China’s Economy Grows, And Its Trade Gap With The U.S. Widens

The theme of Bill Morneau’s fiscal update this week will be “confidence in the Canadian economy.”

It brings to mind Margaret Thatcher’s quote about being in power. “It’s like being a lady; if you have to tell people you are, you aren’t.”

Similarly, the finance minister will reassure Canadians that the economy is strong and the public finances are under control. But that interpretation offers only a partial view of the picture.

The fall update will include measures aimed at closing the tax gap with the United States when it comes to business investment. The message Morneau will try to sell is that the Liberal government understands Canada’s status as an attractive place to invest is under threat, and so he has acted accordingly.

U.S. President Donald Trump cut corporate income taxes and accelerated capital investment deferrals last year. U.S. businesses can now claim 100 per cent of their capital investment right away. Canada has different rates for different sectors — manufacturers can defer taxes on 30-50 per cent of their investment over a period of years.

The fiscal update is likely to lift that rate closer to 75 per cent for all sectors of the economy, in an attempt to prevent companies with the opportunity to invest north or south of the border from choosing the latter option.

The move will be welcomed by the country’s wealth creators, who have felt abandoned by the Trudeau government and its aggressively progressive agenda.

But the measures we are set to see on Wednesday are likely to be too little and too late.

The Liberals argue that dropping corporate income tax by four per cent and matching the U.S. capital cost allowance, as recommended by a consultants’ report for the Business Council of Canada, would cost $70 billion over five years. That option has been kicked into the deep snow by Morneau, a noted skeptic of the ability of low taxes to attract investment.

But nothing is ever one thing; Canada’s competitiveness has relied on a blend of factors — an educated workforce, a tax advantage and guaranteed access to the U.S. market. There are now question marks next to two of those three elements.

On the timing, the government missed an opportunity to take action in the last budget — action it knew it would have to take eventually.

Governments don’t need to be involved in all aspects of people’s lives, as the Liberals seem to believe. But one thing they should do is promote this country as the best place in the world to build businesses and wealth.

That has not been high on the list of priorities for the Trudeau government. Last year was a bumper year for growth, as the economy rebounded from the recession in the resource-producing provinces. Morneau discovered he had a windfall that could have been used to address the competitiveness issue.

Federal Finance Minister Bill Morneau will release the Liberals’ fiscal update on Wednesday. Justin Tang/The Canadian Press

Instead, he sprinkled $6.5 billion across 309 line items, including $400 million in new money to support Liberal re-election efforts in francophone ridings outside Quebec. Apologies, that should, of course, read “to support Canada’s official languages.”

Whatever the government does on Wednesday is going to have a price tag — increasing the tax deferral on capital costs will cost in the billions.

Officials suggest revenues are strong, but it seems inevitable that the deficit this year will be higher than the $18 billion forecast in the last budget.

The Conservatives have labelled this disregard for fiscal responsibility as “the raid on future generations.” They have a point.

The Liberals keep talking about the debt-to-GDP ratio ticking lower, as debt rises but the economy grows even faster.

This is true, even if it’s not falling as fast as was promised (the election platform suggested it would be 29 per cent last year, not the 31 per cent it came in at). But the problem is the government doesn’t control the denominator of economic growth in that calculation — a recession will cause the government’s “fiscal anchor” to take off like a helium balloon.

There’s no doubt there are parts of the economic picture that are robust, not least an unemployment rate that was running at 5.8 per cent in October.

The global economic outlook remains healthy. Yield curves continue to show long-term rates well above short-term rates, suggesting recession is not imminent (an inversion of that situation has happened ahead of every recession since the mid-1960s).

While trade uncertainties remain, they have diminished with the signing of the U.S-Mexico-Canada pact.

But the skies are not as cloudless as the Liberals would have everyone believe. The housing market has softened, with three quarters of contraction, as tighter mortgage rules and higher interest rates have taken effect. The oil industry is seeing prices trundle along at historic lows.

Both of these industries have been key drivers of economic growth in recent years.

There are storm signals.

The Bank of Canada warns that the trade war between the U.S. and China could lead to weaker commodity prices and the re-organization of global supply chains, which could lead to higher prices for manufactured products.

The bank pointed out that Canada’s competitiveness challenges and limited pipeline capacity will constrain exports.

More to the point perhaps, many Canadians don’t feel better off, as wage growth barely outpaces inflation.

Morneau’s theme is likely meant to be reassuring. In reality, it echoes the smugness of Pierre Trudeau’s “The Land is Strong” campaign of 1972, a self-satisfied slogan that almost saw the current prime minister’s father hurled from office only four years after Trudeaumania. Lightning has been known to strike twice.

• Email: jivison@postmedia.com | Twitter: IvisonJ

Source : https://lfpress.com/opinion/john-ivison-morneaus-attempt-to-close-tax-gap-with-u-s-likely-too-little-too-late/wcm/42d0e92b-e970-450c-97d3-51f1e3098054

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China’s Economy Grows, And Its Trade Gap With The U.S. Widens

Source:ECNS

China’s Economy Grows, And Its Trade Gap With The U.S. Widens

China’s Economy Grows, And Its Trade Gap With The U.S. Widens

Source:CNBC

China’s Economy Grows, And Its Trade Gap With The U.S. Widens