Tencent to open AI research center in Seattle

 Chinese tech conglomerate Tencent will be opening a new AI research center in Seattle, according to The Information. The company has long had a core office in Palo Alto, but this will be its first major machine intelligence R&D effort in the country. Earlier this week Tencent announced that it would open its first data center in Silicon Valley. Read More

Ottawa is a lot less in the red than the Liberals had expected, but wait for it — March can be a doozy

OTTAWA — The federal government ran a deficit of $11.5 billion over the first 11 months of its 2016-17 fiscal year, putting it well ahead of its spring budget forecast with one month to go.
The result compared with a surplus of $7.5 billion during the April-to-February period a year earlier.

Not counting a $3-billion contingency cushion, Ottawa’s spring budget projected a deficit of $23 billion for 2016-17.

However, Robert Kavcic, senior economist at the Bank of Montreal, cautioned that the government generally runs a large deficit in March as Canadians file their tax returns and receive their refunds.

“It is going to take us closer and the remainder is probably something that we’ve been seeing already for a while in that a lot of the stimulus spending is taking a little bit longer to get out the door than maybe originally thought,” he said.

Ottawa ran a deficit of $9.4 billion in March 2016, $3 billion in March 2015 and $6.7 billion in March 2014.

The monthly fiscal monitor report said government revenue for the first 11 months of its 2016-17 fiscal year fell $400 million to $265.1 billion as personal income tax revenue fell, but corporate income tax revenue grew.

Program spending increased $20 billion to $254.6 billion.

Public debt charges fell $1.5 billion to $22 billion due in large part to lower average effective interest rates.

In a separate report Friday, the Parliamentary Budget Office forecast Ottawa will run a deficit of $20.7 billion for the 2016-17 fiscal year.

The PBO noted the prediction was $1.6 billion lower than it projected in October, due to higher estimated income tax revenue, especially from corporations.

However, the PBO said that compared with its October forecast that deficits over 2017-18 to 2021-22 would be on average $2.2 billion higher due to increased program spending.

“More than half of the projected spending increase reflects new policy decisions, such as the indexation of children’s benefits as well as higher transfers to subnational governments for infrastructure and health care,” the PBO report said.

“In addition, higher interest rates contribute to increased public debt interest costs over the medium term.”

Ontario municipalities are getting new powers to tax hotels and hoteliers are furious

Toronto hoteliers lashed out at provincial plans to give the city the power to tax hotels and other short-term accommodation providers like Airbnb.

The Greater Toronto Hotel Association noted any new tax would be added to the 13 per cent harmonized sales tax that is applied on all rooms in Ontario. The group added that tax has not been defined and has no cap, creating the possibility of “unprecedented highs” for hotel taxes in Canada’s largest city.

“The introduction of a new hotel tax in Ontario has the potential to seriously reduce the competitiveness of Ontario’s tourism sector. It is unclear why the tourism sector has been singled out for a tax increase,” said Terry Mundell, chief executive of the GTHA.

Thursday’s provincial budget included a plan to change the City of Toronto Act of 2006, in which the municipality was given broad power to level its own taxes but not impose a transient accommodation or hotel tax. The province also plans to amend the 2001 Municipal Act to allow single-tier and lower-tier municipalities to also levy the hotel tax.

“Toronto has been requesting it and we will be proceeding,” finance minister Charles Sousa told journalists during a budget lockup.

The GTHA says the changes will have a ripple effect across the province and not just impact foreign tourists because 50 per cent of hotel room stays in the province are by Ontario residents.

A government official indicated that tax could be applied to other short-term accommodation services like the popular AirBnB.

All municipalities that adopt a hotel tax but also have an existing destination marketing fee would be required to share their hotel tax revenue with the appropriate not-for-profit tourism organization in an amount that matches the total revenue generated by the existing DMF program.

In local municipalities where there is no program, at least 50 per cent of their hotel tax revenue would be shared with the respective regional tourism organization or a not-for-profit tourism organization.

