Double Blind

Just listening to CKNW today at about 11:55am on Friday. They were talking about movies, and some guy called in and said “Where could I get XYZ movie, made in some early date?”

The person from the radio show said “Look for it on Google.”

The person on the phone said, “What’s that?”

I’m sure Bill Good and the other people bit their lips and looked at each other since it took them an extra half a second to politely respond to the guy.

I am just skimming through the Vancouver Sun, and I see this prominent ad from Scotiabank with the following headline:

RSP Confusion? Great Solution.

Remember – they are implying that other people’s offerings are confusing so we have Scotiabank to the rescue!

Prominently on the left hand side they display in huge font “5.00%*”, and then in smaller font below, “until June 1st, 2008 on new RSP contributions”.

Of course the “*” next to the 5.00% rate has 9 lines of 4-point font fine print that basically explain that after June 1st, that you’ll be getting 2.35% on the balance.

When people deposit money into this account and then discover that Scotia will be charging them for a transfer out to another institution, this would completely kill any monetary gain one could possibly make with the 5% rate. Unfortunately, there will likely be some people that will think they are getting a great rate and then deposit their money, but do nothing about it – implicitly they just loaned out their money to Scotiabank for the rate of 2.35% (the short term market rate being 3%).

Remember – obviously other offerings are confusing, unlike this one which is a crystal clear loser. Right now you can get a locked-in RRSP GIC at 4.5% for a year’s term at ING Direct, which is about 1.5% higher than market rates.

This is almost as bad as phone companies and cable companies saying “Get our great super-duper package for only $20 a month!!!” and then in the fine print you see that it’s for three months, and will go up to $80 per month for the duration of the two year contract you have to sign with them. How stupid do they think we are?

This post will be fairly extended and is not in any logical order, so you have been warned.

BC Budget 2008 can be found here, although for people that are interested in doing serious research on the budget just go straight to the main document, the Budget and Fiscal plan as it contains all the minor implementations that get drowned out in the media hype. The estimates and supplement to the estimates are also quite handy if you have a lot of time to research the financial outlays that go into each government department. The NDP are probably the only non-governmental group that have a vested interest in knowing those numbers and even I doubt that they do it (although it is their job to do so).

It looks like that my previous prediction was relatively correct, with the notable exception that personal income tax rates will decrease (slightly) over the next couple years and the lack of differential (with respect to geography) carbon tax pricing.

I will address the implementation of the tax measures.

The government called their big tax a “carbon tax”, although it really is an omnibus tax on gasoline (including diesel), natural gas, heating oil and sub/bituminous coal. Other carbon-generating activities, such as breathing, are not yet planned to be taxed. Most people will see the tax at the pumps when they fill their cars, although a large number of people that use natural gas for heating will feel it as well. It is unlikely that this tax will be a separate line-item on a purchase receipt. On July 1, 2012, this tax will triple from the July 1, 2008 levels to 7.23 cents per litre of gasoline. This actually isn’t a heck of a lot when you consider that gasoline is taxed at 20.5 cents per litre in the GVRD area.

The real danger in this tax is when inevitably the government says that “this isn’t helping reduce our greenhouse gas emission targets for 2020″ and then they decide to jack up the rate even further than the existing program. Remember the famous phrase “Throw a frog in boiling water and it will jump out, but put it in a pot of warm water and slowly turn up the heat and it’ll cook to death”, and this seems to adequately represent what will happen to British Columbians with respect to this energy tax. The slippery slope has begun.

I do not believe that 7.23 cents per litre of gasoline will materially change people’s behaviours toward consuming gasoline (presumably through driving). Instead, the oil futures market seems to have had the most impact as of late.

Secondly, these costs will be borne by business – for example, think about what restaurants use when they cook their foods – it will be natural gas. The trucking industry will also face increasing price pressure and there is no alternative to moving goods from point to point within the province when your shipping facilities aren’t next to a railroad line (locomotives use diesel since the lines here are not electrified). All of these costs will be passed onto the consumer – so expect to pay slightly more everywhere for goods. You won’t be able to explicitly calculate the cost, but you are sure to be paying for it indirectly.

When I do the math on my own gasoline consumption habits, I consumed approximately 2,500 litres of gasoline in 2007. The carbon tax starting in July 2008 would cost me $60 in the first year and increasing to about $180 by 2012. This is not including, however, the impact of increased costs in the products I buy. It still would not be economical to throw away my old vehicle (averaging about 23 miles per gallon vs. 35 for a Toyota Yaris) as the 850 litre of gas difference would amount to about a $1000 savings, factoring in the carbon tax.

