Tax Cuts Take Money Out of the Economy, CCPA Study says
(OTTAWA)
The Conservatives' proposed three-point reduction in corporate tax rates would cost the public purse $6 billion per year, yet only stimulate about $600 million of new business investment annually, says a April 13 study by the Canadian Centre for Policy Alternatives (CCPA)
.
The study, by CAW economist Jim Stanford, examines historical data on business investment and cash flow from 1961 through 2010. The study shows that business fixed capital spending has declined notably as a share of GDP and as a share of corporate cash flow since the early 1980s, despite repeated tax cuts that have reduced the combined federal-provincial corporate tax rate from 50 percent to just 29.5 percent in 2010. The study finds no evidence in the historical data that lower taxes have directly stimulated more investment. What's worse is that the indirect impact of tax cuts on investment (experienced through corporate cash flow)
has become much weaker over time.
"After adjusting for other determinants of investment spending, incremental cash flow has elicited only small amounts of business investment in recent years: about 10 cents in new investment for each dollar in extra cash flow," says Stanford. "Given this statistical evidence, the federal government would have a far more powerful impact on both public and private investment by investing directly in public infrastructure, rather than providing additional tax reductions for businesses."
If the federal government spent $6 billion on public infrastructure instead of corporate tax cuts, the total increase in investment would be more than ten times as great as the increase in private investment from tax cuts alone. This includes the new public investment itself ($6 billion)
, as well as an additional $520 million in private business investment that would be stimulated through the positive spin-off effects of the resulting economic growth.
According to the study, Canadian corporations have received $745 billion in excess, uninvested after-tax cash flow since 2001: cash flow that was not reinvested in real capital projects in Canada. This excess corporate saving reduces expenditure and purchasing power in the Canadian economy. A lack of business investment spending was the major source of Canada's recent downturn, and the sluggish rebound in business spending is a key reason why Canada's recovery from the recession has been uncertain, sluggish, and incomplete.
Having Their Cake and Eating It: Business Profits, Taxes, and Investment in Canada is available on the CCPA website: http://policyalternatives.ca
Survey: Over Half of Canadians Say they are Better Off Today
(TORONTO)
When it comes to what determines their financial outlook, a new study reveals the vast majority of Canadians put their eggs in one basket: real estate.
According to Bensimon Byrne's latest Consumerology Report, Canadians are still coping with the effects of the recession yet are feeling optimistic about their personal finances. When asked about their personal financial situation now compared to pre-recession 49 per cent report their living expenses have increased, only 31 per cent are earning more money, and only 22 per cent report say their investments have increased. Despite these figures, more than half (58 per cent)
say their personal finances are better today than they were before the recession and the vast majority (81 per cent)
indicate they expect to be doing even better one year from now.
The findings point to an obvious question: what's driving this post-recession optimism? And the answer appears to be the Canadian housing market; with the majority of Canadians (58 per cent)
saying their house or condo is worth more than pre-recession.
"This study shows that people are still feeling the effects of the recession hangover but their outlook is improving because of the rising value of their homes," said Jack Bensimon, President of the Toronto-based advertising agency. "Ultimately, the results show that people's confidence is highly reliant on a strong housing market. Most Canadians continue to feel the cost-of-living pinch and have not seen improvements in their incomes, job security or growth in their investments, and yet, because of the increase in the value of their home, their perception of their own net worth is improved."
Each quarter, the Consumerology Report tracks consumer opinions about the economy, individual financial expectations, consumer spending intentions, and attitudes toward key national issues. Commissioned by the Toronto-based advertising agency Bensimon Byrne and fielded by The Gandalf Group, the purpose of this edition was to understand the consumer financial situation, post-recession attitudes and behaviours, and consumer economic outlook.
Beyond the overall optimism Canadians are feeling about the economy, the report also revealed Canadians are feeling the financial squeeze from rising grocery and gas prices, along with increased taxes and utility costs. Canadians are also focused on reducing their debt and building a savings safety net - a reality that will cause many consumers to cut back on discretionary expenditures, especially those related to entertainment.
