Dateline: 12/09/97
Don't you just hate that phrase? The fiscal dividend! What a crock! A dividend is a payment to an investor of a portion of the profits of an enterprise. The so-called fiscal dividend is the name the feds have given to the federal government budget surplus expected in two years. You gotta wonder how long some PR flack worked to come up with that one!
Although the progress the government has made towards balancing the budget and eventually returning a surplus is admirable after the spending spree of the last three decades, to call it a dividend is a public relations fraud.
Take your own personal family budget. You've been spending more than you make. You finally take control of your spending and start paying down debts. Do you call this a dividend? Hardly. It's called controlling your expenses. Living within your means. Being fiscally responsible.
The term dividend implies a reward for a risk taken, for a successful investment. It does not mean successfully treading water, or doing what any prudent person should do. Get with it, Canada's media, call a spade a spade. Call it a budget surplus. Call it fiscal responsibility. Call it living within your means. But do not belabor the Canadian public with the government PR fraud of calling it a dividend!
Last week, for three days running, the Southam newspapers reported on a poll conducted for them by COMPAS Research. The poll puts the kibosh to calls for more spending and an assumed general opposition to user fees. It supports calls for tax reduction and putting the government's fiscal house in order.
Here are some highlights.
Thursday Southam reported that "Canadians believe with surprising intensity that the federal government ought to pay down its debt mountain now that the deficit fight is almost over."
Specifically, the poll showed that Canadians wanted 40% of budget surpluses to go towards paying down the debt. 33% should go to program spending, and 27 % to tax relief. Canadians are concerned, the poll showed, about "the country's future and the ability of younger generations to handle a burden they didn't create."
The government has said it would put 50% of budget surpluses into program spending. Clearly, the government is out of step with the people!
Regionally the disparity is greatest in the west. British Columbians want 42% of surpluses to go to debt reduction. Albertans want 46%. This is not surprising. Both provinces were run for decades by the now defunct Social Credit Party, one of whose main policies was balanced budgets. Fiscal responsibility is part of the native culture in the west.
Alberta has had a virtual love affair with their premier, Ralph Klein, who took a debt ridden government and turned it into a debt free government in a few years. He's still riding high in the polls. In British Columbia, where the NDP socialists got in with a minority of the vote (the challenging Liberals actually got a higher vote total, but the way the votes were distributed gave them fewer seats), Premier Glen Clark is at his lowest popularity rating ever, around 22%. At least one member of his government is facing a serious threat from a recall campaign that has been launched.
On Friday, Southam reported that its poll showed Canadians were fed up with high taxes. Not surprisingly, the highest taxed regions, Quebec and the Maritimes, had the highest percentage of people thinking taxes are too high. Fully 60% of Atlantic Canadians and 59% of Quebecers strongly agree that they are overtaxed!!
The most fervent desire of Canadians is for income tax cuts, followed by cuts to the GST and better tax breaks for retirement savings. While Canadians overwhelmingly support tax cuts for the very poorest in society, there is also solid support for tax cuts for the middle class. 75% of respondents said middle income Canadians with incomes of $60,000 should pay lower taxes! Are you listening, Paul Martin?
Canadians have no time for welfare bums, says Southam's poll. Fully 85% of respondents believe citizens should only get welfare for "short, fixed periods" In general, Canadians are skeptical of increased government spending.
Pollster Conrad Winn of COMPAS Research which conducted the poll for Southam, says "It is as if Canadians have become jaundiced by their experience with the welfare state and want to be sure that their tax dollars are not squandered."
Some findings from the poll: 71% of Canadians believe that "if governments spend less money, they will learn to spend smarter." 69% agree that "if Canadians want better government programs, we should have user fees, not higher taxes." In fact, 67% believe anyone receiving a government service should pay a user fee! Sort of puts the lie to the sob sister claims that we must maintain universality of social programs because that's what the people want.
In contrast to those findings, Canadians do support increased spending for post-secondary education and for child tax credits for low-income families. But the support falls more with the working poor than with the unemployed. 62% think low-income workers merit more support than people who don't work at all.