Patrick Brown, leader of the opposition Tories, slammed the tax. “It would be a Liberal government, a Liberal budget if it didn’t include some form of a new tax,” he said.

gmarr@postmedia.com
twitter.com/dustywallet

Canada’s economy takes a breather after hot start to year, but still on pace for strong quarter

Canada’s economy unexpectedly stalled in February as manufacturing and production in other goods producing sectors shrank during the month. The real estate sector, which expanded 0.5 per cent, had its best one-month gain since 2015 as housing in Toronto soared.
Economists surveyed by Bloomberg predicted a 0.1 per cent gain in February, after a 0.6 per cent jump in January.

Key Points

The recovery in goods production seen in recent months came to a halt in February, with those sectors recording a 0.3 per cent decline in February after three straight months of gains. Manufacturers recorded a 0.6 per cent decline in production, with the mining sector down 0.2 per cent.

 On the upside, it’s all about real estate. The runaway housing market in Toronto was a major contributor to economic activity in February, fuelling a 5.3 per cent gain in output of real estate agents and brokers.

 Other sectors benefiting from the hot housing market was the finance and insurance sector as a whole, which posted a 0.7 per cent gain. Construction was up 0.5 per cent during the month.
 Gains in real estate and finance meanwhile are fuelling demand for professional services like legal services. The professional, scientific and technical services component recorded a 0.5 per cent increase, led by a 2.9 per cent gain in legal services.

 From a year earlier, GDP is up 2.5 per cent in February, the biggest gain since January 2015.

Big Picture

Canada’s housing sector, particularly in Toronto, has become both the main driver of growth and one of the biggest sources of uncertainty amid concern the gains aren’t sustainable.

Even with the stalled growth in February, Canada is still on pace to have a strong first quarter, with annualized growth estimated to be just below 4 per cent. That would likely be the fastest in the Group of Seven.

At the same time, caution prevails. At a rate decision two weeks ago in Ottawa, Canada’s central bank revised up growth projections for 2017, but cut them for 2018 and raised questions about the sustainability of the rebound and the country’s long-term growth outlook.

Bloomberg.com

Cancel, not cancel, cancel, not cancel NAFTA: What’s Trump up to?

WASHINGTON — First, Donald Trump threatened to rip up NAFTA. Then he didn’t. This week he did again. Now, he’s saying he won’t. But maybe, he says, he’ll change his mind again and rip it up if he can’t get a good deal.

What’s going on?

“A negotiating ploy,” said Gary Hufbauer of the Peterson Institute, a top U.S. expert on the North American Free Trade Agreement.

“True to Trump’s style. The only surprise was the quick reversal (this week).”

It’s not only Trump’s style.

It’s basic negotiation theory. It involves the concept of negotiating clout stemming from the power to walk away. It belongs to whatever party least fears the WATNA — the acronym for Worst Alternative To A Negotiated Agreement.

And right now, it seems, some people aren’t sweating the WATNA.

For starters, there’s the U.S. Congress. Trump needs Congress to move and it hasn’t. It’s not only slow-walking the appointment of a trade czar, but has yet to approve a notice that would allow negotiations to start in 90 days. And the clock is ticking. If there’s no deal by next April, the Mexicans warn it probably can’t happen next year because of their national election. Canada’s stance is wait-and-see.

Trade expert Laura Dawson explains the basic challenge for the U.S. president: He needs other parties to be worried. And their palms are not likely sweating over the idea that if NAFTA talks derail, the status quo continues and Trump’s big campaign promise to renegotiate crashes into oblivion.

“The alternative to a renegotiated NAFTA has been the status quo. And the status quo is not too bad (for them),” said Dawson, the head of the Canada Institute at Washington’s Wilson Center.

“Traditional negotiating theory says, ‘Well, if you make that alternative much worse, by going to no agreement at all, then you might put your opponent in a more precarious position.”‘

Trump briefly moved in that direction this week.

Stories suddenly appeared in the Washington Post, Politico, CNN and the New York Times saying sources within the White House were seriously considering a draft executive order to cancel NAFTA.

The stories alluded to divisions in the White House: trade-skeptical economist Peter Navarro was reportedly working on the order and faced resistance from the trade-friendlier elements in the West Wing.

The mere rumour of it happening had an impact.

