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January 13, 2017 | The Budget

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Wild Bill, our finance minister, is in the throes of preparing the second T2 budget. The first, as you recall, created a new special, punitive, tax-success bracket for the 1% of people making over $220,000. It hacked the TFSA contribution limit by half, wounding our most democratic tax shelter while shipping off fat cheques to people with kids, giving a mild tax break to some middle-class families, and setting us on a course of serious deficit financing.

In short, the perfect liberal budget. Now there’s more. The next one will turn on the spending tap further since job creation last year sucked, reduce corporate tax breaks and bring in the Doctor Tax, lowering the boom on people who get paid through professional corporations. In so doing, the contrast between us and the deplorables to the south will widen.

(The speculation is that the T2 gang will target people like docs, IT contractors, other medical professionals and self-employed entrepreneurs who spread tax by taking dividend income, employing family members, giving relatives non-voting shares and others things lefties don’t get and are therefore evil.)

Bill Morneau must also contend with two big ifs. The first: if his mortgage reforms and moister stress test work, the real estate juggernaut will continue to slow with widespread economic implications. Like job loss, reduced consumer spending, lower federal tax revenues. Housing accounts for more jobs now than manufacturing or oil & gas. So a soft landing (or worse) will bite.

The second: if Trump turns out to bite as he barks, Canada gets it. Things to worry about: the fate of NAFTA. The Border Adjusted Tax. And plans for a giant US corporate tax cut.

But first, let’s have a word from one of my fancypants portfolio managers, Ryan Lewenza, a sometimes weekend guest blogger here who this week put on a $3,000 suit, tore himself from the arms of his trophy wife and piloted his Porsche downtown from his mid-town mansion long enough to visit the vapes at Bloomberg TV. Ryan told them Canadian stocks will be okay this year, despite the Trumpinator. Here’s why.

So oil may hit seventy bucks, and that will help the resource-heavy TSX. Great. Good for balanced portfolios (BTW, we recently moved Canadian exposure a little higher). But stocks can sometimes richly reward at the same time the economy blows. Like last year. Bay Street rocked, shooting ahead by about 20%, even as the economy slouched, wages were flat, household debt rose and employment stalled.

So what can Trump do to us?

Well, destroy the car business here by applying a tax on new vehicles shipped south. That became real Friday as Trump spokesguy Sean Spicer said this on a conference call with reporters: “A border tax will apply when a company that’s in the U.S. moves to a place, whether it’s Canada or Mexico or any other country seeking to put U.S. workers at a disadvantage.” It was the first time the word “Canada” had been used by anyone in the new administration other than referring to the fizzy stuff you mix with bourbon. This is a giant deal since car makers here export more than $60 billion worth of vehicles to the States, employing tens of thousands of skilled (highly-paid) workers.

Just this past week Honda announced a $400 million expansion at its Ontario plant. What if a Tweet flits out of the White House two weeks from now alleging that’s stealing jobs from US workers at Honda plants in Alabama or Ohio?

Then there’s the BAT, the Border Adjusted Tax, currently gaining traction among Republicans like powerful House Speaker Paul Ryan. If implemented. US companies buying Canadian stuff could no longer write off the cost of that product when calculating taxes. But if they bought American, they could. Ouch.

That would be equivalent to a 15% tax on Canadian goods – slightly less than the 20% border tax Trump has vowed on cars entering America. Imagine the impact on $400 billion in Canadian exports.

Finally, the tax corporate cut central to Trumponomics is also a threat. He plans to slash the rate form 35% to just 15%, which is way lower than the current federal-provincial levy in Canada – making our stuff less competitive, and encouraging right-minded business dudes to head south.

Meanwhile, what are we doing?

Right, increasing the tax rate on entrepreneurs, the self-employed, the successful and corps. At least we’re progressive. And morally superior. I’m sure that’ll save us.

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January 13th, 2017

Posted In: The Greater Fool

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