This article is a guest contribution by David Rosenberg, Chief Market Economist, Gluskin Sheff.
Canada: TRUE, NORTH, STRONG ...
… And free. Free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world. Shortly after reading Miners Agree to Higher Royalties in yesterday’s WSJ on a story out of Australia, we saw Canada Seeks to Capitalise on Australia’s Resources Super-Tax in the FT.
Canada is one of the few countries with a low primary budget deficit and as such is in the process of lowering corporate tax rates, which will be below 25% for the combined federal-provincial levy in most parts of the country by 2012. The one thing we know about capital is that it flows to the jurisdictions that treat it the best.
We are still reeling over that article in the Economist that showed how more market- and business-friendly Canada has become, especially in relation to what is happening south of the border. Canada has a Finance Minister who delivered a credible plan that balances the books and cut taxes in the next five years, and is resisting calls for a special levy on the banks. Meanwhile, the White House only has a plan that involves higher taxation and no intent on eliminating the deficit even for the longer-term, and the U.S. Budget Director (Orszag) just resigned (see After Orszag, Red Ink and Hard Choices on page A4 of the WSJ).
Two-years ago, the Canadian dollar approached par as oil was about to hit $140 a barrel. In the latest go-around, the loonie approached par with oil nearing $80 dollars. In other words, the Canadian dollar was behaving strictly as a commodity currency back in 2007 and 2008 (in both directions). But this rally in the Canadian dollar has a different feel to it; it’s much more than just a commodity story this time around.
