Unemployment rate steady in April

Posted May 8, 2009 by Sacha Peter
Category: Analysis, Economy

Last month, I wrote an article about the increasing unemployment rate, and also to watch out for the May 8th labour force survey.

Statistics BC released their monthly update of the labour force numbers today. Here is a copy.

The take-home message here is that the numbers are almost perfect for neither party to take any sort of “credit” – the seasonally adjusted unemployment rate is steady at 7.4%, while the seasonally adjusted employment rate increased from 60.8% to 61.2%, and a mild increase in the participation rate (from 65.7% to 66.0%).

In other words, this month of data is more or less identical to the previous month, which means that it is electorally insignificant. You can be sure that the NDP would be screaming murder if the unemployment rate continued to rise, or the BC Liberal party would claim “We created jobs that the NDP would destroy!” if the unemployment rate decreased. This release gives neither party any ammunition with respect to this.

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Convention Centre springs a leak

Posted April 28, 2009 by Sacha Peter
Category: BC Liberals, Economy

The biggest costing failure of the government of the past four years has been the downtown Vancouver convention centre – the original budget was $495 million (mysteriously like the projected 2009 BC Budget deficit!), while the actuals have come around $880 million.

The government was probably breathing a sigh of relief when it finally opened to the public in early April – even though the project was massively over budget, it was a done deal, and would be out of the public spotlight during election time.

Unfortunately during a convention of the Public Service Alliance of Canada, a water main leak sprung and the centre had to be evacuated. According to the Province:

Convention-centre general manager Ken Cretney said the damage was limited to water damage and he doesn’t expect costs to be excessive.

“There’s no injuries or permanent damage, just a lot of cleanup,” he said.

Cretney said the leak was not due to shoddy construction. “It can happen anywhere, anytime, new or old buildings.”

Whether “it can happen anywhere, anytime, new or old” could be true. Or it could be not. In terms of public optics, however, the easy inference to make was that there might be something wrong with the construction.

I truly hope this was a one-off incident, but the timing of this has just been very unfortunate for the BC Liberal government, since it was anticipated that the budgetary failure of the Vancouver convention centre would have been a footnote of this campaign.

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Life, death and income taxes

Posted April 28, 2009 by Sacha Peter
Category: Economy

April 30 is the deadline for getting your T1 form into the Canada Revenue Agency. If you do not file income taxes you will pay a penalty of taxes that are otherwise outstanding, so even if you can’t pay up, I highly recommend filing a return (which can always be amended later if you do not have accurate numbers).

Income taxes are mostly a federal item, but the pink sheets in the tax guide are for provincial taxes. I am openly wondering this year whether taxes will be a factor this election – unfortunately most people only have a faint impression how much income tax they pay, and easy to use software makes that number even less transparent.

The threshold of income required to pay taxes in British Columbia has been rapidly increasing, however – you can make an income of approximately $17,400 a year and not pay provincial income tax.

I do not think personal income taxation will make a huge impact this election, but the other taxes (carbon, and corporate taxes) have had much more limelight.

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Raising the carbon tax

Posted April 21, 2009 by Sacha Peter
Category: BC Greens, Economy, Environment

The Green Party sent out a press releasing calling for an increase to the carbon tax (Media Release).

Victoria, BC –– The Green Party of BC is calling on British Columbians to support an increased tax shift on green house gas emissions from $10/tonne to $50/tonne.

The $10/tonne (now $15) shift by the BC Liberals is a start, but BC Greens would shift more sooner — starting with $50/tonne,” said Jane Sterk, Leader of the Green Party of BC.

“Since revenues from the tax will be used to reduce payroll and income taxes, most British Columbians who have choosen alternates to burning hydrocarbons have already increased their overall revenues. Along with the GST rebate and lowered personal taxes, some low income, northern and rural dwellers have also seen reduced expenses.”

The press release looks rushed and not researched properly.

