Industry insiders see

(February 18, 2003) It came as no surprise that there were no surprises in today’s federal budget. Reaction from three financial services industry insiders contacted by Advisor.ca ranged from mild indifference to deep concern for Canada’s future economic health.

“One of the things that really does concern me is the huge increase in government spending,” said Lloyd Atkinson, Toronto-based vice-chair of Perigee Investment Counsel, shortly after Finance Minister John Manley committed billions of dollars of new spending to healthcare, defence and the environment. “Much of it is loaded into future years so that this is a wonderful way of handcuffing the next Liberal prime minister.”

According to Atkinson, today’s budget lacked a “theme that really reflects how we are going to meet the future needs of the country,” noting that the focus has to be on productivity and becoming more competitive to “grow the pie” to fund future initiatives.

“Our effective tax rates are way too high for us to be competitive, particularly with the United States,” said Atkinson. “Everyone talks about how awful the United States is, but public expenditures for healthcare in the United States as a percentage of GDP are higher than they are in Canada — it’s because the pie is so much larger.”

Looking at today’s budget on more of a micro level, portfolio manager Fred Pynn gave a half thumbs-up to the phasing out of capital taxes (“a good thing but it probably could have been done faster”), liked the proposal to raise the limit to $300,000 from $200,000 for small business income that is eligible for a lower tax rate, and called the move to higher RRSP contribution limits “almost a throwaway” that only benefits a small percentage of Canadians.

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“If the government really wanted to help the average person, they would have increased the limit from 18% back to 20% or something,” said Pynn, the Calgary-based portfolio manager of the Bissett Canadian Equity Fund.

Analyst Dan Hallett also wondered what the true impact of the new RRSP contribution limits would be on most Canadians, seeing as only the dollar maximum will be raised, not the percentage of earned income limit. Nonetheless, Hallett, the Windsor, Ont.-based senior investment analyst with Sterling Mutuals Inc., saw some opportunity for advisors. “Higher income individuals will no doubt make use of this proposal and advisors will be looked upon to give quality advice in this uncertain time,” said Hallett.

Hallett noted that there is also an opportunity for tax-minded advisors to reconnect with clients and demonstrate their worth on the planning side of things, with today’s proposed measures including changes to employee standby charges and more generous RRSP and RRIF rollover provisions for families with infirm dependents.

Hallett pointed out, “Any value-added communication such as that related to tax and estate planning can do nothing but further strengthen the advisor-client relationship, and that’s critical today.”

Filed by John Craig, Advisor.ca, jcraig@advisor.ca.

(02/18/03)