The government is giving out a $100 cheque to people which will cost the treasury approximately $440 million – a rather unusual measure and one that is eerily reminiscent of what the USA is doing with their $300 cheques. While I won’t mind taking the money and sticking it in my ING Direct account for a future holiday, it does represent future taxes I will be paying – with interest.

Finally, the nature of the “revenue neutral” implementation will be seen in legislation, but one impact is that it virtually guarantees that any future tax “cuts” that future governments propose will likely be doing by increasing the carbon tax. This is different than past tax cuts, which were not tied to increasing other forms of taxation.

The tax cuts appear to be split 2/3rds to individual taxation and 1/3rds to business taxation. For individuals, the government is lowering the bottom two tax brackets by 2% in the 2008 budget year and 5% in the 2009 budget year. Let’s assume you made $35,000 in 2008, this results in a savings of $28.60. If you made $70,000, this results in a savings of $88.10. There are no extra savings if you make more than $70,000 in the year. For 2009, the tax savings will be $46.80 and $144.80, respectively. Whether this offsets your gas bills depends on how much you drive and how much money you make.

One important tax comment I have is that the lowest marginal tax bracket in BC will be 5.24% in 2008 and 5.06% in 2009. As this continues to decrease, the tax value of non-refundable tax credits (e.g. tuition credits, CPP/EI payments, disability benefits, etc.) continue to erode.

Business taxes are decreasing as well. The large business tax rate drops from 12% to 11%, while the small business rate will drop from 4.5% to 3.5%. Since business tax revenues are a significantly smaller component than personal income taxes, the government can easily afford this move.

One disadvantage of this, however, is that the government is reducing the dividend credit rate for business taxes. I’ll quote the passage here:

Dividend Tax Credit Rates Reduced
Effective January 1, 2009, the provincial personal income tax dividend tax credit rates are reduced to reflect the one percentage point reduction in both the general and small business corporate income tax rates. The dividend tax credit rate applicable to enhanced dividends is reduced to 11 per cent from 12 per cent and the dividend tax credit applicable to ordinary dividends is reduced to 4.2 per cent from 5.1 per cent.

The implication is that people will be retaining more income in their small businesses since the value of taking dividends out of them will be less. I also predict that lots of small business owners will be giving themselves huge dividends in December of 2008. The difference between a 5.1% and 4.2% tax credit essentially nullifies the in-pocket amount of a small business owner to just the amount of the provincial tax decrease. This is a rather punitive change to anybody owning assets that yield dividends.

On the issue of discounts for fuel efficient vehicles, now non-hybrid vehicles are eligible for discounts provided that their combined city/highway usage (55%/45%) is less than 6.5 litres per 100km driven. You can look at a chart of automobile fuel economy statistics. The winner is the Smart ForTwo vehicle, but anybody spending $15,000 MSRP for one of these things is nuts. The Toyota Yaris continues to be the vehicle of choice – it will now be eligible for a $1,000 provincial tax rebate. There are two other models worth considering, the Toyota Corolla and the Honda Civic, but both of these require the manual transmission models to be eligible for the tax rebate. Not too many people drive stick shift in Vancouver.

The government continues to go on a spending binge – healthcare will be up nearly $800 million extra over the next few years and they are the only department that will receive above-inflation increases. Tourism, Sport and the Arts will be getting murdered after this year is over, going from a projected $375 million this year to $98 million next year. Government capital spending will also be increasing, and this will be reflected by increased public debt loads. The argument that they are keeping debt steady with GDP is not valid since GDP can evaporate.

Overall my assessment of the budget is that it was oddly quiet. The big news was the carbon tax, but even then, I was rather surprised how low the final number was and the lack of any regional differentiation or “tweaking” – it was just a flat tax on specific types of fuel. My residual worries about this budget are purely in “slippery slope” type terms (as in what future governments will do when this carbon tax won’t do a thing toward reducing greenhouse gas emissions), and the inattention toward debt.

I was asking for a “do nothing” budget, and I just might have received one, minus a hundred dollars in extra fuel costs, but plus a hundred dollars in personal income tax decreases. I can settle for that.

Reading other people’s reviews of the budget was quite interesting. When I read the Suzuki Foundation raved about the budget and on the next page read how the BC Business Council raved about the budget, my thought was that this was likely a first in history. The only people that appear to be upset about this are the labour unions over the lack of increased government spending.

