Archive for March, 2016

Further thoughts on the Canadian Budget

March 30, 2016

 

  • Federal budgeting is a game played by finance ministers and their officials. Expectations are created and numbers inserted which will make the government look good. For example, no one has any idea what the price of oil will be over the next twelve months. By using US$25 per barrel oil a $30bn deficit is forecast. Oil prices will likely be higher and the government can then show a lower deficit and debt.

 

  • Canadians, and especially Ontarians, should be concerned about the deficit situations of three levels of government, federal, provincial and municipal. All three deal with one set of taxpayers. The feds can reduce expenditures by lessening payments to the provinces, which in turn can lessen payments to municipalities. If municipal rates rise, or if snow clearing and road maintenance deteriorate, it may be triggered by decisions made by other levels of government.

 

  • As background to the budget, largely ignored are the unemployment rate and growth of the economy. Today’s unemployment rate is 7.3% in Canada and 4.9% in the US (Economist March 26, 2016). While the two are calculated slightly differently, the gap exists, and the Canadian rate has been rising since 2014. Also the forecast for GDP growth in Canada is 1.6% and in the US 2.0%.

 

  • Other numbers to digest are Canada’s balance of payments where the balance of trade has swung from surplus to deficit since 2008, and the current account balance to an increasing deficit over the same period. It is the direction of change which shows the way the economy is changing.

 

  • Political support for Trump and Sanders in the US is in large part fuelled by worker dissatisfaction with jobs and pay, especially when matched against those in high income tax brackets, and actions taken by the Washington and corporate elite to feather their nests. Similar feelings have not yet emerged in Canada to the same extent, but the political support given to the late Rob Ford in Toronto, and his style of politics, came from people who felt they were overtaxed in the suburbs to support those living in the downtown area. While Ford’s political conduct was not as obscene as Trump’s it tended to that end of the political spectrum. Canada is not immune from the political and economic forces present in the US.

 

  • If some in the US want to build a southern wall to keep out Mexicans (except perhaps those who enter using drones), the same people may want Canada to pay for the defense it receives from US military expenditures, due to the failure of Canada to provide the financing to equip its forces. If Canadians were told that fire brigades were unable to provide protection at home, because the equipment was on order, and had been for a number of years, they would likely complain. And yet, the failure of this and previous federal governments to equip our military, leaves us either undefended or reliant on others (the US) to do the job.

 

 

 

God’s Bankers by Gerald Posner

March 28, 2016

An institution with two thousand years of history like the Catholic Church is bound to have an interesting story to tell. It does

 

Think of medieval popes waging the Crusades — raising armies, sacking ­cities and conquering territory — in the name of Jesus Christ. Or prelates torturing apostates and heretics during the Inquisition. Or Pope Pius V expelling Jews from the Papal States in 1569. Or Pope Pius XI signing the Reichskonkordat with ­Hitler, which, in return for winning a measure of freedom for German Catholics ­under the Nazis, assured silence from the Holy See over the forced sterilization of 400,000 people and then only the faintest of ­objections to the Holocaust. Or more ­recently, bishops and other church officials concealing widespread and repeated child sexual abuse by priests.

 

The foregoing is an extract from a NYT review of Posner’s recent book. How the Vatican makes and spends money and operates its banking arrangements is central to the story. And the conclusion is that it has operated more like a mafia-type than what might be expected from a religious organization. While priests in the field undoubtedly continue to do good work, corruption has prevailed at head office. Its charitable works have come at a price. And while various popes have tried to clean things up, they have been sandbagged by the Cardinals and Vatican bureaucrats who been feathering their own nests.

 

Pope Francis appears to be making a valiant attempt to remedy things, but the odds are against him. Other Popes have tried and failed. Some made things worse. Partly this is due to the age at which they and the gang of Cardinals reach their positions. While undoubtedly learned in the doctrines of the church, they are often too old to have the energy to confront the entrenched bureaucracy.

 

Elected politicians are frequently corrupt, even in democratic societies, but regular elections provide some opportunity to clean house. In the Vatican’s case, the Pope is elected by the Cardinals, while the Cardinals are appointed for life, and once installed can carry on with little pressure for change. The bureaucrats beneath them often forestall change knowing that Popes are eventually replaced. With the majority of Catholics now in Central and South America, Africa and parts of Asia, there may be a slight possibility to clean house. But optimism is not high.

http://www.usatoday.com/story/news/world/2013/03/12/catholic-church-africa/1963171/

 

NYT Book Review at http://www.nytimes.com/2015/03/22/books/review/gods-bankers-by-gerald-posner.html?_r=0

Any Future For Public Broadcasting?