The report also finds that even so-called essentials are not 'recession proof'. During the recession, even items like groceries and gas experienced a decline. The categories hit hardest were vacations, clothes, eating out, and fitness. Now, these areas are starting to rebound but bars and live sporting events are still victims of the recession with people reluctant to open their wallets for those activities.
"Clearly, as the economy recovers the culture of thrift and frugality is persisting in select areas," concluded Bensimon.
Additional Survey Highlights
More than half of Canadians are doing better today than they were doing a year ago and better than they were pre-recession.
More than half (59 per cent)
say the Canadian economy is in a period of growth.
More than three quarters (77 per cent)
of Canadians think a year from now the economy will be stronger.
When looking at financial factors in their life, people feel most positive about the value of their home (73 per cent)
and least positive about their retirement income (35 per cent)
.
The cost of healthcare/medications, mortgage/rent, and cable/satellite TV are household budget pressures for a clear majority of Canadians.
Lower income Canadians are particularly stressed by two essentials - food costs and medical/prescription drug costs.
About the Survey
The Consumerology Report is a quarterly survey commissioned by Toronto-based advertising agency Bensimon Byrne. This quarter's survey was conducted in English and French by The Gandalf Group amongst 1,500 Canadians. The questionnaire was conducted in French and English over the period of March 24-29, 2011. Previous editions of the Consumerology Report have covered a variety of topics including: The Impact of Macro-economic Trends; The Impact of Environmental Issues; New Canadians, New Consumers; Corporate Social Responsibility; Retirement; and Economic Trends and Consumer Behaviour. All reports can be found at www.consumerology.ca.
Twelve Timely Tips for Tackling Your Taxes
(TORONTO)
With the hours ticking down to this year's tax deadline, Ernst & Young suggests asking yourself the following key questions. Some will save you time, some will save your nerves and — best of all — some may even save you money.
1. What are you carrying in your back pocket? From unused RRSP contributions to interest on student loans, you may have carry-forward balances to use as deductions or credits for 2010. Check your prior year return, notice of assessment or online Canada Revenue Agency account to find out.
2. Do you care to share? If you received eligible pension income in 2010, up to 50% can be reported in your spouse's or common-law partner's tax return. You'll generally reap the greatest benefits when one member of the couple earns significant pension income while the other has little or no income. But evaluate all options, as there are sometimes exceptions to that rule (often when the "clawback" of old age security is involved)
.
3. How are you helping the community? If you made charitable donations last year, read up on the federal tax credit. This will help you decide if you should accumulate donations made over a few years to claim at once for the higher-rate credit. Don't forget: if you've donated mutual funds, stocks or bonds, additional tax benefits may apply.
4. What's the best medicine? You should claim all the family's medical expenses on the lower-income spouse's return. Don't forget, you may also be able to claim dependent relatives' expenses. Just ensure the individual who is making the claim has sufficient tax to absorb the entire credit.
5. Are you giving yourself enough credit? Be it child fitness, public transit, tuition or adoption expenses — a range of family-related tax credits exist. Do your research and make sure you're taking advantage of everything available to you.
6. Who's the boss? Self-employed Canadians can claim a host of business-related expenses, including association fees, home-office expenses, salaries paid, car and parking costs and more. Review the list so you don't miss out. Don't forget: if you claim home-office expenses, you're likely better off not to claim the depreciation on the home-office portion of your house. Although this will give you a deduction in the current year, you will lose some of the capital gains protection available from the principal-residence exemption.
7. Could what's old be new again? Don't toss those old receipts in the shredder just yet. Some may still have value on your 2010 return — especially receipts for medical expenses and charitable donations. Even if you discover a claim that could only be made in a previous year, you can file a T1 Adjustment Request. You can go back as far as 10 years to claim previously overlooked refunds — including this year, if you've already filed for 2010 but overlooked something.
8. Time to make a move? Anyone who moved to start a new job, business or post-secondary education in 2010 might be able to claim certain expenses. Take a look back at the costs — from lodging and meals in transit, to the price of your moving company — and find out what applies.
9. What makes a house a home? If you bought a house in 2010, you could qualify for a credit if neither you nor your spouse owned a residence from January 2, 2006, to the date of purchase of your new home. Anyone who bought a house to better meet the needs of a family member with a disability might also be eligible, regardless of home ownership history.
