As a member of the Conference for Advanced Life Underwriting (CALU), I see politicians and senior government officials regularly now. Our annual conference took place in Ottawa this week (the reason I stayed in a suite for the handicapped). We were addressed (in order) by
- Deputy Opposition Leader Michael Ignatieff
- Governor of the Bank of Canada Mark Carney
- Prime Minister Stephen Harper
- Finance Minister Jim Flaherty
On Monday morning, Ignatieff spoke without prepared notes and answered questions. He talked about the role of the federal government. By reducing taxes, the Conservatives were making the federal government weaker, which makes the provinces stronger. Cutting GST by 2% reduces tax revenue by $65 billion over 5 years, which means less money for infrastructure and other projects.
The Liberals feel that Canada can't survive without a strong federal government. Inertia makes north/south relations with the Americans easy. West/East connections among the provinces take effort. He called Canada an act of imagination. It's easier for Atlantic provinces to send electricity to the US than west to Ontario. Since children are our future, they want more money spent on childcare and teaching young children.
Ignatieff wants the same level of healthcare regardless of province or urban density (city vs rural). Since healthcare costs spiral (consuming 51% of Ontario's budget already), he wants to focus on prevention. This means better food (e.g., better labeling) and more exercise. He was open to partnerships with the private sector.
The Governor of the Bank of Canada spoke over lunch from prepared notes and then took questions. He flew in from a morning meeting with bankers in Toronto.
Canada's growth rate of 3.25% for 15 years is the best in the G7. Commodities have helped. Our jobless rate is the lowest in 33 years. In Alberta, 10% of current residents lived in another province five years ago.
Not all is rosy. Our aging population is growing at the second fastest rate in the G7. Our productivity is too low: 1% less than the US for the last 10 years. Globalization will determine our future.
The Bank of Canada focuses on maintaining a low, stable, predictable rate of inflation. This lowers the cost of capital. The target is 2%. We don't always gauge inflation well. Did you know that food prices dropped 10% last year? We can thank our strong dollar and new "big box" stores.
Two Pieces of Advice
Carney received two pieces of advice 20 years ago
- In banking, it's never too soon to panic.
- If it doesn't make sense, it doesn't make sense. [e.g., stay away if disclosure is poor as it was for Asset-Based Commercial Paper]
- low supplies
- increasing demands, as people in poorer countries start eating more
The Prime Minister spoke in the afternoon from notes and did not take questions. He knew what Ignatieff said and joked that those who felt GST was a "good tax" could continue paying a higher rate. His focus is lower tax, controlled spending and debt reduction ($37 billion paid off during his term). He would rather strengthen individuals through tax relief than strengthen the federal government.
Canada is in the best position in the G7 but we are not an island protected against the US subprime problems. Canada is on track to have the lowest corporate income tax rates in the G7 by 2012 (but Ontario has not been supportive). Money is being spent on infrastructure and education.
Tax-Free Savings Account
Harper called the Tax-Free Savings Account the centerpoint of the 2008 budget, the single most important new savings vehicle since the introduction of RRSPs 50 years ago (see The Original and Overlooked Tax-Free Savings Account). Savings are exempt from taxation forever without penalty. The tax savings give a powerful incentive to create a national pool of investment capital. In contrast, the US has been encouraging debt. Here we are aiming far, aiming high.
On Tuesday morning, Jim Flaherty spoke. His three budgets have all passed. A minority government hasn't had this success since the 1960s. When he first addressed the conference in 2006, he spoke of optimism. In 2008, we're being affected by world events and the US slowdown. We are not an island. Here is our situation:
- strong Canadian dollar
- high energy prices
- aging population
- shortage of skilled workers, especially in Western Canada
Even Flaherty's children ask why reducing public debt matters. His reply? Lower pubic debt reduces interest rates, helps us weather economic slowdowns and reduces intergenerational inequity. Our debt has been reduced by $1,570 per Canadian, which means savings in interest payments of $2 billion in 2009-2010.
Charitable giving has increased since the elimination of capital gains tax on donations of shares. Flaherty felt that Canadians should decide for themselves which charities they want to support.
In Canada, the subprime mortgages are less than 3% of the mortgage market. However, Flaherty felt we need one common securities regulator. We have 13 for a population of 33 million.
Tax-Free Savings Account
Like Harper, Flaherty talked about the significance of the TFSA, which is similar to programs in the UK and US. He reminded us that there are no restrictions on the reasons for savings, no federal clawbacks. Young people benefit the most. Over time, 90% of Canadians will pay no tax on their savings. Already, 20,000 Canadians have used an online calculator to see their tax savings.
In wrapping up, Flaherty said, "I have gone on almost as long as it seems".
Each speaker spoke well and radiated confidence. Last year, Stéphane Dion --- in his only appearance --- did not. I'm looking forward to next year.