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HEATHER SCOFFIELD

Globe and Mail Update

Latest comment posted at 3:48 PM EDT 29/02/08

Canadian economy will see a short-lived slowdown, but there is no contingency reserve as slim surplus looms on horizon ...Read the full article

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  1. Yvonne Wackernagel from Woodville, Canada writes: This $5000 savings account: The more I look at it, the more I think it is such a petty useless policy. How many youngsters, students or low-paying workers will put aside this sum just to make about $125 in interest for a year when they could do better in investing in a hard asset which, if well maintained, could inflate (even in poor economic times) at a rate higher than 2.75%. On the other hand, if the amount were, say, $25,000, grandparents might be encouraged to help by advancing this for postgraduate education, because this amount would attract a higher interest rate from a lending instituion and the income (not taxable) could then be used for other necessities. In my opinion, it is a poor proposition of a policy, not very encouraging. On the other hand, as a senior, I could probably use it but, then, I could insist on a higher interest rate from my investor bank. So, when you think about it, this policy will attract the wrong people because I think it is intended for the emerging adult.
  2. S. Rossel from London, Canada writes: Ahhh the hubris of the young.. as Wilde would say: "I am not young enough to know everything."
    Put together a spreadsheet... 25 years at $5,000 a year with a 5% net return.. all tax free.
    Now compare this number to $5,000 x 25 years taxed at 20%.
    If the difference is not self-evident then good luck with your investing future.
  3. David Simon from Canada writes: If the government is putting $10 billion against the debt doesn't that count as a reserve, since it could now have a $10 billion deficit with no change to current conditions?
  4. Jack Napier from Ottawa, Canada writes: David Simon from Canada - Reserve is not really the right word to use, but you are correct about the neutrality of paying down 10b in debt and subsequently running a 10bln surplus. In fact, doing so would likely be a net positive because maturing debt is typically at a higher interest rate the newly issued debt (this is due largely to inflation control by the Bank of Canada). A deficit in the near future would be a result of tax breaks, so any interest payments on newly issued debt would come from the same money that was given back to tax payers due to the tax cuts. It is in effect no different than the Fed's hoarding cash for future debt payments, except that instead Canadians can choose to save of consume tax relief to suit there individual preferences. Flaherty has been practicing pretty sound fiscal management, I didn't like his first budget, but the next 2 were pretty solid. Cheers!
  5. D. Patrick from Gonzoville, Canada writes: "...the Conservatives are adamant about using tax cuts to stimulate the economy, instead of picking winners and losers to subsidize."

    As they, and any prudent government, should be. The track record of government in picking winners is poor, as is the efficacy of subsidising loss making companies and sectors. Strong companies will emerge by reducing the cost of doing business overall and tax cuts are the main way to achieve that.

    This article seems to miss the point that the real budget was months ago, the Economic Update. A good thing too. The international environment has deteriorated since then and all the tax cutting stimuli announced then have had time work through. Good that he (Flaherty) did not wait. Why do the G&M lead statements all claim this to be such a thin budget, lacking stimulus etc etc. The news was already out, re the Update.
  6. D. Patrick from Gonzoville, Canada writes: S. Rossel. It is quite a boost to private investment, the TFSA. Does this new instrument not promise to fundamentaly alter the investment and tax planning landscape? It is the most significant innovation since the RRSP, and, once established, it will be difficult to shut down.
  7. k p from Canada writes: Ms Wackernagel, "On the other hand, if the amount were, say, $25,000, grandparents might be encouraged to help by advancing this for postgraduate education, " That's what the RESP scheme is for. And what "Hard asset" is guaranteed to yield 2.75% even in hard economic times, and no the answer is most definitely NOT real estate.
  8. bill wilson from Taiwan writes: Don't yah know, It never rains in Harperland. What do we need a surplus for, its just money we don't get to throw at the voters. What an incompetent bunch of %$%^$^&. Pay down the debt now while interest rates are still low. With inflation coming ($100 oil and $20 wheat), rates are going much higher. It will be too late then.
  9. NL_Expatriate www.nlfirst.ca from www.nlfirst.ca, Canada writes: No nation building in there just maintain the status quo of vote buying from the majority provinces and per capita funding. Democratic Discrimination against the minority provinces in favor of vote buying in the majority provinces.
  10. J Kay from Canada writes: A few comments though I'm uncertain if they'll be read. With regard to the article which few seemed to have commented on, I believe the risk of a possible deficit due to the downturn in 2008-09 is fairly real. If one reads the budget the government does a bit of risk sensitivity analysis to the budget forecasts which calls for a $2.4 billion surplus in 2008-09 and a $1.3 billion surplus in 2009-10 based on the forecasts. However when these forecasts like the October 2007 one were done, the assumptions about growth were somewhat optimistic and have deteriorated a bit since then. The sensitivity of the budget forecasts is such that a 1% decrease in real GDP growth, which could be due to a 1% drop in nominal GDP, a 1% increase in inflation or a .5% decrease in GDP and increase in inflation, will result in the budget position changing by $3.3 billion dollars. Thus a $2.4 billion surplus in 2008-09 becomes a $0.9 billion deficit. I would have preferred a bit more prudence.

    With regard to the TFSA Yvonne I'm not quite sure what you're referring to. The TFSA accumulates so even if a student or someone low income can't contribute right now they could in the future and the room they don't use today accumulates, so in 5 years they'll have $25,000 of space. Second they can invest it in 'whatever' they want, be it mutual funds, stocks, GICs, high interest savings account, etc. It is merely a tax free holding account for whatever investment one wishes to put it into (it merely has to comply with RRSP investment eligiblity criteria). Indeed if the management costs of it aren't significant, then I think it would be wise for anyone with money in their chequing/savings account who needs easy access to move it to one of these accounts in a open GIC such that it can be accessed at anytime, yet pays better interest than a chequing account and avoids having to pay any tax on the interest from the GIC which is simply being used to avoid inflation effects.

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