It shaved almost two per cent off the Mexican peso and a third of a cent off the loonie. Congress expressed alarm. Business was up in arms. Barnyard squeals emanated from every imaginable sector of the agriculture industry: pork producers called the idea devastating, corn producers called it disastrous and the head of the U.S. grains lobby said he was shocked and distressed.

Within a day, Trump had withdrawn his finger from the trigger.

He insisted he’d been one or two days away from issuing a withdrawal notice, but had a change of heart during evening phone calls with the leaders of Canada and Mexico: “I like both of these gentlemen very much,” Trump said Thursday, recapping this week’s roller-coaster.

“I respect their countries very much. The relationship is very special. And I said, I will hold on the termination; let’s see if we can make it a fair deal.”

Aside from liking his peers, he acknowledged a more substantive reason for keeping his finger off the trigger: economic disruption. He called a NAFTA pullout a, “pretty big shock to the system,” and said renegotiation was easier than cancellation.

A room in Saskatchewan burst out laughing when a reporter read out the president’s statement in a question to Prime Minister Justin Trudeau. The laughter was prompted by the part about Trump not nuking NAFTA because he finds Trudeau and Mexico’s Enrique Pena Nieto such swell guys.

He expressed that, yes, he was very much thinking about cancelling

Trudeau said the president seriously raised the possibility.

“He expressed that, yes, he was very much thinking about cancelling,” Trudeau told reporters.

“We had a good conversation last night . . . (I told him) disruption like cancelling NAFTA … would cause short- and medium-term pain for a lot of families.”

The Prime Minister’s Office said Trudeau and Pena Nieto discussed NAFTA on Thursday and welcomed Trump’s statement that he is prepared to renegotiate the agreement to the benefit of all three countries.

The PMO statement said the two leaders also reiterated their readiness to negotiate the trade deal and promised to continue their dialogue on Canada-Mexico issues.

But even a president’s threats have their limits.

The NAFTA withdrawal process is complex. A declaration of withdrawal doesn’t automatically mean withdrawal. Under Article 2205, a president can order a pullout and then after six months can start executing it.

At that point the administration, businesses, Congress and the courts would start tussling over what tariffs stay and which ones go.

Mr. Trump doesn’t have that much leverage — and Canada and Mexico know that

Another trade analyst said Trump needed to get back some of the leverage lost from basic realities of this negotiation — that he’s the only who needs to keep this promise on a new NAFTA and that the clock isn’t his friend.

“Mr. Trump doesn’t have that much leverage — and Canada and Mexico know that,” said Patrick Leblond, a non-resident fellow at the Centre for International Governance Innovation and a University of Ottawa professor.

“The political calendar works against a NAFTA renegotiation.”

But Trump returned Thursday to reclaim his ultimate source of leverage, the ultimate WATNA in the eyes of governments in Ottawa and Mexico City: cancellation. He says he still holds that in his back pocket.

“If I’m unable to make a fair deal,” the president said, “if I’m unable to make a fair deal for the United States, meaning a fair deal for our workers and our companies, I will terminate NAFTA.”

Syndicated mortgages get a new watchdog and 5 other measures in the Ontario budget to protect investors

The Ontario government has announced plans to transfer responsibility for syndicated mortgage investments to the Ontario Securities Commission.

That mortgage market, worth $6 billion in 2016 and currently regulated by the Financial Services Commission of Ontario, was singled out for being exposed to “regulatory gaps” in a provincial report that was critical of FSCO and called for its overhaul.

“This is consistent with both the expert advisory panel’s report and the manner in which these products are regulated in other provinces. Going forward, the government will work with regulators to plan an orderly transfer of the oversight of these products,” the government said in its budget documents released Thursday.

Even before the transfer of power takes place, which industry sources say could take months, the province said it would move forward with more protection for investors in the sector, now the subject of a number of lawsuits.

New regulations would establish investment limits on syndicated mortgages and require mortgage brokerages to document their assessments of the suitability of such products for their clients.

“FSCO would also expand requirements relating to information provided by mortgage brokerages to ensure that investors are aware of the potential risks associated with these types of investments,” the budget promises.