10. Are you forgetting someone? If your children earn money from small or part-time jobs, filing a tax return establishes room for future RRSP contributions. Filing returns for teenagers can also mean a refundable tax or GST credit, and the ability to make immediate or later tax-free savings account contributions. University students should always file tax returns and report eligible tuition, education and textbook amounts to establish credits they can use in a future year.
11. Why not go high tech? Using income-tax software to prepare your tax return has many benefits. Return preparation is generally quicker, easier and less open to mechanical errors. But even if you file electronically, always keep your receipts.
12. Are you going to make the deadline? Missing the tax filing deadline can cost you in penalties and interest charges. Even those who expect a refund should still aim to meet the filing deadline, just in case a tax liability arises. Last but not least, for business owners and their spouses, the return deadline is June 15, but any taxes owning must be paid by the April 30 deadline.
For more detail on these ideas and suggestions, please visit http://www.ey.com/CA/en/Services/Tax/TaxMatters
Salvation Army Home to Close its Doors, Leaving 80 Without a Place to go and 100 Without Jobs
(KITCHENER)
Workers at the Salvation Army A.R Goudie Eventide long-term care home in Kitchener, Ontario are reeling after management announced yesterday it would be closing the facility.
No date for the closure was given, but the home has already notified the Local Integrated Health Network and is in the process of contacting the residents' families.
The workers are represented by CAW Local 1106, which was in the middle of contract negotiations with the Salvation Army when the announcement was made.
"It is extremely frustrating that this "socially conscious" employer chose to remain silent at the bargaining table about their viability," said Bill Gibson, CAW Kitchener Area Director.
Gibson said the union will be meeting with the employer to push it to keep the facility open, failing that the facility must be sold to a new owner keeping the home open. Many of the workers are women with up to 25 years seniority.
"The potential job loss for our members is devastating however the uprooting of residents during the most fragile period in their lives is saddening," said Gibson
Too Many Unemployed Being Denied Benefits
(OTTAWA)
All parties in the 2011 federal election should address the lack of access by unemployed Canadians to Employment Insurance benefits, says Ken Georgetti, President of the Canadian Labour Congress.
“There has been a modest recovery in jobs since the bottom of the recession, but the fact remains we still have a high unemployment rate and a broken EI system,” Georgetti says. “The latest data show that just 44% of unemployed workers are collecting regular EI benefits, down from over 50% in mid 2009 when special benefit extensions were in place.”
Georgetti adds that many unemployed workers have run out of benefits, and others don’t qualify at all. He points to a number of big cities and hard-hit communities where unemployment is well above the national average, but the proportion of unemployed workers collecting EI is below that national average.
He is calling for reforms to make it easier to qualify for benefits, and extended benefit periods while unemployment remains high.
Unemployment Rate and EI Beneficiaries As Percent of Unemployed
December 2010
|
Unemployment Rate and EI Beneficiaries As Percent of Unemployed
December 2010
|
| |
Umemployment Rate |
EI Beneficiaries as % of Unemployed |
| Canada |
7.7% |
44.3% |
| Montreal |
8.5% |
35.2% |
| Toronto |
8.3% |
28.6% |
| Oshawa |
9.4% |
25.3% |
| St Catharines-Niagara |
9.4% |
26.8% |
| Windsor |
10.9% |
34.6% |
Statistics Canada data for Census Metropolitan Areas (3 month moving average)
The Canadian Labour Congress, the national voice of the labour movement, represents 3.2 million Canadian workers. The CLC brings together Canada’s national and international unions along with the provincial and territorial federations of labour and 130 district labour councils. Web site: www.canadianlabour.ca
Canada Post Pension Plan 2010 Financial Results
(OTTAWA)
Canada Post announces the 2010 financial results for the Canada Post pension plan (the Plan)
. The Plan’s rate of return was 10.4 per cent in 2010, exceeding its benchmark rate of return of 9.8 per cent.
The Canada Post pension plan (the Plan)
ended 2010 with total net assets available for benefits of $15.376 billion, an increase of $1.8 billion from 2009.After experiencing losses in 2008 due to the global economic crisis, the Plan rebounded with double-digit returns in both 2009 and 2010 to reach its highest level of assets since the Plan’s inception in 2000.
