Canadian Fiscal Update: Investing in Productivity?

AppleMark

Corn harvest continues for me and it sure is a battle in 2018. I documented that last week just add a little bit of snow this week and cold weather. It seems the Canadian winter wants to come early. Of course when we’re not dodging the cold weather, corn farmers continue to experience the Vomi roulette. Around and around we go trying to avoid the bad vomi tests. (Vomitoxins)

That problem is a career first for me, it is so serious and it continues. So I found it somewhat refreshing this past week to start thinking about something else. Which came up in the news, an old-fashioned fiscal update from Finance minister Bill Morneau. I’m sure he doesn’t know much about Vomi, but when it comes to our Canadian economy a good look at the numbers is always apropos.

Last Wednesday, Finance minister Bill Moreau delivered his 2018 fall economic statement in the House of Commons. Among other things he mentioned that our Canadian economic growth rate is at 2%, which is slightly higher than inflation. Our unemployment rate is pegged at 5.8%, which is an incredibly low figure compared to years past. The projected federal deficit is currently pegged at 18.1 billion for this current fiscal year. The Canadian debt is expected to grow by 96.7 billion to 765 billion by 2023/24.

Depending on your political philosophy, those numbers are either good or bad. I often think of myself as a Keynesian economist, so I like to see government involved in the economy, creating jobs and providing for the welfare of its citizens. A 5.8% unemployment rate is close to full employment as I’ve seen in my lifetime. Nobody likes to see the debt get out of control, but we are still a long way from that happening. Needless to say, my friends on the conservative side of the political spectrum probably think the debt is long past out of control. There lies the political argument for the federal election coming in less than one year.

What may be controversial in the latest fiscal statement was the $17.6 billion in new federal spending announced by finance minister Morneau. Much of this new funding will be used to boost Canadian productivity, specifically going into new accelerated capital cost allowances for business. For instance, these new capital cost allowances would allow businesses to write long-term assets much quicker. I have had no confirmation if these new capital cost allowances would apply to farm businesses. If they do, it will be a major boost in incentive for some farmers to invest in new equipment. However, the details have been lacking over the last 24 hours.

Some might argue that new capital cost allowances for agriculture simply benefit the equipment companies at the expense of farmer’s bottom line. I really don’t want to argue that point here. It never makes sense to avoid tax by buying unnecessary machinery. However, if the machinery boost productivity gains that pay the costs incurred, it helps. Finance Minister Moreau is making that attempt, but adding to the federal deficit as well.

Whether you are Liberal, Conservative or NDP in Canada, you’d have an opinion about this. Keep in mind that the minister has many reasons for these new policies and one of them is competition from our southern neighbor. We might have a new trade agreement with United States, but the Americans have also cut their taxes effectively pushing Canada to do the same to remain competitive. President Trump has had his way and Canada needs to compete with American taxes too.

Part of the new funding ($1.1 Billion) is going to go as tax credits for local journalism, a social finance fund and pay equity for federal employees. Of this, $600 million will go to Canadian independent journalism. Ok, now I know you’re all wondering how much of that $600 million Phil is going to get! Needless to say, that money will be shared between non-profit and profit news organizations. There will be tax credits as well as some types of subsidies for labour. Simply put, the government seems to be concerned about traditional media moving into the digital age. How that might affect the Farm press, I don’t know.

The federal deficit will continue to grow with no plans to rein it in. Of course, with the Canadian economy doing very well, the Liberal government is hoping to set themselves up for reelection next year the Conservatives on the other hand are trying to do the opposite, always talking for more fiscal prudence. The NDP is just having a hard time being heard. Surely, over the next 11 months all of these economic statements will have a political bent.

In the meantime, our economic problems are real, just ask anybody in the oil industry in Alberta. Of course, this Vomi problem in Ontario is hurting our economy too. The list could go on. The challenge for any government responsible is to get the economic fiscal thing right because without it these problems can’t be dealt with.