The government is also making amendments to securities law allowing whistle blowers to sue civilly if a reprisal is taken against them contrary to securities or commodity futures law. The amendment includes a provision that OSC commissioners, management and staff not be compelled to testify or provide evidence in civil proceedings.

As part of efforts to protect consumers, the government will ask that the Tarion Warranty Corp. introduce new deposit protection measures to better reflect current home prices and deposit requirements.

The government also says it will work with regulators to close a gap that allows some financial planners to work without regulatory oversight or specific proficiency requirements.

The budget says the Liberal government will respond to an export committee’s recommendation to develop a central registry of persons providing financial planning and advisory services.

The government also plans legislative changes that would improve enforcement of investment industry self-regulatory organizations’ decisions, by allowing these decisions to be filed with the court.

“This measure will improve SROs’ ability to collect fines levied against individuals, helping to deter potential offenders and increasing funds available to the SROs for strengthening investor protection,” according to the budget.

gmarr@nationalpost.com
twitter.com/dustywallet

Despite $11.5 billion in new spending on health care, Ontario turns in deficit-free budget

TORONTO — Ontario’s Liberal government is promising to inject billions of new dollars into health care in its first balanced budget in a decade, a fiscal plan designed to appeal to nearly everyone in the province ahead of an election next summer.

Crafted by a party in power since 2003 that has been faring poorly in recent polls, the $141-billion budget has measures targeted at both young and old, people who access the health care system and anyone who owns or rents a home and pays an electricity bill.

The centrepiece of the plan is a $465-million-a-year pharmacare program for children and youth, which would cover prescription medications to treat most acute and common chronic conditions for people under age 25, with no deductible or co-payment. It would start Jan. 1.

The plan will be most beneficial for youth who currently are not covered under private plans or the Ontario Drug Benefit program for social assistance recipients, but government officials weren’t able to say how many people that captures.

In total, the government is promising $11.5 billion in new spending on health care over three years, including money to address hospital overcrowding, funding for mental health and addiction services, cash for hospital construction projects and home care funding.

The budget also includes funds for new child care spaces, money to build schools, measures aimed at seniors and previously announced cuts to electricity bills and plans to cool the housing market.

Much of the projected spending, however, is spread out over multiple years, well past the June 2018 election. But Finance Minister Charles Sousa said his “socially progressive” budget is not a ploy for votes.

“These decisions that we’re making today are not based on election cycles, they’re based on long-term benefit for the people of Ontario,” he said.

Progressive Conservative Leader Patrick Brown said the budget is not, in fact, structurally balanced, because of one-time asset sale money — such as the sale of shares of Hydro One — and accounting “tricks,” such as counting public pension surpluses as assets, against the advice of the province’s Auditor general.

“This budget is a patchwork attempt by a desperate government to fix the mess they’ve created before the next election,” he said. “If they lose this next election this is spending they’ll never have to be accountable for.”

The price tag for the Liberals’ centrepiece pharmacare plan is not in the budget itself and was provided only verbally by staffers.

“Listen, that document is what, 296 pages long,” Sousa said when asked about the absence. “You can’t put everything in the document.”

Ontario NDP Leader Andrea Horwath, who just this week announced a New Democrat government would bring in universal pharmacare for people of all ages, said the Liberal plan seems last minute.

“I think it’s quite curious as well,” she said. “All I can think of is that they made it up on the back of a napkin before they got to today.”

The Liberals had promised no new taxes on families, though they are increasing tobacco taxes by $10 per carton over the next three years and giving municipalities the power to introduce a hotel tax.

THE CANADIAN PRESS/Nathan Denette

THE CANADIAN PRESS/Nathan Denette

In addition to balancing the books this year, the government is now projecting balanced budgets through to 2019-20. Despite reaching balance, however, the province’s debt continues to grow.

It is projected to be $312 billion this year, growing to $336 billion in 2019-20. Interest on debt is the fourth largest spending area, at $11.6 billion.

Historically low interest rates helped the province get to balance, but interest on debt is still projected to be the fastest growing expenditure area, at an average 3.6 per cent from 2015 to 2020.