One of the more striking results of the Southam/COMPAS poll is a clear shift to right-wing economic views among young people. The children of the leftist campus agitators of the sixties are decidedly more favorable to pro-enterpise economic policies. Alex Keaton was more than a fictional ploy for Hollywood. He is the embodiment of a changing Canadian demographic. (Although I don't think young Canadians would be big Mulroney boosters the way Keaton supported Dick Nixon!)
Young people showed a strong understanding of the Reform Party's fiscal policies. Over 72% knew that the Reform advocates debt reduction, tax relief and spending cuts. Only about a third of respondents thought the Tories or Grits explained their policies clearly.
Nevertheless, the Liberals remain the top choice among the under thirty crowd to be government, although the Reformers and Tories combined beat the Liberals 33% to 30%.
The attitude of young Canadians is well summed up by Jenni Byrne, 21 year old president of the Reform party Club at the University of Ottawa. Talking about the "older" generation of her parents, she said "It's great for them to say don't cut here or there, but they won't be the ones affected by [the debt]. They're in their late forties and they will probably still benefit from government programs. But Canada looks like a bleak place for me by the time I'm their age."
Interestingly, those under thirty are also more likely to favor tax cuts for corporations.
In an ironic twist, Southam writer, Giles Gerson , who wrote up one account of the philosophical shift among the young, used the term "political realignment" to describe it. Thirty years ago, former Alberta Premier Ernest C. Manning, father of Reform Party leader Preston Manning, wrote a book called Political Realignment about the need for a genuine fiscally conservative political party in Canada espousing a policy of small government. Preston must be grinning from ear to ear at that one!
For detailed explanation of these polls, visit the following at the COMPAS website:
Pay down the debt
Tax relief wanted
People angry about taxes
Cut government spending
The Canada Post strike is over. The government legislated the posties back to work, with a lower settlement than Canada Post's last offer. Nevertheless, I think the government blew it. Not only did they leave the country with disgruntled postal workers, they have left the door open for future disputes. The mail service is too important to business and individual Canadians to let this sort of nonsense transpire again.
Am I suggesting the government should have taken away the right to strike permanently? Hardly! The problem is not the union. Nor is it Canada Post management, despite the horror stories that abound about its stone age management style.
The problem is that Canada Post is a monopoly! Not a market monopoly, a company that maintains its predominance in an industry through superior service, pricing and innovation, but a coercive monopoly. A monopoly that keeps its position by legislative fiat.
This strike would have been settled within forty-eight hours by one simple expedient. Remove Canada Post's monopoly on first class mail. Allow competition. Let the customers decide whether Canada Post deserves their patronage. Introduce this simple change and I guarantee the union and management would have found common ground very, very quickly!
Canada Post already competes in the market place in the courier and parcel business. Heck, it even bought a majority control of Purolator (which did very well during the strike!) If Canada Post can compete effectively for the courier and parcel business, why do the pointy heads in Ottawa think it cannot compete in the first class mail business?
True, some adjustments in pricing may result. Rural folk will likely pay more to send a letter. City folk will probably pay less. But so what! Why should urban Canadians subsidize those who choose to live in the countryside, away from the smog, pollution, rush hour traffic and all the other pressures of city life?
There are tradeoffs to be made in choosing where to live. Choosing to live in an area with sparse population involves some higher costs. Clothing may be more because of increased transportation costs. The same with food. So why not postage? Is mailing a letter more important than eating? I think not!
End the Canada Post monopoly, Ottawa! Open up the mails to the fresh air of competition!
Newsletters: I'm planning a series of articles on investment newsletters, snail mailed, emailed and online. I currently subscribe to several free emailed newsletters - Canaccord's Daily Morning Letter, Kevin Cork's "the SCREAMING Capitalist's BRIEFS ", The Stockpage, Timely Investment News's Weekly Economic Update, and the Walker Market Letter. If you know of any other newsletters that would be worth taking a look at in my review, please send me a note.
Next Week: Next week I'll review George Cohon's excellent book To Russia With Fries. Cohon is the CEO of McDonald's Canada who masterminded the establishment of McDonald's restaurants in Russia. It's a fantastic larger than life story. Be sure to check back next week. I'll also give you some links to McDonald's Corporation from an investment end. Many analysts still list the company as a strong buy and they may be right!
Agree? Disagree? Send me your comments. I may publish them in a future article!