing in risk exposures. Measures should also be considered to promote a liquid private-label mortgage securitization market in Canada.

The Wall Street Journal translates the Bank of Canada message this way:

Canadian taxpayers have become too exposed to the dangers posed by the country”™s frothy housing market and authorities should get the private sector to take on more of the risk, a senior Canadian central banker said.

The Globe and Mail translates the Bank of Canada message this way:

The Canadian government is now too “exposed” to the country”™s hot housing market, warns a top central bank official who”™s calling for more private-sector involvement.

Garth Turner explains it this way:

Something is seriously out of whack.

A Government We Can Afford

We voted last night. And the electorate of Ontario provided the provincial Liberals with a majority.

I was disappointed with the outcome of the election and my son was concerned with my reaction. I shared with him a few of my thoughts.

A government that we can afford does not look like this:

Ontario Debt

Since 2005, the Ontario government has almost doubled the total debt of the province. And the Liberals proposed a budget which not only raised taxes but also raised the deficit and the total debt of the province.

Neither approach is sustainable.

Hiking taxes on the top income earners of the province really doesn’t accomplish very much. With a budget deficit of roughly $12 billion and total debt of $300 billion, the $300 – 600 million revenue uplift is insignificant and will do little to deal with the financial challenges that face the province.

Increased spending can only be achieved through increased debt. Looking at the basic net-debt to GDP ratios, Ontario’s ability to raise money through debt offerings will become increasingly more expensive particularly if interest rates go up.

OnDebtRatio

When Drummond filed his report back in 2012, he offered these words to the Ontario government:

Ontario faces two serious fiscal challenges. The first is to get out of the current large deficit. This will take many years, but the task does not end there. It goes almost without saying that every effort must be made to bolster future economic growth rates, and much has been done in that regard, such as reinvesting in education and reforming the tax system. But with a looming slowdown in the expansion of the labour force that is almost upon us and with the province”™s weak productivity growth of late, Ontario cannot count on a resumption of its historical strong growth rates. This means that the sharp degree of fiscal restraint needed over the next few years to eliminate the deficit may see a point of some reprieve, but not much. Spending simply cannot return to recent trends.

But perhaps his most telling comment in his report to the government:

Ontario faces more severe economic and fiscal challenges than most Ontarians realize.

The newly elected government will reintroduce the Liberal budget within 20 days. I have no idea how they intend to carry out such a fiscal plan given the reality of Ontario’s financial situation. Here are the highlights of their fiscal plan:

– eliminate the $12.5-billion deficit by 2017-18.

– create a 10-year $2.5 billion Jobs and Prosperity Fund to partner with industries poised for growth. Measures include $10 million for a nine-month paid community work and service program to help graduating high school students, and $5 million in grants for the next two years for new small-scale manufacturers.

– invest $15 billion in transit projects in the Greater Toronto and Hamilton area, including the electrification of GO Transit commuter trains and a downtown Toronto subway relief line.

– invest $14 billion in roads, bridges, highways and other transit projects outside the GTHA, including $1 billion to support the development of the Ring of Fire in northern Ontario, with or without financial help from the Harper government.

– provide up to $230 million to expand access to natural gas in under-served communities, including agricultural communities.

– increase taxes for individuals earning more than $150,000.

– increase the minimum wage to $11 on June 1, 2014, and index it to inflation after that.

– create an Ontario retirement pension plan which could be integrated into a CPP expansion in the future.

– guarantee that every Ontarian has access to a primary care provider.

– continue to reduce health-care wait times, focusing on referrals to specialists.

– fund 20 more hospices.

– continue to expand the scope of practice for nurses and pharmacists.

– provide wage increases to child-care workers outside the public school system.

– continue the 30 per cent off tuition grant for post secondary education.

– promise to build new campuses and create spaces for 15,000 more post secondary students in Ontario.

Fairness

What is fair?

Let’s start here.

A Canadian family earning an average income spends more money each year on taxes than on the basic necessities of life.

Does that seem fair?

Taxes from all levels of government make up the single largest expenditure facing Canadian families.

Does that seem fair?

The total tax bill has grown more rapidly than any other major item in an average family’s annual budget since 1961.

Does that seem fair?

From  Canadians For Tax Fairness:

The mission of Canadians for Tax Fairness is to build a national campaign to promote fair taxation. We support the development and implementation of a tax system, based on ability to pay, to fund the comprehensive, high-quality network of public services and programs required to meet our social, economic and environmental needs in the 21st century. Canadians for Tax Fairness will work together with other groups and individuals who share our goals.

What do they consider fair taxation? You can read their position in a document titled A Budget for the Rest of Us (pdf here) and it outlines what they consider to be fair and progressive taxation:

  • Increase tax rates on top incomes
  • Reverse the race to the bottom with corporate tax cuts
  • Eliminate unfair tax preferences, close tax loopholes and access to tax havens
  • Apply financial activities or transactions taxes
  • Introduce an inheritance tax on large estates
  • Start to introduce smart — and progressive — green taxes

I support many of the points raised in the document. There is a civil responsibility to support our country and to support our communities through taxation and charitable giving. I have no idea what is a “fair” rate, particularly for higher income earners, although the Laffer Curve outlines what might happen if tax rates are pushed too high or too low.