The Plan is one of the largest single employer pension plans in Canada, with nearly 82,000 active members, pensioners, deferred members and beneficiaries. It represents an important element of employees’ overall compensation.
“For the second straight year, the Plan achieved solid investment returns as it was well positioned with its investment strategy to take advantage of the recovering global financial markets,” said Douglas Greaves, Vice-President, Pension Fund and Chief Investment Officer. “However, despite these strong returns, the Plan has an estimated solvency deficit and going-concern deficit at the end of 2010.”
While the Plan’s rate of return was 10.4 per cent, Canada Post, like many other pension plans, continues to face funding shortfalls caused by the 2008 global economic downturn and historically low discount rates. Discount rates are long-term interest rates used to calculate pension liabilities. The discount rates declined further in 2010, causing an increase in pension liabilities that exceeded the Plan’s investment returns. As a result, the Plan ended the year with an estimated solvency shortfall of $3.22 billion, representing a solvency ratio of 83 per cent, and an estimated going-concern shortfall of $174 million, representing a going-concern funded ratio of 99 per cent.
Based on the financial status of the Plan as at December 31, 2010, an actuarial valuation will be filed with the federal pension regulator by June 2011. Canada Post made $425 million in special solvency payments to the Plan in 2010 in addition to its regular contributions, and will have to increase its special solvency payments in 2011 after the valuation is filed to help erase its deficits. Since the going-concern deficit is small, it is anticipated that this can be eliminated quickly through the special solvency payments and the market performance of the Plan.
“As the Plan sponsor, the financial risk of the Defined Benefit component of the Plan rests solely with Canada Post. The best security for Plan members is a financially sustainable Plan sponsor,” said Deepak Chopra, President and CEO. “Management and the Board of Directors of Canada Post continue to work hard to protect the pensions of Plan members by making the necessary changes to ensure that Canada Post remains financially sustainable.”
Canadian Jobs Market Remains Sluggish
(OTTAWA)
The Canadian jobs market remains sluggish and the President of the Canadian Labour Congress is calling for long term investments in public infrastructure and public services such as child and elder care to create jobs and stimulate the economy.
Ken Georgetti was commenting on the release by Statistics Canada of its Labour Force Survey for March 2011. The economy lost a net of 1,500 jobs last month. There were 1,435,000 unemployed Canadians in March, well above the 1,138,400 who were unemployed in October 2008, just prior to the recession. The unemployment for March 2011 remained high at 7.7%. It was 6.1% in October 2008.
“Most of the jobs created in March were in construction and in the professional services that support it, such as architecture and engineering,” says Georgetti. “Those jobs arose mainly from the government’s infrastructure investments but now Ottawa says it will end that spending. That would be a big mistake.”
Georgetti says the Conservative government’s focus on corporate tax cuts to stimulate the economy is the wrong way to go. “Our research shows that
a far better approach is to pursue policies that assist in creating good, family-supporting jobs. People with good jobs spend that money in the community and they pay income tax. That is the best way for the government to increase revenues and balance its books.”
Quick Analysis from CLC Senior Economist Sylvain Schetagne
While many observers were predicting job creation in March 2011, the Canadian job market actually lost 1,500 jobs last month.
The number of Canadians employed or actively looking for a job decreased by 14,900 between February and March. The unemployment rate was down slightly, mainly because many discouraged unemployed workers left the labour market. That exodus meant the number of unemployed was down by 13,500 last month compared to February, but remained 29% higher than in October 2008.
While a positive shift occurred between part-time and full-time work last month, reducing the part-time rate from 19.7% to 19.1%, temporary work between March 2010 and March 2011 was up (+59,200)
. Self-employment was also up last month (+17,400)
while the number of employees was down (-18,900)
.
Younger workers are still suffering. The youth unemployment rate was up in March 2011, and now sits at 14.4%.
Finally, as shown in the CLC’s Recession Watch 5, which was released on April 7, growth in the construction industry and in professional, scientific and technical services continued (+24,300 and + 9,100)
, driven by investments in public infrastructure. Public sector jobs such as jobs in health care, education and public administration decreased (-27,200)
.
