Bill Morneau says there are signs of improvement in Alberta as he tries to reassure an anxious province

CALGARY — Canada’s finance minister sought to reassure Albertans in a speech to a Calgary business audience this morning.

Bill Morneau told the Calgary Chamber of Commerce that Alberta residents have been hit harder than most from the economic downturn.

He says there are some signs of economic improvement but he realizes many are still anxious.

Morneau spent the majority of his speech touting the government’s recent budget.

He said the plan will strengthen the middle class and help businesses thrive.

A number of business leaders were in the audience including Russ Girling, CEO of TransCanada Corporation which just received US approval for the Keystone XL pipeline.

The Canadian Press

Toyota and NTT to collaborate on connected car tech, including AI

 Toyota and NTT, one of Japan’s largest carriers, are teaming up to work on connected vehicle technology, with an agreement to work together on research and development in this emerging area. The team-up makes a lot of sense, since both carriers and automakers are looking to maximize the amount of data they can get from their customers as vehicles become increasingly connected.
The… Read More

Trump and Trudeau’s infrastructure spends unlikely to be lucrative enough to attract big global investors, fund says

U.S. and Canadian plans to spend more than $1.1 trillion on infrastructure are unlikely to be lucrative enough to attract big global investors, according to one of the world’s biggest funds in the sector.

U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau have both discussed plans to use infrastructure banks to attract private capital and help offset the cost of funding public projects such as roads, bridges and hospitals. The banks would be part of US$1 trillion promised by Trump and C$180 billion by Trudeau for infrastructure in the coming years.

The amount of red tape involved, modest equity required and small returns investors will see from the sort of public-private partnerships being proposed will act as a deterrent for the world’s largest investors, said Sam Pollock, head of Brookfield Asset Management Inc.’s infrastructure group, which has about $60 billion under management.

“What they’re mostly focused on so far is the mix of public and private capital — really creating an engine for PPPs and bringing down the cost of capital,” Pollock said in an interview at Bloomberg’s headquarters in New York. “That’s great for the government in trying to fund things, and I understand why they’re doing that, but it’s less of a fit for us.”

In Trump’s infrastructure plan, for example, there’s been talk of high leverage and tax credits that will make the actual equity commitment quite small, said Pollock. While that makes sense from a government perspective, the returns would likely be too small for big investors like Brookfield, said Pollock, who’s also chief executive officer of Brookfield Infrastructure Partners.

On the other hand, there would be a “feeding frenzy” of interest if the Canadian government decides to push ahead with plans to sell off the nation’s airports, Pollock said. The Trudeau government said in September it hired Credit Suisse Group AG to look at the benefits of privatizing the country’s eight largest airports, including in Toronto, Vancouver, Montreal, Ottawa and elsewhere.

Brookfield Infrastructure Partners manages assets from utilities, transport and energy to sustainable resources. It isn’t the only sizable investor that wants to see projects of scale come to market in U.S. and Canadian infrastructure plans.

Mark Machin, CEO of Canada Pension Plan Investment Board, the country’s largest pension fund manager, said last year his fund typically looks for infrastructure investments of at least C$500 million ($373 million). Although big investors like Brookfield, CPPIB and others have done some work in PPPs and developed some infrastructure projects, they prefer buying mature ones.

Australia Model

Australia attempted to address this situation with its asset recycling program. Under the program, the federal government committed 15 percent of the sale price of infrastructure assets to fund new projects as an incentive for state and municipal governments to put their assets up for sale.

Pollock said while there is still a lot of interest in investing in places like Canada and the U.S., there’s generally more upside elsewhere.

“We’ll compare what we can do in a European or North American context with the returns we can invest at in the same business, and taking a little more regulatory or country risk,” he said, pointing to places like Brazil. “Our sandbox is the world.”

In September, Brookfield led a group to acquire a majority stake in a natural-gas distribution business from Petrobras for $5.2 billion. It’s finding similar opportunities in India, where competition in the mobile telecommunication sector has led to several tower assets coming to market. Brookfield agreed to buy the mobile-tower business of Reliance Communications Ltd. for about $1.65 billion. 

At the same time, Brookfield is looking at building infrastructure teams in South Korea, Japan and possibly even China to explore infrastructure opportunities in Asia. Trump’s protectionist measures may also create an opportunity in Mexico as investors flee the country, Pollock said. Brookfield’s bread and butter remains carve-outs from big industrial companies that need capital.

“We are capital providers,” Pollock said. “We look around the world at who needs capital and who doesn’t have access to it in a plentiful way.”

Amazon’s retail ambitions include furniture and appliances, plus groceries in India

 Amazon’s brick-and-mortar retail plans currently focus on its ongoing roll-out of physical book stores, as well as its very limited experiments with cashier-less convenience, but it could expand those ambitions significantly with a number of plans currently in the works. The New York Times reports that it’s also exploring ways it might retail appliances and furniture, two categories… Read More

‘Tax fairness’: Bill Morneau says Ottawa’s wide-ranging review could target tax planning strategies

Canadians shouldn’t assume that the lack of major tax hikes in Budget 2017 means no big changes are coming, Finance Minister Bill Morneau said Friday.

