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(February 9, 2007) The Canadian Retired and Income Investors’ Association has called for a full public review of the federal government’s tax calculations on income trusts.

The CRIIA said that at last week’s income trust hearings held by the House of Commons Finance Committee, expert witnesses and expert reports seriously undermined the accuracy and credibility of the Department of Finance’s position on income trusts.

The CRIIA points to examples where the government’s regulations were called into question by industry experts.

Dennis Bruce of HLB Decision Economics Inc., an Ottawa consulting firm that worked with the Ministry of Finance on a 2005 consultation paper on income trusts, provided data and supporting documentation that discredited Finance’s tax leakage claims. Bruce claims that the HLB study found that federal tax revenues from income trusts are higher than those from corporations.

Bruce’s assertion was backed up by Len Farber, a former finance director general of tax legislation. Farber pointed out that the net effective marginal corporate tax rate for oil and gas companies is about 6% because of special industry tax breaks. But foreign investors, who are mainly from the U.S., own about 50% of energy sector income trusts and pay a 15% withholding tax to Canada on distributions.

“If they preserve the corporate structure, Ottawa is only getting 6% on that 50% foreign stake — not 15%,” he notes. “So, really, that argument about tax leakage doesn’t hold there.”

In light of these criticisms, among others, the CRIIA is calling for a future public review and consultation in addition to the industry hearings that were held last week.

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U.S. consumer confidence heating up

(February 9, 2007) Consumer sentiment continued to heat up this month despite the deep freeze gripping much of the country, according to the RBC CASH Index, which measured the attitudes of 1,000 Americans earlier this week.

The CASH Index, which stands for Consumer Attitudes and Spending by Household, currently stands at 103.0, compared to 95.3 in January and 96.1 one year ago.

The index reports that overall consumer confidence rose by nearly eight points in February, as Americans’ assessments of current conditions, investing and job security increased substantially. Although their outlook on future economic conditions dipped significantly, overall optimism in all other areas surveyed outweighed the increasing pessimism for the future.

“The chill in the air has not dampened Americans’ enthusiasm for current economic conditions,” said T. J. Marta, economic and fixed-income strategist for RBC Capital Markets. “Consumers appear to be buoyed by the strong jobs market, gasoline prices that have reached a 14-month low and equity holdings that have reached a high since the dot.com era.”

RBC does point out, though, that there is some troubling data for this month, The RBC Expectations Index for February stands at 69.2, dropping more than 14 points from its January level of 83.8. RBC said the downturn is due largely to a drop in expectations for the economy as a whole and for personal finances. This month, only 22% of Americans believe their local economy will be stronger six months from now, compared to 31% in January, and just over one-third believe their personal financial situation will be stronger six months from now.

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89,000 new jobs in January according to StatsCan

(February 9, 2007) Statistics Canada reported on Friday that employment increased nationally by an estimated 89,000 jobs in January, continuing an upward trend that began in September 2006. The report suggests that January’s employment increase was in large part due to strong job growth in Western Canada.

Despite robust employment numbers, the unemployment rate actually went up 0.1 percentage points in January to 6.2%. StatsCan estimates this is the result of more people entering the labour force in search of work.

Most of the jobs were created out west. There were 32,000 new jobs in British Columbia and 24,000 in Alberta, pushing their employment rates to record highs in January. Manitoba and Saskatchewan also posted record-high employment rates.

Ontario did not fare so well. Its unemployment rate edged up to 6.4%, primarily the result of very little job growth and 32,000 more people entering its workforce.

StatsCan also reports that in January, the number of employees in the private sector increased by 65,000, growing by 3.7% from a year ago, while there was little to no change in public-sector employment.

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(02/09/07)