In fact, 77.4% of all jobs created since July 2009, the lowest level of the jobs crisis, were in three sectors: construction, professional services and health care. The job growth observed in these sectors will likely slow down in the future. The federal government plans to cut its investments in public infrastructure, interest rates are rising, mortgage rules are becoming more restrictive, and there will be cuts in public spending due to the government’s focus on deficits rather than job creation.
The Canadian Labour Congress, the national voice of the labour movement, represents 3.2 million Canadian workers. The CLC brings together Canada’s national and international unions along with the provincial and territorial federations of labour and 130 district labour councils. Web site: www.canadianlabour.ca
Defined Benefit Pensions at a Tipping Point, Survey Finds
(TORONTO)
As retirement savings adequacy and security becomes an election issue, a new survey of more than 150 Canadian pension plan sponsors from global professional services firm Towers Watson (NYSE, NASDAQ: TW)
, indicates that just over half (51%)
of the private sector Defined Benefit (DB)
plan respondents have now converted their plans to Defined Contribution (DC)
arrangements for current or future employees - up from 42% in 2008. The study suggests that this trend shows no sign of relenting.
The survey also reveals that recent improvements in economic conditions have had virtually no impact on executives’ perception of a DB funding crisis. The percentage of respondents who agree that there is a pension funding crisis has remained at historic highs since the financial downturn of 2008. The survey found that more than half of respondents (56%)
believe that the funding crisis will persist for the long-term compared to 34% who held this view in 2008 before the onset of the recession. Just under one-third (32%)
perceive funding challenges to be a cyclical phenomenon.
“The financial crisis has caused a shift in plan sponsor attitudes,” said Ian Markham, Canadian Retirement Innovation Leader at Towers Watson. “This year’s survey results show that employers planning a conversion to DC are intent on doing so regardless of whether economic conditions improve, or a more sponsor-friendly legislative environment appears, or even in lieu of less dramatic changes to plan design or investment strategy.”
While the economic conditions of 2009 and early 2010 prevented many plan sponsors from taking drastic action, the percentage of plan sponsors who are preparing to implement changes has significantly increased as the financial markets continue to improve. Of the private sector DB plan sponsors considering adjustments to their plan design, funding policy or investment strategy, more than half (52%)
indicate that they have prepared a “journey plan” of measures to contain cost and volatility.
“The 2008 crisis may have been the final straw for senior finance officers,” said David Service, Director of Towers Watson Investment Services. “While plan sponsors may not be able to afford to make changes right now, many are working on strategies to de-risk or even exit when the financial position of their plans improve."
However, there may be some hope for traditional DB pension plans. With an aging population, a majority of survey respondents (59%)
agree that employees will be showing a greater appreciation for DB pensions. The potential impact on attraction and retention is also a major concern for the majority (52%)
of organizations that are considering plan design changes. “Canadian employees tell us that the prospect of a competitive pension is one of the top five factors that would influence them to leave their current employer, “ said Martine Ferland, Canadian Retirement Leader for Towers Watson. “As election rhetoric heats up the pension debate, we hope to see additional measures proposed that will increase the sustainability of private sector pensions.”
About the Study
These findings are part of Towers Watson’s 2011 Pension Risk Survey of Canadian defined benefit plan sponsors. With insight from senior executives at more than 150 organizations, the Pension Risk Survey is the most current and comprehensive study of DB pension plan management available today. The research builds upon seven previous pension risk surveys to provide organizations and governments with actionable insights on the current and future state of DB pension plans in Canada.
Study Shows Vast Skills, Labour Shortages Looming for Canada’s Tech Sector
(TORONTO)
Canada’s Information and Communication Technology sector, representing the country’s information, communications and technology employment base, is facing alarming skills and labour shortages in the next five years. Today’s release of Outlook for Human Resources in the ICT Labour Market, 2011-2016 by the Information and Communications Technology Council (ICTC)
, in partnership with the Information Technology Association of Canada (ITAC)
, underscores the shortages, and paints a picture of a new job market for ICT that has radically changed. ICTC also reported that all stakeholders in the sector—industry and education, the associations that represent them, and government—recognize the looming shortages and are poised to act.
