Friday, June 15, 2007

While Rome is burning

You really have to marvel at all these righteous politicians who are making major hay on the equalization issue. Not that I disagree with them for a moment that a signed contract and a solemn election pledge need to be faithfully honoured by the Prime Minister. However I’m not sure that I am sympathetic with the essence of the argument that resource revenues are phantom revenues for purposes of equalization payments. But then that’s their shtick, not mine. What I do marvel at is the extent to which these politicians and the media heap attention on a discussion that amounts to people arguing over what constitutes their “equal” slice of the pie, and meanwhile the overall pie is shrinking before our very eyes and no one seems to either get it or care.

A dispute at the margin takes center stage over a destruction of the stage itself. So what is the quantum of the equalization dispute? One billion over 11 years or something of that magnitude. Hardly chump change, however there are no hard and fast numbers unless you are endowed with the ability to predict with certainty future energy prices over the next decade.

Meanwhile Rome is burning on a socio-economic basis. The entire income trust sector and income trust conversion candidates like BCE and Telus will be quickly scooped up by predominantly foreign private equity over the next 6 to 18 months and no one seems to care. Seniors’ income will be halved as a result, and no one seems to care. One need not have a crystal ball or even make any adventuresome assumptions to quickly come to the realization that about $7.5 billion in ANNUAL taxes to various governments in Canada is at stake and will soon disappear. I repeat $7.5 billion a year. That’s the equivalent of a 1.5% GST hike. Do you think Canadians would be blithely indifferent about a 1.5% GST hike?

For a budget that Flaherty promised would put an end to decades of federal/provincial bickering, I would suggest that a couple of Provincial Premiers who are on the sidelines of today’s round of ongoing federal provincial bickering, namely Dalton McGuinty and Ed Stelmach take up the charge of the bigger pie that is at stake before someone eats our lunch. Do these gentlemen not realize that almost the entire income trust sector resides within their borders and well over half the investors as well? Does Dalton McGuinty not know that the bulk of Canada’s financial services industry and investment community resides in Toronto? More enlightened politicians like New York Mayor Michael Bloomberg are alert to the shifting sands of economic well being and he is proactively taking measures to preserve New York’s leadership in its essential areas, as he recently commissioned a study that he will be acting on that looked at why New York is losing dominance in Global Financial Services to the City of London. But then he’s a businessman first and a politician second and therefore is equipped to detect the smell of Rome burning in sufficient time to act accordingly.

The precipitous drop in the Canadian IPO activity reported on in today’s Globe and Mail is not some temporal phenomenon, rather it is a systemic and structural change that bodes only ill for Canada. Take my word for it. Since when does IPO activity dry up at a time of record stock market levels? The investment demand for the “next best thing” has been superceded by the investment demand of an aging population for the “next prudent thing.” That was income trusts. Even today’s opponents of income trusts of all stripes will come to rue the day that this market’s dynamism and inherent sovereignty preserving dimensions were fiddled with by Flaherty. The child called The Tax Fairness Plan is sure to become of orphan that none of its original progenitors will lay claim to even have known. Success has many fathers, outright inevitable failures of this magnitude are orphans that are certain to leave Canadians and Canada impoverished on a net economic basis.

Meanwhile our political leadership is crying over spilt milk and their piece of an ever dwindling economic pie. It’s high time Canadians and their politicians attuned their sense of smell. Survival of the fittest depends upon it. Are we to be a survivor or someone else’s next meal?


Anonymous said...

This blog causes me to wonder 'What will happen to the TSX?' At one end, there are no new issues. At the other end, listed companies are being taken-over and submerged into offshore ownership. That's not a formula for sustainable growth.

nineofiveland said...

Send this piece to everyone you know .. plus your MP .. MPP/MLA!