So the conclusion is that this budget from a policy perspective likely won’t change things too much. From a political perspective, I think it is brilliant.

At 3pm on Tuesday, finance minister Carole Taylor will be announcing the BC Budget.

What is guaranteed to not be in the budget is cuts to personal income taxes. In last year’s budget, the government decided to cut rates by 10% for all but the highest provincial income tax brackets. They phased this in over two years, 2007 and 2008 (for tax years 2006 and 2007). This clever maneuver buys room for this budget to not reduce personal income taxes any further.

There may be a minor decrease to business taxes in this budget. I’d guess small business taxes would drop to 4% (from 4.5%) and large business taxes would drop to 11% (from 12.0%). This will be designed to shut up businesses with respect to the upcoming fight on global warming. Such a measure will have a (static) impact of about $100 million a year to the province.

The province will not change the 7% PST. It simply makes too much money and there is little reward for the government to do this, as the federal government did the job for them with the GST decrease.

The real speculation is how the government plans to implement an orgy of spending in the name of the environment. There has already been an insane amount of media speculation on whether a carbon tax will be implemented and if so, in what form it will be.

One of the biggest oppositions to a provincial carbon tax has been with the rural vs. urban divide in the province. The BC Liberals have 17 MLAs that are not in the Lower Mainland (West Vancouver to Chilliwack) or Victoria/Saanich and the people in these electoral districts have the most to lose in the event of a carbon tax – the money would otherwise be funnelled into projects that would likely benefit lower mainlanders.

I think the likely result is that the province will propose a significant gas tax with a differential rate per regional district, with the GVRD likely having a 20-25 cent gas tax hike, with the other regional districts varying. The Fraser Valley regional district and the Capital regional district will likely have a smaller gas tax hike (up about 15 cents per litre), and the rural regional districts will have the smallest gas tax (up about 5 cents per litre). I do not think the government will pretend that such a measure will be “revenue neutral” and the revenues raised from this measure will likely go toward regional public transit initiatives and other pet environmental projects that the government deems necessary.

Currently, the province has a 14.5 cent per litre fuel tax (20.5 cents in the GVRD, and 17.5 cents in the Victoria area) and this raises about $900 million for the province. Raising gas taxes for the entire province by 22.5 cents across the board will raise about $1.4 billion, assuming fuel consumption does not drop. However, the “political compromise” that I project the government will take with the differing rates will likely result in an approximate $1 billion per year revenue increase for the government, paid for directly by the people.

Given the choice between cap-and-trade, a carbon tax, or an increase in gas taxes, an increase in gas taxes is the least ugliest option. I’d really prefer a budget that says “We’re not going to change a single thing this year since the province seems to be running fine without us changing around the rules yet again” but since this is virtually an election budget, we’re going to get a lot shoved in front of us.

Exciting times indeed. Let’s just hope that the government knows what it’s doing. And fill up the tank in your car on budget day, since I can guarantee you that the provincial government has deemed gasoline to be your enemy.

As usual, I may be wrong.

I got back from my 50-hour trip in Washington State and came back with nearly close to my limit in customs exemptions (currently $400). Especially with the Canadian currency performing strongly, everything in the USA is about 30% cheaper than their equivalents in Vancouver, so it was an easy decision to load up on some items that I had been waiting to get for quite some time (cookware, clothing, and a run at Costco to name a few).

Staying overnight in the States is also relatively cheap if you use a source like Priceline to secure inexpensive lodging. Since it is currently the off-season, one can bid ridiculously low rates for rooms and actually win bids.

Finally a note about posting – normally I sequence posts to go between 11:00 to 12:00pm daily. This is why I seem to be posting from vacation, but I’m really far away from a computer. Right now there is a lot of time-sensitive material which I would like to post on, so I will put them all out at once. This will be at the expense of having this site perhaps not being updated within 48 hours or so.

The newly appointed Translink board of directors decided to increase their board meeting fees from $200 per meeting to $1,200 per meeting.

In the perspective of business owners, this is around the market rate for a corporation the size of Translink – directors get a stack of documents for each meeting and it becomes a material and time consuming obligation to read the documents and be able to come up with appropriate resolutions concerning actions that staff proposes.

That said, the optics of this decision were horrible – the people running the board obviously don’t have a lot of political sensitivity (or don’t care about the potential public backlash) so Kevin Falcon is likely to get back to them and tell them to have a bit more political tact with future decisions.