The new report underscores that in most regions in Canada and for most ICT occupations, demand will far exceed supply. Employers will encounter systemic shortages when recruiting for ICT jobs that require five or more years’ experience. The severity of these shortages will increase when employers are seeking to recruit ICT people with leading edge skills such as marketing, accounting and finance competencies.
The results also show a new job market for ICT, one that has radically changed. Industry now needs workers with the leading edge package of skills, for example systems analysis and design combined with marketing, operations management and HR management, or people with particular combinations of domain experience (such as e-health, e-finance and digital media)
together with ICT expertise.
Over the next five years, Canadian employers will need to hire an estimated 106,000 ICT workers. Other key Report highlights include:
There is a pervasive mismatch between the industry skill requirements and the available skill supply in the labour market. This mismatch affects all regions of the country;
Information Systems Analysts and Consultants, the largest ICT occupation in Canada, will continue to drive the shortages with demand for this complex mix of skills being much greater than the available supply;
Recent graduates with co-op or internships as part of their education will, for the most part, be able to obtain relevant employment. Those graduates without co-op or internships will experience prolonged frustration in finding a relevant job;
The gender imbalance for ICT occupations (males make up approximately 75% of all ICT employees)
limits the qualified pool of employees for industry recruitment. This compounds the skills shortage in Canada.
Recently arrived internationally educated professionals (IEPs)
, who have no Canadian experience, will have considerable difficulty in securing an ICT job that is commensurate with their qualifications, unless their English or French language skills are strong.
“The potential skills and labour shortage crisis has been identified as one of the most defining issues facing the ICT sector in Canada today, said Bernard Courtois, President and CEO of ITAC. Global job mobility, technological change, demographics, declining enrolments, and shifting investment patterns have combined to create a pending shortfall among skilled ICT workers. “ITAC and other sector stakeholders asked ICTC to help us understand the reasons for these trends and offer regional and occupational forecast,” said Courtois, “and we are now armed with this fresh survey information and ground-breaking analysis by leading Canadian experts to assess current and forecasted trends, and to recommend and implement corrective actions.”
The study reinforces the emerging trends that ICTC, ITAC and other national associations, the Government of Canada and the post-secondary education community have been noting. ICTC’s 2008 labour market outlook report released consistent findings, and the sector has been working since then to curb the severity of the skills and labour shortfall. More than 100 of these organizations, including ICTC and ITAC, have provided leadership and consultations to the Government of Canada’s Digital Economy Strategy, set to roll out in the coming months.
Furthermore, ICTC has focused on the integration of Internationally Educated Professionals into Canadian industry, educating and creating awareness of the opportunities that ICT jobs provide through its Focus on Information Technology (FIT)
high school program, and ensuring that ICTC is capturing the complexity and changes in the ICT labour market by including eHealth and Digital Media into labour market information that is researched by the organization. In addition, ICTC is developing a comprehensive program that recognizes the professionalism of Canada`s ICT workforce based on ICTC`s national competency profiles.
But more work at a greater intensity is now required. “Moving forward, industry, government, education and associations must continue to mobilize in a concentrated effort to respond to what is needed to address this looming skills and labour shortages,” said Paul Swinwood, president and CEO of ICTC. “These partnerships will form the necessary collaborations to develop and implement the integrated strategies and programs to address the challenges and issues we face today and over the next five years.”
Five Levers for Change:
ICTC has identified five levers for change and accompanying recommendations to address the issues identified in the labour market study:
1. To meet Canada’s need for highly qualified ICT talent, the country has to maintain and, ideally, grow enrolment in ICT-related post-secondary programs beyond current levels.
2. The integration of Internationally Educated Professionals (IEPs)
is a critical action that must continue to ensure that industry can access this already available labour pool.
3. Post-secondary education must shift to integrated, cross-discipline programs with practicum components and professional development opportunities to ensure graduates are equipped with the mix of skills employers are looking for.
4. Employers need to invest in “nearly qualified” candidates and make professional development accessible, flexible and focused on providing employees with the skills required to meet their rapidly changing needs.
5. Improved diversity and inclusion of under-represented groups in the ICT industry will provide critical productivity gains and competitive advantages for Canadian business in a global marketplace.
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