March 25, 2016

Many Canadians feel that the CBC/Radio Canada is a national icon. Some want to keep it, others argue that it is past its due date, meaning that under current conditions affecting the media it is no longer needed. Wade Rowland, author of Canada Lives Here, The Case for Public Broadcasting (Leith Publishing 2015) is an articulate supporter of the CBC. I have my doubts for the following reasons.

 

Evolution of public broadcasting

Public broadcasting came into being with the birth of radio. The BBC, set up in 1922, is often considered the original role model for public broadcasting, with John, later Lord Reith, its first Director General.  Initially, it had few competitors and was funded by a grant from the government. Radio and later on television programming was distributed by the BBC.

Over time, commercial radio and television evolved financed by advertising, and the means of producing and distributing content exploded. Today audiences receive programming, financed by advertising, from many sources using a variety of means such as cable, satellite, and the internet. With the use of recording devices, they can store and watch programming at their convenience, and by fast forwarding through advertising.

Despite these changes, some still argue the need for a public broadcaster. For example, Rowland writes “…the CBC must broaden public taste, rather than pander to it – to provide a venue for excellence. Success is, or ought to be measured in that context (p.96).” This is like saying one should undertake regular exercise. The opportunity always exists but there is no way of enforcing it.

Public broadcasting began with radio and spread to television. At the same time commercial broadcasting grew, and the choices for listeners and viewers multiplied creating competition for public broadcasters, which experienced declining audience shares. The CRTC annual monitoring report (available online) shows the CBC’s share of the English language TV market fell from 13.2% in 1994 to 7.5% in 2000 and to 5.5% in 2013. The long run trend is clear. (Figures for the French language TV market show a lesser decline).

CBC supporters will argue that inadequate public funding and the quality of CBC senior management are responsible. An alternative view is that, at least in some market segments, the case for public support is weakened or no longer exists. People cannot be forced to watch certain programs even if some think it would be good for them.

There are a variety of Canadian statistics to view. Radio audiences behave differently from TV audiences, and French and English language audiences show different trends over time. Part of this has to do with the availability of alternative programming which, largely due to technology, has increased.

 

Financing

Broadcasting has been financed by the state, by advertising and by other commercial activities, or by some combination of these. Factoring this in with changing technology helps to explain how individual broadcast undertakings behave.

In the UK, the BBC is a public broadcaster with a commercial arm. It is not permitted to carry advertising or sponsorship on its public services. This keeps it independent of commercial interests and ensures it can be run purely to serve the general public interest (somehow defined).

The BBC is financed instead by a TV licence fee paid by households. This guarantees that a wide range of high-quality programmes can be made available, unrestricted, to everyone. The BBC runs additional commercial services around the world. These are not financed by the licence fee but are kept quite separate from the BBC’s public services.  (from the BBC website).

About one quarter of the BBC’s total revenues come from commercial services and the remainder from licence fees.

The Australian Broadcasting Corporation (ABC) is funded by a grant from the government, with some commercial revenues from shops which it owns. Like other public broadcasters it has been criticized by political parties (of all stripes) for its news and commentary coverage. The ABC receives little criticism from commercial broadcasters because it does not compete with them for advertising.

The CBC is funded by a combination of government grant and advertising revenues. The latter puts it in competition with private broadcasters. For example, the TV rights to popular hockey and other sports programs can be bought using taxpayers money in competition with private broadcasters, and then advertising can be sold. (Recently Rogers outbid the CBC for hockey programs which caused a substantial drop in the CBC’s advertising revenues.)

In 2014-15, the CBC received about $1bn in government funding and $600m in commercial revenue including $333m in advertising (CBC Annual Report). Not included are funds from agencies like Telefilm Canada, which support the production of programs in Canada. Overall the CBC receives more than $1bn annually from the public purse.