If fair taxation means that taxes become the single largest expenditure facing Canadian families then that does not strike me as fair — regardless of the ability to pay.

When I Get Older

Flaherty pushes back the retirement age to 67.

I remember reading about that in the Conservative Election Platform 2011. Er, at least I think I did. Let me take another look. No, not there. Well, let me download the platform. The full pdf is here. It has to be mentioned there.

No. Nothing.

I do remember the Conservatives sending out something about this issue back in 2004. Let’s see if I can find a copy. Oh yes. Here it is:

June 1, 2004

Paul Martin”™s hidden seniors agenda

OTTAWA ”“ Paul Martin”™s real agenda for seniors is so shocking it took an Access to Information request to force it into the light of day.

Mr. Martin plans to raise the retirement age to 67 for Old Age Security (OAS) and the Canada Pension Plan (CPP). (Department of Finance White Paper, 1995). This means Canadians would have to work two years longer only to receive less from their public pension.

Under Mr. Martin”™s proposal the poorest senior would receive over $24,000 less in OAS than he or she would be entitled to today. And a worker receiving full CPP at age 67 would receive almost $20,000 less than today.

Funny how Mr. Martin failed to be perfectly clear about these facts at today”™s news conference.

For more information, please contact the Conservative Press Office: (613) 364-6040

Okay. Well the Conservatives did not seem to support raising the retirement age back in 2004. And they failed to mention anything about it in their election platform in 2011. But it is 2012. Things have changed. Economic meltdowns. Budget deficits. WE MUST TAKE BOLD STEPS TO SECURE OUR FUTURE. The usual stuff.

Our prime minister provided the full picture to Canadians. Was it from Ottawa? No. It was in Davos, Switzerland. At the World Economic Forum. Didn’t Samuel Huntington have something to say about Davos? Right. The Davos Man:

Davos Man is a neologism which refers to the global elite of wealthy men whose members view themselves as completely international. Davos is an Alpine city in eastern Switzerland which became famous in the 1990s for hosting the World Economic Forum, an annual gathering of international politicians and financiers who represented a transnational elite. It is similar to the term Masters of the Universe attributed to influential financiers on Wall St.

Davos Men supposedly see their identity as a matter of personal choice, not an accident of birth. According to political scientist Samuel P. Huntington, who is credited with inventing the phrase “Davos Man”,[50] they are people who “have little need for national loyalty, view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the élite’s global operations”.

Perfect. A symbolic location to make a pronouncement on the retirement age for Canadians. Probably a nice place to visit too.

From the House Of Commons in February of this year:

Hon. Diane Finley (Minister of Human Resources and Skills Development, CPC):

Mr. Speaker, one thing Canadians deserve is the truth and the truth is exactly what the Prime Minister and I have been saying for some time now.

As it stands, the current OAS system is not sustainable into the future. We do have to make changes so that future generations can still expect to get some OAS. In doing that, we will protect and preserve the benefits that current Canadian retirees are receiving, and those who are near retirement will receive. However, we must take action. It is the responsible thing to do for all Canadians.

Yes. Clearly the current OAS system is not sustainable. Oh, wait. The Parliamentary Budget Officer has a different view. Well, he is not a politician so clearly he does not know what he is talking about. He is lying. I am sure that the truth is whatever Diane Finley said in the House of Commons.

We must take action. It is the responsible thing to do for all Canadians.

So. How will this change impact Canadians?

Michael Wolfson is an expert advisor with EvidenceNetwork.ca and Canada Research Chair in Population Health Modeling/Populomics at the University of Ottawa. He is also former assistant chief statistician at Statistics Canada and former federal advisor on pension policy.

Wolfson says that if the eligibility age was today raised to 66-years-old, the government would net a savings of $3.5 billion (after factoring in a decrease in income and sales tax revenues). But the changes would also cost the provinces $500 million in lost revenue from income and sales taxes.

Many of the nearly 700,000 Canadians age 65 and 66 might have to compensate for the shortfall by working more, withdrawing more from their savings and/or moving in with relatives.

Without taking such measures, the number of Canadians aged 65-66 falling below StatsCan”™s after-tax Low Income Measure (LIM) would more than double from about 50,000 to nearly 120,000, Wolfson estimates. This would also force more seniors into provincial social assistance programs.

As a result, the net benefit to the country of raising the retirement age would essentially be nil…

Public policy at its finest.

Bob Rae Down and Out

Canadian Press is reporting that Stéphane Dion will resign as Liberal leader today. Finally.

And CP is also reporting that Ignatieff is expected to be installed as leader Wednesday by a vote of party MPs and senators. I doubt that Rae is happy with the news.

The Globe and Mail reported today that:

There is nervousness among Ontario Liberals… that Mr. Rae’s tenure as the province’s NDP premier during a difficult economic period would hurt the party now if he became leader.

Over the past couple of weeks there has been a real spike in people accessing this post from two years ago. And a few people posting new comments to that old post. 

There is good reason for people in Ontario to be nervous about Bob Rae.