Nonetheless, the government paints a rosy economic outlook, projecting two per cent average GDP growth through to 2020, driven by exports and business investment.

On the infrastructure front, spending is growing from a promise last year of $160 billion over 12 years to $190 million over 13 years. The additional $30 billion will go toward new hospital projects, school renewal and child care expansion.

Ontario will also move ahead with planning a high-speed rail corridor between Toronto, Kitchener-Waterloo, London and Windsor, the government said in the budget. The project could cut travel times from Toronto to Windsor from the current four hours to two.

Under the education banner, about $16 billion is earmarked over 10 years to build and improve schools at a time when the government is coming under fire for rural school closures. Another $200 million will go to creating 24,000 child care spaces and subsidizing 60 per cent of them.

Seniors are also specifically targeted in the budget. A public transit tax credit for people 65 and older will see 15 per cent of eligible transit costs refunded with an average annual benefit of $130. That is estimated to cost the government about $10 million a year. The measure comes after the federal government announced it was eliminating a 15-per-cent tax credit for commuters who buy a transit pass.

There is also $11 million over three years for a seniors community grant program and another $8 million over three years for new community centres with seniors’ programming. The province has also earmarked $100 million over three years for a dementia strategy that will include helping patients and their caregivers find support and improve training for health-care workers.

Here are six ways the Ontario Budget will help (or hurt) your wallet

Ontario released its 2017 budget on Thursday and it included few new taxes or fees — a shift from recent years as the Liberals cobbled together revenues to help balance their books. 

The books are finally balanced, but that doesn’t mean your taxes are going down. There are, however a handful of pocketbook issues that build on the Liberals’ recent moves to end the fee for Drive Clean tests, offer free tuition to low-and-middle-income-students, and promises to build tens of thousands of new childcare spaces in coming years. 

Here are six ways, good and bad, the 2017 budget will hit your wallet:

No change to provincial or corporate income taxes

For anyone hoping balanced books would mean padded paycheques, the 2017 budget is a disappointment. Nor are there cuts to the provincial portion of the HST or corporate tax rates. Instead, the Liberals are choosing to spend increased revenues on expanded programs. 

A hotel tax?

The budget will allow cities to impose a hotel tax, which could affect travellers in areas that decide to go that route. It’s possible it’s also one way the province and cities will work together to tax AirBnB and other home-sharing services. 

Free drugs for kids under 24

Ontario will become the first province to offer pharmacare to all young people, regardless of income, who 24 and under. Some 4,400 prescription drugs will be covered and the government estimates it will cost about $465 million a year. The co-pay for some seniors will also be reduced. 

Free abortion pills

The province will cover Mifegymiso, the two-drug formula for medical abortion. Surgical abortion is already covered in the province, and the abortion pill will provide an alternative to women seeing to end an abortion up to seven weeks (though it is available up to 10 weeks in other countries). The pill, which only rolled out for Canadian use earlier this year, can cost as much as $400 a dose in some parts of Ontario, which advocates warned would dissuade some women from seeking the less invasive option. The drug will be prescribed by doctors and dispensed by pharmacists. 

Transit tax credit for seniors

The province will create a transit tax credit for seniors who use public transit, which comes on the heels of the federal government cancelling a very similar credit for all citizens. It will provide a refundable benefit of up to 15 per cent of transit costs to a maximum of $130 a year as of July 1. 

Smoke ‘em while you can afford ‘em

The price of smokes is going up again. As of 12:10 a.m. April 28, the price of a carton (200 cigarettes) will increase by $2. That means a pack of 25 cigarettes will go up 25 cents. Each cigarette now has 16.475 cents worth of taxes on it, and the province will increase that by two cents per smoke each year. That will increase the cost of a carton by $10 over the next three years. 

A break for IVF drugs

In 2015, the province started funding one round of in-vitro fertilization (IVF) and other fertility treatments but that OHIP coverage didn’t cover the costly drugs required to undergo the procedure. Since then, 7,200 people have received OHIP-funded fertility treatments, and from now on they’ll also be able to claim a medical expense tax credit for the costs of the associated fertility drugs. 

Financial Post