The second paragraph states that the carbon tax is levied at $10 per tonne, but then states it is now $15 – it is not. It will be $15 as of July 1, 2009, and $20 as of July 1, 2010, and $25 as of July 1, 2011, and then the last legislated increase is $30 as of July 1, 2012. Presumably this legislation will be extended if the BC Liberals are re-elected.

The third paragraph is badly worded and is plainly incorrect. Revenues from the carbon tax cannot be used to decrease payroll taxes (CPP and EI) mainly because these are federal jurisdiction items. The provincial government cannot directly reduce these payroll taxes. Saying that the carbon tax, from an individual perspective “increases overall revenues” is also incorrect phrasing; “reducing expenses” is proper. Finally, the GST rebate (another federal jurisdiction matter) has nothing to do with the provincial carbon tax.

This isn’t the first time the provincial Green party has mixed provincial and federal jurisdiction matters; in their original platform document, they stated they would accelerate capital cost allowance rates for “green” capital expenditures; and also permanently put in place the oil drilling moratorium – both of which are federal matters.

Politically, calling for a carbon tax increase is not going to win mainstream voters for the Green party; especially since this release does not explain in a concrete fashion (i.e. dollars that are planning on being spent for various initiatives) on how the revenues from such a tax increase would be utilized – there is reference to “Initially money would be directed toward programs in rural and northern communities”, but somehow I doubt those communities will be thrilled about this. The press release also implies that the “revenue neutral” aspect of the carbon tax (i.e. every dollar collected from carbon taxation will no longer be applied to tax reductions elsewhere) will no longer be adhered to.

The impact of a $50/tonne carbon tax, assuming a 10% reduction in consumption of fossil fuels over projected 2009-2010 levels, would be a $1.42 billion dollar per year tax increase over and above the 2009-2010 budgeted amount (of $546 million). A $50/tonne carbon tax would represent a 11.7 cent tax per litre of unleaded gasoline.

Finally, keep in mind the title of the press release was “Green Tax Shifting Reduces Emissions Without Increasing Taxes”, which is completely inconsistent with what the rest of the press release stated since the tax increase would be approximately $1.42 billion, assuming fossil fuel consumption is reduced by 10%.

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Looking at the “scrap the gas tax” backlash

Posted April 14, 2009 by Sacha Peter
Category: Analysis, Economy, Environment, NDP

The BC Liberals are firing the first shots in the yet-to-be-formalized election period, with respect to the NDP’s positioning on their declaration of scrapping the carbon tax.

Rather, it was the environmental lobby groups (most notably the David Suzuki Foundation) that went against the NDP for their stance on the carbon tax, but quite a few others piled in.

This policy decision was a very interesting choice for the NDP, and I generally think it will be a net positive for them, although whether it is a “small” or “large” net positive will remain to be seen in terms of how they perform in the rest of their campaign.

The reason is because people that are generally inclined toward the environment as single-issue voters are much more likely to vote Green than to vote for the NDP, and even less likely to vote for the BC Liberals. The simple election calculation is that the NDP already bled most of their environmental support in 2005, and likely did not stand to gain much by supporting a tax which polling indicated about half of British Columbia did not like. I have not seen a recent poll on the question of the carbon tax, however – this may have changed.

The NDP probably looked at the federal election results in British Columbia and judged the carbon tax and its impact (weighed against the fact that the Liberal Party was running a weak leader in Stephane Dion). The real question is – how many “single issue” voters are there with the carbon tax, and how many “multi-issue” voters are there that would be tipped with the promise of getting rid of the carbon tax?

Most people (except the media) generally tune out what the environmental groups have to say as the alarm bells have been rung too many times to be effective; the only news is that the apparent perception that the environmental groups were solid support for the NDP has been confirmed, but this is just revealing something that has been the case for awhile.