Morneau was in Toronto to promote the federal government’s new budget through a lunch hour speech to a Bay Street crowd, and it wasn’t lost on him that many in the audience are high-income earning professionals working in the financial sector.

“Last year, we asked some of you to pay more in tax, so that we could cut taxes for the middle class,” Morneau said.

Prior to this week, there were fears that Budget 2017 would introduce measures that would demand the rich pay even more. The budget document that emerged on Wednesday talked about “tax fairness” and arguably focused more on smaller-sized tweaks to the system than a major overhaul.  

Speaking to reporters after the speech, Morneau said the government is in the midst of a wide-ranging review that aims to reduce what the budget document describes as “tax benefits that unfairly help the wealthiest Canadians rather than the middle class and those working hard to join it.”  

The government is concerned with tax planning strategies in which individuals use private corporations as a means to reduce their personal tax burdens.

In so-called “income sprinkling,” a business owner might distribute profits from the corporation to close family members in lower tax brackets. The government is also studying whether individuals are using corporations to hold what are really personal investment portfolios, and are benefiting from pay-out strategies in which income is distributed as capital gains, which are taxed at a lower rates.

But if you want a hint on what will come of that study, you’ll have to wait, the minister said.

“We have announced the measures that we want to announce right now,” Morneau said when asked to elaborate on the government’s intentions.

“There will be a paper that will be coming out in the near term. I can’t tell you the exact date, but it won’t be that long, to explain where we see the issues, how we intend on approaching those, seeking input, and we will move expeditiously in considering how we can implement,” he said. “Our paper will provide more insights into that.”

Morneau also noted Canada’s official acceptance, announced Thursday, as a member of the Asian Infrastructure Investment Bank. The government had announced in Budget 2017 that it would pay $256 million over five years to acquire shares in the bank.

“The AIIB will help sustain growth in Asia and represents an opportunity for Canada to further engage in multilateral development efforts that support inclusive economic growth in Asia and beyond.”

Financial Post

Mexico can survive the end of NAFTA, willing to walk away from negotiations, diplomat says

Mexico is prepared for the end of the North American Free Trade Agreement if it can’t reach a deal with the U.S. and Canada that benefits all three nations, the country’s top diplomat said.

President Enrique Pena Nieto’s administration is committed to keeping North America tariff-free and has set clear limits for what it can accept in negotiations with the U.S., Foreign Relations Minister Luis Videgaray said Thursday in an interview with Bloomberg TV. He added that his strong relationship with Jared Kushner, President Donald Trump’s son-in-law and adviser, is an asset for Mexico going forward.

Videgaray said that Mexico is open to including a peso stabilization mechanism, alluded to earlier this month by U.S. Commerce Secretary Wilbur Ross, as part of a NAFTA update, as long as it preserves free trading for the peso. Improved rules of origin could also added, he said. Like central bank Governor Agustin Carstens, Videgaray said he views the nation’s currency as undervalued even after its world-leading rally since Trump’s inauguration. The rebound shows that investors understand the three NAFTA partners are committed to reaching a good deal, he said.

“If what is on the table is something that is not good for Mexico, Mexico will step away from NAFTA” and rely on the rules of the World Trade Organization, Videgaray said, speaking on the sidelines of Mexico’s annual banking convention in the resort city of Acapulco. “There will be a future without that. The question is ‘Why would you want to do that, if we can have a trade deal that can be much improved to the benefit of the three countries?’”

Mexico felt the initial brunt of Trump’s presidency after the peso tumbled amid threats he’d rework or scrap NAFTA and make Mexico pay for a border wall to keep out undocumented immigrants. The currency has since made a comeback after Trump administration officials including Ross and trade adviser Peter Navarro said that the U.S. and Mexico have an opportunity to reach a NAFTA deal that can benefit both countries.

Asked about Trump’s “America First” mantra, Videgaray said that while any sovereign nation should be prioritizing its own interests, the U.S.-Mexico relationship and NAFTA aren’t zero sum games.

“For any country, and that includes Mexico and the U.S., having good, robust relationships with crucial allies and neighbours — that’s putting your country first.”

In NAFTA Showdown, Mexico Has Wild Card to Play Against U.S.

Videgaray said NAFTA should continue to protect investments made in all three countries. While Ross said earlier this month that NAFTA talks will probably start in the latter part of 2017 and suggested they could last a year, Videgaray said the White House has been telling him they expect the renegotiation to begin this summer.

At the same time, Videgaray said Mexico is “very concerned” about democracy in Venezuela, where regional elections have been delayed, the legislature’s powers curbed and political opponents of the government jailed. Mexico wants to work with the region to send a strong message, he said

Videgaray, a 48-year-old, MIT-trained economist, has long been considered to be the master strategist behind Pena Nieto; first as his finance chief when Pena Nieto was governor of the State of Mexico, then as his 2012 campaign manager and later finance minister for his first three years of his presidency. He has forged relationships with both Trump, who has referred to him as a “wonderful man,” and Kushner, who Videgaray on Thursday said is “a very smart person, somebody that I know and trust personally.”

