FISCAL CAPACITY: BC’s finances are squeezed because a series of cuts to both personal income taxes and business taxes since 2000 have steadily eroded provincial revenues.
- If BC collected today the same amount in tax revenues as a share of the economy (GDP) as we did in 2000, we would have $3.5 billion more in public funds this year alone. Meaning, no deficit, and the ability to invest in enhanced or even new public services.
FAIRNESS: Significant cuts to personal and corporate income taxes, combined with increases to regressive taxes like sales tax and Medical Services Plan (MSP) premiums, have produced a tax system that is much less fair. Taxation has been shifted from corporations to families, and from upper-income families to middle- and modest-income ones.
The overwhelming majority of British Columbians (90%) think there should be income tax increases for those at the top. As to where those higher taxes should kick in, a clear majority (57%) says at $100,000 per year of income. A majority (67%) also think major corporations are asked to pay less tax than they should....
Editor's Note: Where the C.D. Howe Institute is thought to be a conservative 'think-tank', the CCPA is thought to be their counterpart on the liberal side of the political spectrum. InvestingForMe does not endorse either side and we include this paper simply because we believe there is a long-term shift in taxation underway. As governments struggle with rising debt and deficits the discussion around raising taxes is increasing with a number of jurisdiction already raising tax rates and implementing new taxes. InvestingForMe believes it is helpful for Canadians to be aware of the discussion currently underway.
Sometimes markets can be as stubborn as mules.
Apparently a number of institutional investors, particularly pension and mutual fund managers, have been standing on the sidelines, hoping to increase equity exposure into a pullback.
But once again the market didn’t cooperate, as most equity indices rose for the third-straight week.
Investors are focused on corporate earnings, which are coming in largely as expected. Revenue results are a tad better. With 13% of S&P 500 companies having reported, 66.7% have exceeded revenue projections compared to a 62% average since 2002. Analysts estimate fourth-quarter revenue will grow 2.1% compared to last year, according to Thomson Reuters I/B/E/S.
- The Bank of Canada’s Business Outlook Survey revealed that businesses are mildly optimistic about the future. Manufacturing sales also came in better than expected earlier this morning.
- The third Canadian data release for the week was the one that had everyone talking. Existing homes sales posted a 17.4% year-over-year drop in December – the largest drop registered since late-2010. Home prices eked out a gain, but momentum has undoubtedly decelerated over the course of the year.
- Tighter government-backed insured mortgage rules and stricter lending practices have contributed to the recent housing weakness. Looking ahead, we do not expect the Canadian housing market to undergo a U.S.-style crash. Instead, prices and sales should stabilize in the months ahead, but a gradual, mediumterm adjustment remains in the cards.
At Russell, we took our research into retirement income a step further and developed a retirement portfolio that’s designed to take full advantage of the 10/30/60 Rule. We discovered that a portfolio consisting of 35% equities and 65% fixed income offers an ideal balance. It’s not too heavily weighted in equities, so volatility is relatively low. And there is enough long-term growth potential to sustain a stream of income that lasts a lifetime.
Here is how a 35% equities / 65% fixed income portfolio can perform over an investor’s lifetime: accumulating savings during their working years, generating steady growth, and providing a stream of inflation-adjusted income for 30 years beyond retirement.
- Deputy Governor of the Bank of Canada, Tiff Macklem, delivered a special lecture in which he reiterated the theme that sustainable economic growth in Canada must increasingly be driven by the export and business sector and less by residential investment and consumer spending.
- That transition is already underway. Housing starts have slowed from the record levels hit earlier in 2012. We do expect the pace of construction to continue to gradually trend down to more sustainable levels over the next year as homebuilders take their cue from an already cooling existing home market.
- Despite what is shaping up to be a weak end to the year, export growth is set to start contributing more to growth in the year ahead. Despite continued fiscal challenges stateside, U.S. demand is expected to be more of a boon to the Canadian export sector over the next year as improving housing markets and credit conditions help U.S. households and businesses unleash some pent-up demand. Increased business borrowing also suggests that businesses are poised to do more of the heavy lifting in the year ahead.