One negative aspect of this tactical choice by the NDP is that the government gives out a $100 cheque for anybody making less than $30,000 income a year (or $35,000 joint income if you are married; which is really a penalty on marriage). The BC Liberals will argue this. This is a rational argument, but the opponents of the carbon tax have made it beyond numbers, and have been quite successful at that.

Lower gasoline prices have also mitigated the problem somewhat for the BC Liberals; they will not be nearly as fortunate in 2013 when it is very likely that fuel prices will be much, much higher (here’s a hint for everybody – you may wish to hedge your price on energy consumption by looking into investing in some oil and gas companies).

In general, the government would have saved themselves a lot of pain had they just increased the motor fuel tax by 2.4 cents a litre and phased in subsequent increases in future years. This would not cover natural gas, coal, etc., but this could have been worked around.

The NDP, as an alternative, have been proponents of cap-and-trade, which is a less transparent system of greenhouse gas emission taxation, although public perception is generally not aware of this. What is odd, however, is that the government has already enacted a form of cap-and-trade, via Bill 18 (2008), the Greenhouse Gas Reduction (Cap and Trade) Act.

Finally, something powerful is the effect on ordinary voters, opposed to special interest groups, when they do the mental comparisons – if the NDP made the ballot question “Do you want to scrap the carbon tax?” it may be highly effective for them in the very swingy interior regions (e.g. the Cariboo).

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Dramatic increase in unemployment

Posted April 11, 2009 by Sacha Peter
Category: Economy

The March 2009 labour force statistics came out a few days ago. The data can be read here (second chart is here), but can be summarized by the following charts (click for details):

The 15-24 crowd had a huge increase in unemployment, while the older than 24 crowd had increases as well. Angus Reid Strategies polling claims there is not much of a voting differential with age, but Ipsos-Reid claims that younger voters are less likely to support the BC Liberals and are more likely to support the Greens than older people – certainly an increase in unemployment will contribute to that.

Regionally, the Cariboo region has registered the highest decrease in employment (-4.4%), which might be electorally significant in that swing area.

The second chart contains political gold for the NDP – a chart showing BC ranked tied for last out of the ten provinces in terms of employment growth. Although this is a one-month comparison (year to year), it does not look good for the existing government.

This sharp increase in unemployment is likely to continue rising for the following month. The next labour force statistics release will be on May 8, 2009, which is an electorally significant date – if the BC Liberals continue to campaign on being the party to stop unemployment rises, it will undermine the credibility of that message.

The other message is that these data points are making it increasingly obvious that the projections of the 2009 Budget are not going to be realized at all – that a significantly higher deficit than $495 million will be incurred in the 2009-2010 fiscal year. I did say something to this in my analysis of Budget 2009, where I stated that “there is material risk on the revenue side”. In a subsequent analysis, I stated the following:

My guess right now is that the 2009 deficit will be about $1.2 billion, given what we currently see. If housing starts drop to 50% of the previous year’s level, and we see unemployment go up to 8-8.5% (which is not entirely unreasonable), then we might be looking at about $2 billion.

I stand by my projections. Also not helping is the fact that natural gas prices are at multi-year lows, which will continue to erode the natural gas royalty revenues from the budget (although I am projecting that this will normalize somewhat in 2010).

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First BC Liberal promises of the campaign

Posted April 7, 2009 by Sacha Peter
Category: BC Liberals, Economy

Premier Gordon Campbell today announced three tax measures. These measures cannot be enacted by the government without legislation, so this is clearly the first BC Liberal promise of the election campaign:

1. The government will increase the training tax credit from $2,000 to $4,000 of wages paid for apprentices in training. How this program works is described here, but essentially it means that a company hiring an apprentice will receive 10% of the salaries/benefits paid to that worker back in the form of a tax refund. So if you hired somebody and they were paid $15,000 then the company would receive a $1,500 refundable tax credit. This promise will increase the salary that can be paid for this credit from $20,000 to $40,000.

