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No ‘pot of gold’ option for funding massive Toronto area transit plan Add to ...

These are stories Report on Business is following Tuesday, May 28, 2013.

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Tallying the transit costs
Trying to peg the impact of funding the massive transit proposal for the Toronto area is a difficult thing.

But the bottom line, says CIBC World Markets, is that there’s no “pot of gold option.”

As The Globe and Mail’s Oliver Moore reports, the Metrolinx plan to fix the Toronto-Hamilton region’s transit troubles would include a hike to the province’s harmonized sales tax by a full percentage point, a 5-cent increase in gasoline taxes and a business parking levy of 25 cents a day per space, among other things.

This, the provincial transit agency says, would cost the average family $477 a year for a program that would fund $34-billion in new light rapid transit, an expanded subway system and improvements to highways and roads.

The tax hike, said chief economist Douglas Porter of BMO Nesbitt Burns, would be worth some $2-billion a year and would eat into Ontario’s economic growth to the tune of about 0.3 per cent.

“But, at the same time, the new spending on the transportation projects would provide an offset (although some of the work is already under way),” he added.

The impact, said CIBC chief economist Avery Shenfeld, depends on the base case.

“Are you comparing the impact of going ahead with transit projects funded by a tax hike, against transit projects funded by a pot of gold at the end of a rainbow?” Mr. Shenfeld said today.

“In that case, the economy will be slower all else [being] equal in the tax-funded plan,” he added.

“More realistically, one should compare the economic impact of a transit plan funded by a tax hike versus a scenario in which the transit plan doesn’t go ahead at all. In that case, we might get a net positive one-time economic lift since there is likely more Ontario [gross domestic product] in each dollar of transit construction spending than there would have been in the spending foregone due to the tax hike.”

But that’s not the key question, according to Mr. Shenfeld.

“The decision should really be made not on the one-time net benefits of the construction phase, but on the value of the transportation infrastructure this project would create, and whether that is the best use of taxpayers’ scarce resources relative to other options (more hospitals, more private consumption by those taxpayers, and so on),” he said, adding that his economics team has not done such a study.

“If it passes that test, one then has to look at the merits of financing the project through greater debt issuance (and higher interest costs facing future taxpayers), higher taxes today, or reductions in spending on other government goods and services,” the CIBC economist said.

“In the real world, there’s no finding a pot of gold option.”

Any option for funding would slow growth somewhere in the economy, which must then be weighed against the pros of the project, Mr. Shenfeld added, but “the sum of the boost from the project and the drag from the tax hikes could still be a net positive for growth.”

Scotiabank profit jumps
Bank of Nova Scotia posted a 10-per-cent jump in second-quarter profit today, saying it’s “well positioned” to meet its 2013 targets.

Profit jumped to $1.6-billion or $1.23 a share, diluted, from $1.46-billion or $1.15 a year earlier, The Globe and Mail’s Tim Kiladze reports.

Both its Canadian and international banking businesses posted solid quarters, the bank said, as did its global wealth management unit. It got a notable pop from its acqusition of ING Direct Canada.

“With strong results in the first six months of this year and the continued execution of our focused strategy, we are well positioned to achieve our goals for 2013,” the bank said.

Among those targets are an increase in earnings per share of between 5 per cent and 10 per cent. So far this year, growth is at 9 per cent.

The bank also aims for return on equity of 15 per cent to 18 per cent, and so far is at 16.4 per cent.

U.S. home prices up
The U.S. housing market is firmly in healing mode.

Home prices in the United States rose almost 11 per cent in March from a year earlier, according to the S&P/Case-Shiller index released today.

That’s still down some 30 per cent from before the crash, but stronger demand and the gradual clearance of distressed sales are helping the market to rebound.

“Over all the data show that gradually improving demand and a lower supply of distressed homes for sale continue to support house prices, although they are still rising from very low levels,” said Andrew Grantham of CIBC World Markets.

OMERS in London deal
One of Canada’s major pension funds has struck a deal with the Queen’s property company to overhaul an upmarket piece of London.

The deal is between the Oxford Properties unit of the Ontario Municipal Employees Retirement System and the Crown estate, which is responsible for the Queen’s property portfolio.

It’s also the latest sign of how Canadian pension funds are moving in on key properties.

“The Canadians have been a major player in the global investment market, driven in part by the strength of their domestic economy through the global downturn,” Mat Oakley, who heads up research at the property agency Savills, told the London Evening Standard.

“Now you would put them in the world’s top five or six most active cross-border buyers, which is amazing compared to where they were 10 years ago. They’ve probably spent close to £40-billion outside Canada.”

He was referring to recent deals not only by OMERS but also by the Canadian Pension Plan Investment Board and Healthcare of Ontario Pension Plan.

Today’s deal is a 50-50 partnership worth £320-million, or about $500-million, that will see Oxford and the Crown Estate overhaul a two-block area between Regent Street and the Haymarket district, part of the London group’s broader rejuvenation of St. James’s Market.

OMERS will hold 50 per cent of the commercial piece of the deal, while the Crown Estate, which owns about half the buildings in St. James’s, leads the redevelopment. Each will have 150-year leasehold interests.

When complete, St. James’s would be a major district for office, retail and restaurant operations.

“A run-down back street service yard and taxi ‘rat-run’ will be replaced by a fantastic new amenity for St. James’s, revitalizing half an acre of public realm and creating a new 10,000-square-foot pedestrian square for world-class business, shopping and dining,” the Crown Estate said in a statement.

OECD cites income disparity
A new global study cites a “considerable gap” between Canada’s richest and poorest.

The findings by the Organization for Economic Co-Operation and Development are notable in that they don’t look at how the ranks of the top 1 per cent compare to the rest, but rather how the top 20 per cent compare to the poorest 20 per cent.

The study also backs up recent findings from the Pew Research Center in the United States, which shows that three-quarters of Canadians believe income inequality is on the rise, The Globe and Mail’s Tavia Grant reports.

The OECD pegs average household disposable income in Canada at $28,194 (U.S.), higher than the average among its member nations of $23,047.

“But there is a considerable gap between the richest and poorest – the top 20 per cent of the population earn more than five times as much as the bottom 20 per cent,” the OECD well-being study adds.

According to the Pew Center, which looked at 39 countries, 76 per cent of Canadians believe the gap between the rich and the poor has increased over the past several years.

Just 18 per cent think it is unchanged and just 2 per cent feel it has declined.

But less than half of those surveyed – 45 per cent – see inequality as a problem.

The OECD's Better Life Index looks at 24 measures, from income to health.

Canadians rank well over all, and their well-being is among the best in the world. Some highlights:

  • More than 72 per cent of people between the ages of 15 and 64 have paid work, compared to the OECD average of 66 per cent. We work on average 1,702 hours a year, below the average of 1,776, with 4 per cent working “very long hours,” again below the average of 9 per cent. Six per cent of men work such hours, compared to 1 per cent of women.
  • Some 88 per cent of those between the ages of 25 and 64 have a high school diploma, better than the average of 74 per cent. “Canada is a top-performing country in terms of the quality of its educational system,” the OECD says.
  • Life expectancy is 81, slightly better than the average of 80 years.

“In general, Canadians are more satisfied with their lives than the OECD average, with 82 per cent of people saying they have more positive experiences in an average day (feelings of rest, pride in accomplishment, enjoyment, etc.) than negative ones (pain, worry, sadness, boredom, etc.,” The study says, comparing that to the average of 80 per cent globally.

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