PrefBlog

The Crown Speech was today:

As is common with most Throne Speeches, no dollar figures were announced alongside the promises of new spending. The speech notes that financial details will be released later this year in a fiscal update.
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“Climate action will be a cornerstone of our plan to support and create a million jobs across the country,” the speech states. “This is where the world is going. Global consumers and investors are demanding and rewarding climate action. … We can create good jobs today and a globally competitive economy not just next year, but in 2030, 2040, and beyond.”

Wednesday’s speech does signal plans to raise tax revenue, stating that the government will “identify additional ways to tax extreme wealth inequality.” It says this will include limiting the stock-option deduction “for wealthy individuals at large, established corporations, and addressing corporate tax avoidance by digital giants.”
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“Web giants are taking Canadians’ money while imposing their own priorities. Things must change, and will change,” it states. “The government will act to ensure their revenue is shared more fairly with our creators and media, and will also require them to contribute to the creation, production and distribution of our stories, on screen, in lyrics, in music and in writing.”
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In recent weeks, several economists and policy experts have expressed concern that the federal government has not outlined a plan for dealing with the rapidly expanding federal debt resulting from this year’s emergency spending.

Wednesday’s Throne Speech pushed back at those concerns.

“This is not the time for austerity,” it states. “This COVID-19 emergency has had huge costs. But Canada would have had a deeper recession and a bigger long-term deficit if the government had done less.” The speech says the government will “do whatever it takes, using whatever fiscal firepower is needed to support people and businesses during the pandemic.”

It states that this borrowed spending can be managed by locking in the current historically low interest rates.

“This government will preserve Canada’s fiscal advantage and continue to be guided by values of sustainability and prudence,” it states.

The big problem is that there’s still no plan to pay back the current tidal wave of spending. With respect to ‘taxing the web giants’, I don’t see how this is such a big problem for things like advertising: simple legislation could be introduced such that if Company X is not taxable in Canada, then payments to Company X are not tax deductible by the Canadian paying company. This made a big difference in magazine publishing in days gone by and would be relatively easy to administer to boot. There would still be exceptions to look at – companies like Netflix, that sell services directly – but this would be a much more sharply focussed pool of companies than presently.

The ‘million jobs’ pledge seems to be attracting a lot of attention, but it’s worthwhile pointing out that a million new jobs created tomorrow will only take us back to employment levels of a year ago.

PerpetualDiscounts now yield 5.30%, equivalent to 6.89% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 405bp from the 400bp reported September 16.

This entry was posted on Wednesday, September 23rd, 2020 at 9:09 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.