Promises, Promises

Now that Justin is in, and Canadians gave Steve the heave in yesterday’s election, it’s anyone’s guess how this will affect American and Canadian businesses and entrepreneurs. Some say it’s good for business while others are wringing their hands while saying they’re looking into the abyss of Harper version 2.0 with another majority (this time a Liberal majority).

Let’s take a look at what Justin promised Canadians and what they heard over what will most likely happen.

Will There Finally Be A #MMIW Inquiry?

The Harper government staunchly refused to conduct an inquiry into the missing and murdered Indigenous women in Canada. Justin Trudeau has pledged to build a “renewed relationship” with Indigenous peoples.  What Canadians and Indigenous people most like are hearing from Justin is that his government will conduct an inquiry into the missing and murdered Indigenous women in Canada. Except that’s not what he said.

Because he hasn’t clearly defined what a “renewed relationship” looks like, nobody can pin him to the tarp somewhere down the road and claim he reneged on his promise. It’s impossible to renege on a promise that isn’t clear to begin with ergo the new leader will get a free pass on this implied promise.

Of course, it would be nice if his government actually did conduct an inquiry into all those missing and murdered Indigenous women. It’s warranted, and it needs to be conducted.

Will The Tax-Free Savings Account (TFSA) Rules Change?

In Canada, the TFSA was available to all Canadian residents, aged 18 and older. It was, as the title states, a tax-free savings account. Contributions weren’t tax-deductible, and income earned by way of a TFSA and withdrawals from the TFSA affected one’s eligibility for federal income-tested benefits and credits (i.e. Old Age Security, Guaranteed Income Supplement, Canada Child Tax Benefit).

Unused TFSA contributions could be carried forward and accumulated in future years. And the annual contribution limit had been raised from $5,500 to $10,000 by the Harper government earlier this year.

That’s about to change as Justin rolls back the TFSA contributions to $5,500 and unused TFSA contributions can no longer be forwarded and accumulated in future years. Of course, during his campaign, he said that nobody had a spare $10,000 to invest in a TFSA anyway so this wasn’t going to be a problem for the average Canadian.

Baby boomers on the cusp of retiring beg to differ on that point, I hear.

Will They Finally Tax The Wealthy Or Anyone Accused Of Being Wealthy?

For Canadians who run their own businesses or who work at high-priced hourly jobs or who invest their time in 60-hour work weeks, incomes that place that family, in the opinion of the government, into the wealthy category will enjoy a new 33% federal tax on all taxable incomes.

In some provinces, when you add the provincial tax rate, wealthy families who aren’t really as wealthy as the less-wealthy and unwealthy believe them to be will find themselves paying in excess of 50%. What does this mean?

More than a few small businesses and entrepreneurs who can afford to survive without the extra income will cut back so they fall below that wealthy person threshold. This will result in layoffs and reduced contract employment for those small businesses and entrepreneurs who decide to downsize.

And that will add to Canada’s struggling economy, adding to the burgeoning middle and lower classes that live paycheck-to-paycheck, sometimes not even making it that far between the two.

Any News On The Canada Pension Plan?

When the previous government decided that retirees had to wait until their 67th birthday to apply for Old Age Security (OAS), this meant that retired Canadians had to rely on CPP and, hopefully, personal investments to pay for their retirement years. With a growing number of Baby Boomers reaching retirement age and a much smaller working population funding the program, the pyramid is already precariously overloaded.

When CPP was first created in 1965, the contribution rate was 1.8% with an annual maximum cap. These days, it’s set at 4.95% for employees earning between $3,500 and $51,100, and if you’re self-employeed, it’s set at 9.9% of pensionable income based on income tax returns.

Right off the bat, employees are giving up at least 4.95% of their income to fund the CPP, and on average the monthly benefits run about $600 CDN per month with a maximum cap of about $1,000 CDN per month.

It’s not that long ago that the CPP only had an asset base of about $35 billion CDN while receiving $11 billion CDN in contributions and paying out $17 billion CDN in benefits. It took a decade and a half to increase the asset base to $116 billion CDN, but Canada’s in a recession and with that growing balloon of eligible CPP applicants, the old problem could easily resurface.

Any News On The Old Age Security Pension?

Justin’s promised to roll that OAS age back to 65 from the Harper imposed 67 which will make some people happy. However, the OAS is a taxable monthly social security payment that’s available to those with annual income under $115,800 CDN. The basic amount a retiree can expect from OAS is about $565 CDN per month.

That being said, on average, retirees are getting between $1,200 CDN and $1,400 CDN per month from the CPP and OAS pension plans.  If retirees haven’t planned for their retirement years, they may find themselves living considerably below the poverty level, and struggling to keep up with the basics.

How Do The CPP And The OAS Factor Into The TFSA Situation?