Note that the phraseology of “tax credit” is somewhat ambiguous – when the Federal government announced that they will give a “tax credit” for monthly transit pass purchases, when you pay $73 for a 1-zone bus pass, you do not receive $73 back from the CRA – instead you receive a $73 tax credit, which is worth $10.95 off your federal taxes (assuming you actually owe over $10.95 in federal taxes to offset the tax credit).

The tax credit for the training tax credit is for the full amount, plus it is refundable, so even if your company is losing money and not paying income taxes, you will still receive a refund for 10% of the salaries paid per apprentice, up to $2,000 (and $4,000 assuming the government can legislate this in).

The government says this will be effective July 1, 2009, but assuming they are re-elected, will likely have to retroactively set this date whenever the legislature goes back into session.

2. Promised that the small business income tax will be reduced to the “lowest in Canada” by April 1, 2012, to be paid for by carbon tax revenues – right now the small business income tax rate is 2.5%, and the lowest in Canada is currently in Manitoba at 1%.

I remember asking the provincial government in 2007 what a one percent reduction in the small business income tax rate was and got the following answer:

Gross tax revenue (gross of tax credits) from the small business rate (4.5 percent) is estimated at $268 million in 2005/06 and $297 million in 2006/07.

It is estimated that a one percent change in the small business rate would have a $72 million revenue impact.

It is interesting how they linked this tax decrease to “carbon tax revenues”, as they could have earmarked any revenue reduction measure to the carbon tax.

Assuming that the numbers from 2007 are relatively consistent today and assuming the targeted rate is 1.0%, this measure would reduce potential revenues by roughly $110 million per year, offset by the positive economic impact of people moving capital into BC to do business in BC.

3. Raising the small business income threshold from $400,000 to $500,000 on January 1, 2010. This harmonizes what the definition for tax purposes is of a “small business” with the Federal government, which increased the threshold from $400,000 to $500,000 in their 2009 budget.

Politically this is playing to the BC Liberal base and it will be tough to attack from the NDP perspective because it involves small businesses and not large businesses.

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Will housing valuations impact the election?

Posted April 2, 2009 by Sacha Peter
Category: Economy

Reading the April 2009 report of the Greater Vancouver Real Estate Board – “benchmark” (average) prices have dropped about 14.0% over the past year, but over the past three years prices have been up 8.6%. Over the past five years, benchmark prices are up 45.9%.

Initially thinking it through, while I don’t think real estate prices will have much of an electoral impact, there are a couple variables in play.

1. The volume of housing transactions are down, which will affect provincial revenues through the property transfer tax. Calls to get rid of the property transfer tax will probably be lessened as a result of reduced transaction volumes. Ironically, during lower volume times probably makes it easier for government to do something about the property transfer tax as the impact on revenues would be lessened.

The property transfer tax is a tax on 1% of the first $200,000 of transacted property, and 2% for anything above this. The thresholds have not been adjusted for inflation and this revenue source constitutes approximately $735M for the 2008-2009 fiscal year. First time home-buyers can receive an exemption for up to $425,000 of property value (this amount doesn’t go too far in the GVRD!).

2. Lower property valuations would likely impact older people’s networths – equity in real estate is the primary asset of a lot of residents, especially older people in the Vancouver area that have seen their houses appreciate. As older residents tend to have higher voting frequency, property values (or the perception of which government will do more to enhance property values) may have an influence on the vote.

Conversely, lower property values enhance “affordability” of housing, so there is a zero-sum relationship between two groups of people – those that own real estate, and those that want to own real estate. It is difficult to judge the political impact of this.

The government has already implemented measures to allow older homeowners to take low-interest rate loans to defer property tax payments on their residences.

If property values were to decline or rise 50% next year, would the provincial government be attributed for setting policies that caused the price change? I doubt it – it seems that the only issue that has gotten any sort of press is the property transfer tax, and it is unlikely that it will go away, nor will it decide any votes.

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