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A man dressed as Mr. Monopoly (H. RUMPH, JR)
A man dressed as Mr. Monopoly (H. RUMPH, JR)

The Week

Taxing the rich: I'm alright, Jack, I don't earn $500,000 Add to ...

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I'm alright, Jack With the exception of James Doak and some 23,000 other people, I'm not sure most of Ontario's residents are all that troubled by the province's new surtax on high-income earners.

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I have no strong feelings one way or the other, and I also don't believe that the average $19,000 hit from the surtax is going to spark an exodus of the wealthy.

Mr. Doak is, of course, the money manager with Megantic Asset Management who compared wealth taxes to "ethnic cleansing," suggesting it was would prompt the rich to flee Ontario. He said that before the surtax became a reality, so I can't imagine he's too happy today.

Here's how the week played out:

Dalton McGuinty, the Premier of Canada's most populous province, struck a deal with the New Democratic Party for a temporary surtax of 2 percentage points on those earning more than $500,000, estimated at 23,000. All the money raised, which the Liberal government estimates at $470-million for next year, will go toward reducing the deficit.

Mr. McGuinty needed the deal to ensure passage of the budget. He got that, and more. First, Standard & Poor's cut Ontario's outlook to "negative" from "stable," and then Moody's Investors Service took the province's debt rating down to Aa2, from Aa1. Both ratings agencies expressed concerns that Mr. McGuinty's minority government may be unable to meet its fiscal targets.

While some observers said the new surtax doesn't send the right message to investors, I didn't notice bumper-to-bumper limousine traffic on Highway 401 beginning the trek to Calgary.

As Warren Lovely of CIBC World Markets put it, "economists will lament the introduction of the new tax, although on its own is unlikely to act as a serious catalyst in driving high income earners away."

Spain sinks deeper Spain, the new focus of the euro debt crisis, is sinking ever deeper.

Not only was there a fresh downgrade of its debt this week, as Standard & Poor's cut its rating by two notches, official data also showed a crippled jobs market. Foreign Minister José Manuel García-Margallo referred to it as a "crisis of enormous proportions."

Almost one-quarter of Spain's work force can't find jobs. For young people, it's even worse, at half the work force.

"The unemployment rate jumped to 24.4 per cent for the first quarter from 22.9 per cent at the end of last year," said chief economist Carl Weinberg of High Frequency Economics.

"Retail sales volumes were reported 3.9 per cent lower than a year ago in March, extending the crash in consumer spending. First-quarter GDP, due to be reported next week, is sure to be down by a lot. Simple thinking would suggest that the lower a nation's income, the harder it is to service its debt."

Chief economist Sherry Cooper of BMO Nesbitt Burns noted this week how Spain's "economic disaster" was sparked by a housing bubble. Now, there are extreme fears over what its situation could mean for the crisis in the 17-member monetary union.

"For nearly a decade starting in 1999, house prices exploded in Spain as both domestic buyers, and more notably, foreign buyers poured money into residential real estate," Ms. Cooper said.

"Europeans, Russians and others were using the Costa del Sol as their vacation hideaway and condo building in all parts of Spain exploded. The return on investments in residential real estate majorly outpaced the return on any other asset class, so even ordinary Spaniards bought second and third homes expecting to rent and flip them for astonishing gains."

Why Apple shines Here's what you need to know about the blowout second-quarter results from Apple Inc. this week:

  • Profit surged to $11.6-billion (U.S.) or $12.30 a share, from $6-billion, or $6.40 a year earlier.
  • Revenue climbed to $39.2-billion from $24.7-billion.
  • Apple sold 35.1 million iPhones, up 88 per cent.
  • Sales of the iPad soared 151 per cent to 11.8 million.
  • Mac computer sales increased 7 per cent to 4 million.
  • Sales of iPods slipped 15 per cent to 7.7 million.
  • Apple forecast third-quarter revenue of some $34-billion and earnings per share of $8.68.

"The new iPad is off to a great start, and across the year you’re going to see a lot more of the kind of innovation that only Apple can deliver," said chief executive officer Tim Cook.

Required reading this week North America’s largest garbage hauler is looking for Canadian partners to help create new technology that will convert waste to energy. Richard Blackwell looks at Waste Management Inc.

The futures of Netflix and DVD kiosks are getting much brighter with the shutting of Blockbuster and Rogers bricks-and-mortar outlets, Steve Ladurantaye writes.

The future strength of oil prices hangs in the balance as new oil-production techniques sweeping North America spread around the world and unlock new energy supplies, Nathan VanderKlippe reports.

Frustration spawned by demands of regulators threatens to split the Maple Group of big banks and investors that came together a year ago to bid for TMX Group Inc., Boyd Erman and Tara Perkins write.

The three major companies behind a project to cut Alberta’s carbon footprint have dropped out, a blow to the province’s efforts to combat criticism over oil sands emissions, Carrie Tait reports.

Ottawa is beefing up scrutiny of CMHC and the more than $500-billion in higher-risk mortgages in its care amid concern over the fragility of Canada’s housing market, Bill Curry and Sean Silcoff report.

What to watch for next week Statistics Canada kicks off the week with a reading Monday morning on how the economy performed in February.

Economists expect the report to show that the economy expanded by 0.2 per cent in February, compared to 0.1 per cent a month earlier.

"February’s GDP report should paint a picture of lopsided GDP growth in Canada, with a single sector - wholesaling - driving the lion’s share of the gains," said Emanuella Enenajor of CIBC World Markets, who expects the report to show growth of just 0.1 per cent.

"With wholesale auto sales leading the increase, it’s clear that vehicle demand - a key component of economic momentum in recent months - is still alive and kicking. But aside from that sector, don’t expect much good news elsewhere - particularly with Canada’s payrolls survey pointing to a 0.13-per-cent decline in overall employment that month. Retailers had a difficult time, as shoppers shunned dealer lots. Also, factories were unable to boost sales above month-earlier levels. Add to that the oil and gas sector, which faced production disruptions at an oil sands upgrader, and GDP is set to rise by a meagre 0.1 per cent."

In the United States, markets will be watching closely for the key U.S. jobs report, which economists believe will show 160,000 to 170,000 jobs created in April, compared to the disappointing 120,000 in March. The unemployment rate is expected to come in at 8.2 per cent Friday.

"Job growth probably picked up to 160,000 in April after slowing sharply to 120,000 in March from the average 246,000 pace of the prior three months," said senior economist Sal Guatieri of BMO Nesbitt Burns.

"Private-sector employment should increase 165,000, while the government likely continued to trim its work force. The report should reinforce the view that companies remain cautious about hiring, though less so than last summer. The unemployment rate is expected to stay at 8.2 per cent, which is down nearly 2 percentage points from the cycle high, though still more than 2 percentage points above the Fed’s desired range."

In the markets, investors in Canadian stocks will have a lot to digest, with corporate results flooding in, including those from Suncor Energy Inc., Thomson Reuters, WestJet, Air Canada, Barrick Gold, BCE, Canadian Natural Resources and Manulife Financial.

Also on tap are reports from Avon Products, BP PLC, Time Warner, Visa Inc. and Kraft Foods.

Follow on Twitter: @michaelbabad

 

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