With fewer and fewer people having enough money to invest in mutual funds, GICs, private pension plans, et al, they have to find legal ways to ensure they don’t live out their retirement years in abject poverty. They can’t bank on believing that the CPP and the OAS aren’t going to give out from underneath them.

That TFSA with the $10,000 annual maximum cap was a viable option for building a nest egg. Canadians can only hope that the new government doesn’t decide to undo the rules governing RRSPs (Registered Retirement Savings Plans).

When In Debt, Should You Borrow Money To Get Back Out Of Debt?

I’m not sure how this concept is supposed to work but I’ve never seen anyone in debt being able to borrow money to get themselves back out of debt. Justin is proposing that prosperous times in Canada can be bought with money borrowed from willing lenders.

This will lead to an even larger debt to be paid back and at long-term interest rates that will undoubtedly be in favor of the lender, not the country that borrowed all that money.

What’s worse for Canadians is that this kind of thinking will force corporations to reconsider doing business in Canada. They will take their business — and the jobs that go with their business — to other countries where lower taxes and lower wages are building healthy economies and keeping people happily employed. What businesses, you ask, and where will they move?

Take, for example, CVMR — a formerly Canadian mining and metal refining company. Earlier this year, the company invested $313 million USD ($406,426 million CDN based on today’s currency rate) to move and set up its global headquarters from Toronto (Ontario, Canada) to Oak Ridge (Tennessee, U.S.A.). They relocated their manufacturing, research, and development facilities to Oak Ridge as well, and in doing so, they created 620 new jobs in the community of Oak Ridge and surrounding area.

The benefits to the community from having 620 people employed full-time are being felt in a positive way in all walks of life from housing to education and more.

The best news is that CVMR — the company that provides feed materials for 2D, 3D, and 4D printing — has projected quadrupling its production capacity in Oak Ridge in the upcoming 36 months which means they’ll continue to expand operations in Oak Ridge, and they’ll continue to employ more and more Tennesseans.

What Are The Most Likely Negative Repercussions To Come From All This?

I suspect that there will be a jump in interest rates in Canada in the not-so-distant future.

I suspect that there will be a slowdown in manufacturing and export as has been happening recently.

I suspect that the Canadian economy will continue on a downward spiral, leading to a housing bubble bust the likes of which Canadians aren’t accustomed to suffering.

What Else Should We Watch For In Upcoming Months?

I haven’t addressed the marijuana reforms that were part of Justin’s campaign. He plans on legalizing it on a federal level. Currently, medical marijuana is legal with proper medical documentation from a licensed and accredited medical practitioner, with said medical marijuana to only be purchased from a federally licensed producer following Health Canada’s Medical for Marihuana [sic] Purposes Regulations (MMPR).

I have my suspicions as to what the reasoning might be for legalizing marijuana across the board. Of course, Justin Trudeau doesn’t have my ear, and as such, they’re just my suspicions.

He also has promised to amend the reviled Bill C-51. Considering that Bill C-51 removed many constitutional rights from Canadians, a promise to amend means as much as the “renewed relationship” he plans on creating between Canadians and Indigenous peoples.

That promised infrastructure infusion could prove tricky as well considering that his solution for getting out of debt is to get deeper into debt. When the cost of massive infrastructure investing is added to the picture, this isn’t going to stimulate the economy and burst out into short-term and long-term economic growth. If you don’t understand why that might be, please re-read the section in this article about the Canadian company that relocated to Oak Ridge, Tennessee for insight.

The pesky pipeline projects problem isn’t going away anytime soon. Just as he said about the “renewed relationship” with Indigenous peoples and the “amended” Bill C-51 promise, the claim that his government would revamp Canada’s energy project approval process remains unclear. What’s the plan anyway?

And inflation … that’s something to watch out for because it’s coming to Canada … sooner rather than later.

Final Note

When a new government is elected, the adjustment period is always a little difficult as new politicians elbow old politicians out of the way. While it was

obvious during the 78-day campaign that there was a very definite “anyone but Harper” and “heave Steve” sentiment across Canada, a vote AGAINST a political party doesn’t always means it was a vote FOR the incoming political party.

It’s even harder to project or guess at how well that government may or may not fare while in power when there are so many nebulous promises in the mix, and some downright contrary financial solutions being bandied about to address the economic woes in Canada.

Elyse Bruce

Suggested Reading

Canada Revenue Agency: The Tax-Free Savings Account
http://www.cra-arc.gc.ca/tfsa/

Governor Haslam To Make Big Economic Announcement In Oak Ridge On Friday
http://www.wbir.com/story/news/local/oak-ridge-anderson/2015/03/13/gov-haslam-to-make-big-economic-announcement-in-oak-ridge-friday/70261456/

Medical Marijuana: Marijuana Laws
http://medicalmarijuana.ca/learning-center/marijuana-laws

Service Canada: Canada Pension Plan Retirement Pension
http://www.servicecanada.gc.ca/eng/services/pensions/cpp/retirement/index.shtml

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