Entries from February 2007 ↓

It’s the spending, stupid


The stock market gyrations this week should be a reminder to every investor that markets rise and fall, and generally anticipate future economic trends. Also take a look at what’s happening with residential real estate. New housing starts in the States have plunged. So have sales in Vancouver and Calgary, where just two quarters ago the locals were being told no ceiling existed. The condo market in Toronto is getting soggy enough to attract canoeists.

The reality is the North American economy has topped out – for a variety of reasons – and we should get used to the idea of slower growth, stagnant asset values, lackluster wage gains, moderate inflation and an uncomfortable jump in the ranks of the jobless. Most families will feel this in a cash flow crunch, as costs continue to inch higher, but incomes do not. The national economy will be hugely uneven, with boom times in the oil sands of Alberta and idle factories in the rust belt of southern Ontario. The only real hope across the board is that governments at all levels will do two things: Cut spending and cut taxes.

Lower taxes are a no-brainer for the feds. Ottawa’s persistent over-taxation has resulted in a budget surplus of more than $13 billion once again, so Jim Flaherty has acres of room to drop charges against persons and corporations. And he will. I’ve written here in the past few weeks about what to expect on Monday the 19th, and I’m sticking by it.

Tax cuts are good, but they also have to be smart. So I certainly support chopping the basic income tax rate, but I oppose giving the wealthiest investors a giant capital gains tax holiday. I support income-splitting for families and pension-splitting for seniors. I oppose the unfair assault on income trusts. I support any move to help people save for their retirements and boost our incredibly dangerous zero savings rate.

The more pressing issue is this. It’s the spending, stupid.

Just over a year ago I campaigned by little Tory butt off against Paul Martin, because he had allowed federal spending to rise by over 12% a year, which was more than triple the inflation rate. Shame, I said. Any government that cannot contain its expenditures is leading us into troubles, because the economy will not grow non-stop, forever.

Well, one short year later, and we appear to be at exactly the same juncture. Maybe it was the tax cuts in the last budget. Or the orgy of spending since. Whatever. But things are not going in the right direction. Here’s what I mean:

Federal tax dollars to be spent in 2007-8: $211 billion
– up $11.7 billion, or 6%.
Total federal dollars to be spent in 2007-8: $230 billion
– up $25.6 billion, or 12.5%.

This will be the greatest amount of money ever spent in one year by the federal government. It represents an increase in spending which is four times the rate of inflation, and – as such – it is inflationary. This is the single greatest reason why your mortgage rate might well increase over the next 12 months, and the greatest reason the value of your real estate might not.

This is not a Conservative or a Liberal issue. It is an economic one. I would make the same comments no matter who formed the government and, in fact, I did when Paul Martin was our spend-happy PM. My fear now is that PMSH will try to buy the next election with a torrid combo of new tax cuts and spending initiatives that will shatter existing records.

He’s already let it be known there will be new billions for the environment, billions more for the provinces to fix the fiscal imbalance, billions more for the military, billions more for health and education, billions more in transfers to persons and billions in new tax cuts. This may be cool stuff if your family saves some tax dough and you get better services, but it’s no long term plan. Not when the economy has topped out, and when indicators like financial and real estate markets are flashing yellow.

It might be the curse of being this damn old, but I’ve seen governments try this before. It ended badly. Trust me. I was there.

The divide


It has been called the new political divide – Conservatives representing rural Canada, and Liberals owning the cities. But the fact is, neither of our great parties can realistically hope to form a majority government without seats in both halves of the country.

mptvsmall22.jpgSo, what will it take to win the hearts of minds of more non-urban voters? Well, try high-speed Internet access, for starters, then throw in a lot of new bridges and an income support program for farmers, plus (surprise) lower taxes and politicians who keep their promises.

boshcoff.jpg MPtv travels back to its small-town, humble, agrarian roots in a conversation with northern Ontario MP Ken Boshcoff, who is chair of the Liberal rural caucus.

To view the video, click here.

The vote

mptvsmall21.jpg For those who did not catch it, MPtv has recorded and archived the vote of Tuesday evening, February 27 on the anti-terrorism bill provisions. The House of Commons voted to allow those controversial aspects of the bill to sunset, after a protracted and partisan debate.

To view the video, click here.