Japan to cut corporate taxes The Japanese government said today it will cut corporate taxes to help spur economic growth. The new government is targeting real growth of more than an average 2 per cent over the next decade. Analysts suggest the new governments goals are too lofty, particularly given that the country has a huge fiscal problem and needs to raise funds to slash its deficit. Economists told the Reuters news agency that Prime Minister Naoto Kan's government should commit to raising its sales tax to 15 per cent or 20 per cent over the next 10 to 15 years to help meet rising costs.
How spill could boost oil sands One of the side effects of the massive oil spill in the Gulf of Mexico could be more investment in the oil sands, which would in turn boost Canada's economy, economists say. New restrictions on deep sea drilling, and whatever regulations come into force in future, could prompt the view Alberta's oil riches are a "safer" alternative," Toronto-Dominion Bank economist Dina Cover said in a research note today. She cited the fact that offshore projects are projected to account for just 3 per cent of total output in Canada by 2025, while the oil sands are forecast to represent more than 80 per cent.
"Still, the notion that oil sands are a safer method of oil production, plus the fact that production costs may become lower than offshore costs once new regulations kick in, could attract more investment into the industry, helping to boost the Canadian economy. Moreover, lower potential output in the U.S. eases the risk of a regulatory ban on oil from Canada's oil sands, and could lead to increased oil exports to the U.S."
In a separate report today, CIBC World Markets economists noted in a report today that the oil sands are already on track to become the biggest single source of oil imports to the United States this year. "The Deepwater Horizon disaster has also focused attention on the oil sands' 170-billion [barrels] of economically recoverable reserves," said Peter Buchanan and Meny Grauman. "The [U.S. Department of Energy]expects the Obama administration's recent drilling moratorium to cut U.S. production by an average 70,000 [barrels a day]next year, which is equal to only about 1 per cent of current OPEC spare capacity."
Dollar could also benefit, RBC says The series of events that could be sparked by the environmental disaster could also give the Canadian dollar added life, RBC Dominion Securities says.
"Extraction from the Canadian oil sands continues to grow and with crude oil prices back above $70 (U.S.) a barrel, new greenfield projects and previously shelved expansions are once again starting to become viable," wrote senior currency strategist Matthew Strauss. "Also, as public and government appetite for deepwater offshore drilling ebbs, interest in onshore, safer oil extraction operations is set to increase. [The Canadian dollar's]petro status will continue to grow in coming years, but the positive [foreign exchange]impact of Canada's vast oil resources could be felt much earlier in the form of renewed foreign interest that could well translate into another round of multi-billion [mergers and acquisitions] inflows."
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Foreign investors grab up Canadian bonds After a one month dip, foreign investors are loving Canadian bonds again, largely federal and provincial debt. Global investors snapped up a net $10-billion in Canadian bonds in April, Statistics Canada said today, with most of the action in government paper. "Investment activity in April focused on federal and provincial government bonds, as non-residents acquired an unprecedented $6.2-billion of Canadian dollar-denominated federal bonds on secondary markets," the federal statistics gathering agency said. "Foreign purchases of provincial bonds were the largest in a year at $3.5-billion, mainly new issues denominated in U.S. dollars."
"It seems investors, who are often heard touting the merits of Canada's relative fiscal health and commodity-sector growth prospects, are putting their money where their mouth is," BMO Nesbitt Burns economist Robert Kavcic said before the Statistics Canada report.
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