These are stories Report on Business is following Friday, May 2, 2014.
Ontario and the age of austerity
It’s true that Ontario has the worst fiscal showing in Canada.
But it’s also true that the central province is home to almost 550,000 people who can’t find work. With an unemployment rate, at 7.3 per cent, above the national average.
The former is the main reason so many observers hate yesterday’s budget. The latter is among the reasons that others – me included – applaud letting up on restraint.
Truth be told, I’m also thrilled that the tax measures on the rich (I’m not) stop at those earning less than $150,000 a year (I do).
Ontario Premier Kathleen Wynne and her finance minister, Charles Sousa, decided to give austerity a pass in what is now an election document.
Ms. Wynne and her troops had to put the focus on jobs. Toronto-Dominion Bank, for example, forecasts the jobless rate won’t dip below 7 per cent until next year. And only to 6.9 per cent, at that.
As The Globe and Mail’s Adrian Morrow and Adam Radwanski report, they unveiled a budget that goes a percentage point further in targeting the 2 per cent for tax increases, strikes a $2.5-billion jobs fund, spells out billions for infrastructure, and spends heavily on social services.
(Smokers will also pay more, but they should be used to that. They’re outcasts anyway. Sort of like the wealthy, given the two-step tax hit to those earning more than $150,000 and those topping $220,000.)
To pay for the spending, of course, the Liberal government has to miss its deficit target, to the tune of about $2.4-billion, but it still pledges to come into balance by 2017-18.
Ontario now forecasts a deficit of $12.5-billion, which would narrow to $8.9-billion in 2015-16 and $5.3-billion in the following fiscal year.
At 1.7 per cent, its shortfall will be the fattest in the country, with Newfoundland and Labrador following close behind.
As senior economist Robert Kavcic of BMO Nesbitt Burns points out, these two provinces are alone in Canada in projecting either smaller deficits or surpluses.
Doing a quick tally, here are the interests who don’t like the budget:
- The Canadian Taxpayers Federation says Ontario is “taking cues from Greece.” (I’m not sure why. Greece strangled its work force.)
- The Canadian Union of Public Employees says the budget will hurt public services, and should have restored corporate taxes to previous levels.
- The Canadian Federation of Independent Business is “vehemently opposed” to the new proposed pension plan. The small business lobby actually loathes this document.
- Imperial Tobacco says the anti-smoking measure ignores “the prevalence of contraband tobacco.”
- The Ontario Convenience Stores Association, like Imperial, says it will “push consumers to the black market and support organized crime.”
- The Canadian Federation of Students – Ontario says it ignores its issues.
- The Ontario Public Service Employees Union calls the budget “a trip to the trough for investors.”
And here are some that do:
- The Ontario Trucking Association applauds the closing of a loophole that made certain heavy trucks exempt from certain measures. Says its chief: “A truck is a truck is a truck.”
- The Canadian life and health insurance lobby says it likes the new pension plan, among other things.
- The Council of Ontario Universities, unlike the students, applauds the focus on jobs.
- The Ontario Campaign for Action on Tobacco, unlike the convenience stores, likes it.
Private sector economists note the fiscal pressure, and wonder how the rating agencies might react. Here’s a sampling:
“Running higher deficits in the short term necessarily has negative implications for Ontario’s debt. The provincial debt will likely come into focus in the period ahead as rating agencies pass judgment on Ontario’s credit risk.” Robert Hogue, Laura Cooper, Royal Bank of Canada
“The cost-containment plan remains a major challenge, and despite some progress in recent years, this budget might leave some questioning the resolve to hit those targets.” Robert Kavcic, BMO Nesbitt Burns
“Ontario is relaxing its short-term deficit fighting efforts in order to shore up the economy. The proposed budget embraces a longer-term policy perspective, including 10-year plans for growth and infrastructure investment, alongside a made-in-Ontario pension solution to bolster retirement income adequacy. Growth disappointments and lower federal transfers are weighing on revenue, while a host of new commitments add to program spending.” Warren Lovely, Canadian Imperial Bank of Commerce
“The strengths of the government’s longer-term plan include its careful timing and the many aspects that are mutually reinforcing … The government’s challenge is to effectively execute this longer-term plan to raise output and revenue growth. Its advantage, in a global economy with significant underutilized capacity, is the broadly anticipated U.S. economic recovery and the softer Canadian dollar.” Mary Webb, Bank of Nova Scotia
- Adrian Morrow and Adam Radwanski: Ontario Liberals aim to avoid election with big-spending budget
- 15 essential aspects of 2014 Ontario budget
- Janet McFarland: Ontario's proposed pension plan excludes half of workers
- Jeffrey Simpson: Ontario’s deficit includes the politicians
- Adam Radwanski in Politics Insider (for subscribers): Wynne targets NDP social conscience, but could veer off course
U.S. jobless rate tumbles
America’s job crisis is clearly easing.
Not only is unemployment now down to 6.3 per cent, the lowest since mid-2008, but job creation has now topped 200,000 for three consecutive months.
According to the U.S. Labor Department, the U.S. economy churned out 288,000 jobs in April. Notably, the government also revised its figures from February and March, to put each month also above the 200,000 mark.
Today’s showing surpassed the projections of many economists, who had forecast job gains of more than 200,000 and an unemployment rate slipping marginally or holding steady at the March reading of 6.7 per cent, our Washington correspondent Kevin Carmichael reports.
Unemployment in the U.S. is still elevated, and the participation rate has slipped to just shy of 63 per cent. And, as the report shows, wage growth is lagging.
Still, today’s report suggests the U.S. labour market is on the mend, and indicates the Federal Reserve has been on the right track, easing its bond-buying stimulus program while holding its benchmark interest rate at an historic low of zero.
"This is a rather strong report that shows widespread improvements across all industries. We like the fact that hiring can now be qualified as firm in construction and temporary help services (a leading indicator)," said chief economist Stéfane Marion of National Bank.
- U.S. payrolls surge in April, jobless rate hits 5-1/2 year low
- Euro zone joblessness barely falls in March
A sexy deal
Talk about a love triangle: Torstar Corp., which once feasted off its Harlequin romance novels, is selling the business to News Corp.
Harlequin Enterprises Ltd., the world’s great publisher of romance and ‘bodice rippers,’ will now be a unit of News Corp. subsidiary HarperCollins Publishers.
As The Globe and Mail’s Bertrand Marotte reports, Torstar plans to use some of the $455-million from the sale to help pay down debt.
“While making the decision to sell has been difficult, we are confident that this transaction represents excellent value for Torstar shareholders and it also further strengthens the financial position of Torstar,” said chief executive officer David Holland.
Just say no
AstraZeneca PLC is holding out for a better takeover deal from Pfizer Inc.
Better than the $106-billion (U.S.) now on the table.
“The financial and other terms described in the proposal are inadequate, substantially undervalue AstraZeneca and are not a basis on which to engage with Pfizer,” the pharmaceutical giant said today, rejecting its U.S. rival’s new proposal valued at the equivalent of almost $84.50 a share.
“The large proportion of the consideration payable in Pfizer shares and the tax-driven inversion structure remain unchanged.”
Streetwise (for subscribers)
ROB Insight (for subscribers)