 

Summary

In a short piece, it is not possible to make a detailed argument concerning the need for and financing of public broadcasting in Canada. The following two points I think are noteworthy:

  1. It was a mistake to fund Canadian public broadcasting through a combination of government grant and advertising, as it puts public and commercial broadcasting in competition with each other. The BBC and ABC have avoided this conflict.
  2. The explosion of communications technology has meant that audiences now have access to all types of content, including that distributed by public broadcasters. There is no way public broadcasting can survive (retain audiences) unless they can compete with what is available elsewhere.

 

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For those interested in media history, the following may be of interest:

Lord Reith, often considered the founding father of public broadcasting, was a stern and dictatorial figure.

For all his outward pretence of stern morality, he was in fact a hypocrite, according to his own daughter, Marista Leishman, who has written a book about him. Publicly, she says, he abhorred infidelity; but privately, he enjoyed relationships with a series of malleable young women – and once, while in his 20s, even had an intimate liaison with a man.

http://www.dailymail.co.uk/news/article-445763/Lord-Reith-The-Hypocrite-built-BBC.html

Government deceit at budget time

March 9, 2016

News reports have highlighted the projected deficits and debt of the three levels of government which Canadians taxpayers service. Since October 2015, the projected federal budget deficit has risen from zero to a possible $30 bn depending on the Liberal government’s spending plans in 2016. The Ontario government has announced a budget deficit of 7.5 bn, and most Canadians are subject to decisions regarding municipal expenditures. The City of Ottawa for example had a budget shortfall in 2015 of over $10 bn.

While Canadians are typically subject to three levels of government, each of which puts a bold and optimistic spin on their finances, each taxpayer is responsible for funding all three levels. Here are some things to note in the presentations politicians make.

 

  • At each level, politicians will often state (promise) that a deficit will be eliminated at some chosen date. This is a canard. They have no way of knowing whether revenues will rise in the future or that expenditures will be reduced.
  • While deficits are the difference between income and expenditures in a given year, debt rises or falls depending on yearly income and expenditures. Financing annual debt levels depends in part on the level of interest rates. At present they are low. Assumptions about future rates are just that. If rates rise, annual interest costs rise and the ability to eliminate a future deficit weakened. Politicians will make assumptions which suit their interests by putting an optimistic spin on the future…..we probably would do the same if we were in their shoes.
  • Canadian taxpayers are subject to a jungle of policy conditions which determine the amount they pay in federal and provincial income taxes. The number of entitlements with lower taxes for targeted groups has grown over the years. When filing annual returns, taxpayers will be faced with providing ever increasing details of their annual receipts and expenditures to determine their entitlements. How an individual is better or worse off because of a new policy is often difficult to assess. But here are some tax increases for Ontarians which apply to some familiar items.
  • There is a new monthly charge for using natural gas in addition to the charge for the amount used. The tax per liter of gasoline is increasing as are the taxes on drinking and smoking. Home owners who switched from oil and electricity to gas for heating may wish they had not changed, and may now want to switch back to oil. The moral is that governments will follow you with tax increases wherever you choose to spend, if it looks like they can collect more revenue.
  • Another implicit tax increase occurs when governments don’t spend on things which can cost you money. I speak as a resident of Ottawa. The deplorable state of the city roads in part due to the climate, but in part to the failure to ensure that construction and paving is done to build reliable road surfaces, increases the cost of operating a car or truck. These have to be repaired more frequently and impose a cost (de facto tax) on car owners.
  • In order to make higher education more affordable to low income students in Ontario, the government has abolished their university fees. A worthwhile objective achieved in a way similar to a tax reduction for some students. But what might be other consequences, and is there a better way to achieve this objective? Consider what may happen. Universities will lose revenue when admitting low income students. They may react in a number of ways. Accept fewer low income students; reduce their costs of operation by hiring fewer faculty, or less qualified faculty; hire cheaper part-time as opposed to full time faculty; increase class size. Under the existing Ontario tax regime, all these effects have occurred. The new policy merely increases their likelihood.

 

While an individual has a finite lifespan, a government does not. The latter can run deficits and increase its level of debt if people are willing to finance the deficit through taxation or by purchasing government bonds. When interest rates are low, as they are at present, but may not be in the future, governments have the incentive to finance their expenditures through increased taxation and increased debt by issuing bonds. Lenders are not happy with low interest rates but are willing to lend if there are few attractive options. Government debt is considered to be a safe investment. But is it, and at what point does it become a problem for bond holders and tax payers?