Most equity markets consolidated during the weak amid fairly quiet trading activity, although China and Germany underperformed.
The Shanghai Composite fell 1.8% on Friday following stronger-than-expected food inflation data, which pushed up consumer prices. We expect inflation to rise moderately in 2013.
More importantly, the country’s robust December export and import growth not only indicate China’s economy is gaining momentum, but are further evidence the global economy is on the mend.
Germany’s DAX, a big winner in 2012, stumbled as November factory orders, industrial production, exports, and imports fell short of expectations. The industrial engine of Europe suffered its steepest monthly decline in exports in more than a year.
China also suffered mid-year and, although there has been some modest improvement since then, it can hardly be said that the Middle Kingdom has regained its former poise. Still, the fourth quarter increase in manufacturing new orders marks the first gain since the second quarter of 2011, thanks to a renewed pick-up in domestic infrastructure investment. As a result, the outlook for Chinese growth is improving: HSBC projects GDP growth of 8.6 per cent in 2013, up from 7.8 per cent in 2012. For the emerging world as a whole, HSBC expects growth of 5.4 per cent in 2013, up from 4.8 per cent in 2012.
The rising tide of on-shore light oil production in the United States constitutes a game changer
for North America's oil supply balance. Anchored by the Bakken, Permian and Eagle Ford,
US oil production is poised to climb 1.7 million bbl/d (27%) over the next five years to 8.1
million bbl/d by 2017. The US is likely to retain its ranking as the world’s third-largest oil
producer – but will narrow the gap on Russia and Saudi Arabia.
America’s light oil renaissance has also driven a wedge between WTI and Brent – a dynamic
exacerbated by US oil export restrictions and one that reaches beyond pipeline expansions.
We have raised our long-term WTI-Brent differential from US$2/bbl to US$7/bbl. Integrated
oil companies afford cash flow insulation from these conditions, while upstream producers offer torque.
Crude Oil Prices - Brent Unchanged, WTI Reduced Slightly.
- Demand. Amid moderate global GDP growth of 3.3% in 2013 and 3.6% in 2014, we anticipate global oil demand growth of 0.8 MMb/d (to 90.5 MMb/d) in 2013 and 1.1 MMb/d (to 91.6 MMb/d) in 2014.
- Supply. Our global oil supply growth outlook of 0.5% (0.4 MMb/d) in 2013 and 1.4% (1.3 MMb/d) in 2014 reflects continued non-OPEC supply growth, moderated by Saudi production declining towards 9.2 MMb/d in 2014.
- OPEC-11 Spare Capacity. Usable spare capacity is expected to increase in 2013 to 3.3 MMb/d (3.6% of global supply) from 2.8 MMb/d (3.1% of global supply) in 2012. We estimate further growth in usable spare capacity to 3.8 MMb/d (4.1% of global supply), driven by declines in Saudi production.
A great summary of investment, pension, benefit, CPP/QPP, OAS and Income Tax statistics for 2012 and 2013.
- The impact of the U.S. fiscal cliff deal has been more or less positive for Canada, at least in the short term. It partially removes the veil of uncertainty that contributed to the weak pace of economic growth in the second half of 2012. And the resolution does put the U.S. on track to record a healthier pace of economic growth in the first half of 2013 which should bode well for Canada’s export sector.
- The total impact of U.S. fiscal drag should shave roughly half a percentage point from Canadian real GDP growth in 2013, but a stronger profile for exports and business spending combined with a resilient domestic economy should lead Canada to a moderate pace of economic growth this year.
This is a great summary of the markets' recent performance - Stock and Bond Markets, Benchmark Portfolios - Month-To-Date, Quarter-To-Date, Year-To-Date and 1-Year returns.