Kushner and Videgaray helped arrange an August visit by then-candidate Trump to meet with Pena Nieto at the presidential residence in Mexico City. While Videgaray resigned days later amid criticism of the trip, he was brought back into the cabinet in January after Trump triumphed.

The Mexico-U.S. relationship “is defined by institutions; it’s not about a particular individual,” Videgaray said. “I think always having somebody that you trust and you know can help in the communication; that is very important. But at the end of the day, it’s institutions that are going to define the future of this relationship.”

Canadians are paying less for food, but a lot more for gas

OTTAWA — The annual pace of inflation in Canada ticked lower in February as higher prices for gasoline were offset in part by lower costs for fresh fruit and vegetables.

Statistics Canada said Friday the consumer price index rose 2.0 per cent on a year-over-year basis in February. The move compared with a 2.1 per cent increase in January. Economists had expected it rise 2.1 per cent in February as well.

Prices were higher in seven of the eight major components, with food the only one to decline.
Excluding gasoline, the February consumer price index was up 1.3 per cent compared with a year ago following a 1.5 per cent in January.

Transportation costs gained 6.6 per cent compared with a year ago, boosted by a 23.1 per cent rise in gasoline — which was at an unusually low level in early 2016. Shelter costs rose 2.2 per cent.

Food costs fell 2.3 per cent as prices for food bought from stores fell 4.1 per cent. Prices for food bought from restaurants rose 2.3 per cent but fresh vegetables dropped 14.0 per cent and fresh fruit slipped 13.3 per cent, partly reflecting a spike in prices last winter.

The annual pace of inflation slowed in seven provinces on a year-over-year basis in February while Ontario and B.C. both held steady at 2.3 per cent. Manitoba was the only province to show an increase in the annual pace of inflation as it increased to 2.3 per cent compared with 2.1 per cent in January.

Statistics Canada said the Bank of Canada’s three preferred measures for core inflation saw year-over-year increases last month of 1.3 per cent, 1.9 per cent and 1.6 per cent.

Budget 2017’s economic forecasts are timid and that spells good news for protecting your wallet

Economists say Budget 2017 is based on some cautious assumptions about the pace of Canada’s economic growth. Ottawa’s timidity is important because it just might keep your taxes from going up.

According to the 278-page budget document delivered on Wednesday, the federal government believes Canada’s gross domestic product will grow by 1.9 per cent this year.

That forecast is based on the economic data that was available last December. Since then, fresh statistics suggest Canada is on track to perform much better. According to a survey of 26 private sector analysts by Bloomberg News, Canada’s economy will actually grow 2.1 per cent in 2017. And that’s just a median. Some banks, such as TD and BMO, see Canada’s GDP growing 2.3 per cent this year.

“Ottawa’s economic assumptions are based on a somewhat outdated private-sector forecast, taken before the economy began to flash real signs of improvement,” write Douglas Porter, chief economist, and Robert Kavcic, senior economist, with BMO Capital Markets. “Since that consensus forecast was locked in late last year, we’ve seen a near-relentless run of positive economic data, with particular strength in employment.”

Here’s how this reaches right into your wallet. Stronger economic growth brightens the government’s revenue prospects, and that puts less pressure on the government to narrow the deficit by hiking taxes.

The government is forecasting a deficit of $28.5 billion for the fiscal year ending March 31, 2018. That includes a $3 billion “allowance for risk” or contingency that captures any forecasting errors on the revenue side or unforeseen needs on the spending side.

According to CIBC, every half-per cent overshoot in GDP is worth $2.4 billion to the fiscal balance. In other words, an economy that outperforms the government’s expectations would boost revenue and leave the $3 billion contingency account untouched, writes Avery Shenfeld, chief economist of CIBC Capital Markets.

“As long as the economy grows in line with its forecast, there’s no pressing need to tax some Canadians more, unless it’s being used to either have a more aggressive spending program, or offer tax cuts to other Canadians,” Shenfeld writes.

In the lead-up to the release of Budget 2017, there was a lot of concern that the Liberal federal government would boost taxes on capital gains or introduce other tax measures that target higher income individuals. None of those fears materialized. The government will likely be content to live with a revenue stream that keeps Canada’s debt-to-GDP ratio steady. The government forecasts the debt-to-GDP ratio to be 31.6 of nominal GDP for fiscal 2018 and 2019.

“Hot-button issues, such as changes to the capital gains tax and the potential sale of airports, were not acted upon,” write Beata Caranci, chief economist and Brian DePratto, senior economist, with TD economics. “This budget was more about trimming the edges on labour market and tax inefficiencies.”

Indeed, on the revenue side, the government moved to boost some anti-avoidance measures and remove some loopholes. Those measures should add a modest $400 million to revenue in the coming fiscal year, and grow to about $1 billion a year by fiscal 2020.

Financial Post