The Canadian Economy Is Getting Ugly

MaCleans: Don’t look now, Canada’s economy is getting ugly

There’s been a lot of terrible economic news in recent weeks. At what point does this become a problem for Justin Trudeau?

Oooph. That’s about the best way to sum up the state of Canada’s economy after a barrage of awful economic reports in recent weeks.

First up was fresh evidence that Canada’s manufacturing sector is struggling, despite all the support it’s received from cheap oil, the low loonie and a strengthening U.S. economy. Factory sales fell in May by 1 per cent, the third monthly drop this year.

After that, we learned Canada suffered the steepest monthly decline in GDP since 2009, as the full impact of the Fort McMurray wildfires caused the economy to shrink by 0.6 per cent in May. As Statistics Canada noted at the time, the majority of the downturn was due to the fires, but not all of it. In fact, in three of the first five months of 2016 that we have data for, Canadian real GDP declined on a monthly basis, even when the beleaguered oil sands are taken out of the picture.

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WNU Editor: I live in Canada, so these numbers hit me home personally. Everyone that I know who runs a business in my province is having a hard time .... everyone. They are not making money, and what little they do make is being gobbled by taxes and rising overhead costs. As for the rest of the country .... it depends on what region you live in Canada. British Colombia is doing well, but Alberta has been hit hard by the Fort McMurray fires coupled with the collapse of oil prices and the rise of fracking technologies. In Ontario it is because of high energy costs (electricity rates) and taxes .... and where I live (Montreal, Quebec) .... high taxes and government red tape are the major culprits. I have some good contacts in the Federal government, and two months ago they asked me on what was my take on the situation. My explanation .... and this pertains to the province where I live (i.e. Quebec) .... was that for businesses and entrepreneurs who are making $125,000 we are faced with this .... corporate taxes (11.9%), municipal taxes for your place of work (this depends on the size of your business), and high personal taxes (provincial at 25.7%) and (federal at 29.00%). In short .... take the risk, work long hours, pay your bills, and if your company makes $125,000 .... when you take it all out you will clear about $40,000 .... and that is before personal expenses. So why work for a salary? You might as well work for someone else. And that's the problem .... a country's wealth is primarily generated by its entrepreneurs .... kill their incentive and you will end up slowly killing the wealth of your country .... a scenario that we are now seeing in many parts of the world. As for Canada's future  .... to take advantage of low interest rates the federal government is embarking on a policy of deficits and government spending. Unfortunately .... these deficits are structural, and there is no interest to give the entrepreneur class in Canada a break. My prediction .... and it is an easy one .... is that this policy is going to fail .... and it is only going to result in stagflation and anaemic economic growth.

On a side note .... in Russia the rate is 13% for personal (for everyone), 9% for dividends .... and the tax form is a model of simplicity. That is why the Russian economy .... even with sanctions and the collapse of oil prices .... is humming along (contrary to Western news reports). People have motivation and reason to work .... and they are taking advantage of it. In my case .... because I do have an interest in a business in Russia .... I do not take any money personally, nor do I take a dividend. But if I was .... it is a 30% tax rate in Russia (because I do not live in Russia for more than 183 days), and when I declare it in Canada I then get hit with all of those Canadian taxes that I had explained earlier. In short .... I would be lucky to pull in 18 cents on the dollar. Talk about having no incentive.