The other decision that has upset people (other than the creation of the new Translink board structure itself!) was the removal of public meetings.

Public meetings have just been a forum for people to grandstand – this will now be done in public media instead of wasting time of the Translink board.

That said, from what I have seen so far, it looks like the Translink board has a fresh start and I will give them a chance to see if they can come up with some functional proposals. The previous structure was clearly dysfunctional.

The only residual issue is the “taxation without representation” aspect of the Translink board – the provincial government is now the entity that will be held responsible for massive screw-ups of Translink. Previous the only way you could effect change on the board was to vote against the municipal politicians that were on the board. This required multiple municipalities to align their votes together in what are traditionally incumbent-friendly elections. Now to shake up the board, you have to get rid of the provincial government, which is easier to accomplish.

Most people that are against the new Translink board are likely already against the existing provincial government. I don’t think the Translink board has done anything to cause government supporters to vote against the government, but if they implement some more bone-headed revenue measures such as the parking tax, they may lose support.

People would like to assume that by stopping people from speeding you’re able to stop accidents, and we have the following from CKNW:

Speed and unsafe driving are the cause of Sea to Sky crash this morning
Feb, 14 2008 – 2:10 PM

SQUAMISH/CKNW(AM980) – Speed and unsafe passing are the cause of this morning’s crash on highway 99, which closed the “Sea to Sky” highway.

A 19 year old woman from Squamish was driving over 100 kilometres an hour, and had passed vehicles in areas where there is a double solid yellow line.

She lost control of the car and it flipped onto its roof.

She was lucky that she just had minor injuries, but she can expect to be charged.

This person is lucky she survived. Should we really be going out of our way to preventing people like these from getting into accidents, or should they just learn the lessons the hard way?

Some people might think putting photo radar on the sea to sky highway would solve everything.

Unfortunately when you have people crossing double yellow lines at high velocity (on the Sea to Sky!), there are clearly other problems than speed.

I’ll be out of the country for a couple days, taking advantage of the strength of the Canadian dollar relative to the US. Don’t spam the weblog too much!

Update: Back now! Nice, small break.

Last week I had the opportunity to take the entire Expo line skytrain route from King George Station to downtown Vancouver and as always, it was a very efficient ride from point to point. According to Google Maps, it takes 40 minutes to drive with a car. According to Translink, the skytrain option takes 39 minutes. When there’s traffic (as there was on a Friday) there’s no point in competing with cars and also finding cheap parking downtown. Contrary to what one might think about my viewpoints, Skytrain is great for point-to-point commuting.

There was an interesting incident on the skytrain trip back – It was around 8:45pm when I headed out of Waterfront and I got my seat. At around the Granville or Main station, a bunch of teenaged (around 12-13 years of age if I had to guess) people boarded train and they were the usual type of people – mixed genders, and with the weirdo type clothing and hair styles and such. A couple of them were couples and doing their ‘thing’. But still, they looked like a fairly rowdy, albeit harmless group of people. I didn’t pay much attention.

At or around the Edmunds station, however, I looked up in response to some shouting of “You @#$@ing bitch, you’re so ugly, fat, blah blah blah”, and just as the doors were closing, one of the teenaged girls (that got off the train) spat this huge thing to one of the other young teenagers on the side seats. The doors were completely closed about second after the spitting. The person that was spitted on was with a friend, and both were upset about it, but she seemed awfully mature in that she wasn’t crying or livid or anything – it’s tough to tell whether her attitude was “I can’t do much about it now” or “This has happened so many times that I simply have to put up with it”.

Now while my personal safety was never threatened here (I was sitting in the row of single seats on one side of the cabin), I can imagine how one would have felt if they were sitting right next to these people and the person that did the spitting missed their intended target – they managed to spit the entire width of the car.

So my question for readers would be the following:

1. If a teenager intended to spit on another passenger, but hit you by accident, what action would you take?
2. What advice would you give to the teenager that got spat on?

Not easy questions to answer – the root cause is obvious in the social dynamics of teenager relationships.

I just noticed that Questrade now accepts US currency in an RRSP account and allow trades to be settled in US dollars. As far as I know, they are the only ones in Canada to allow this.

I’ve been waiting for a brokerage firm to do this for ages since I transact in US currency in my RRSP and trading becomes extremely expensive when you have to pay a 1% currency spread every time you transact. This means I don’t transact very often and it makes balancing a bit delicate – there were some decisions that I otherwise would have made that I did not due to the punishing cost structure.

As soon as I discovered that a credible brokerage (at least they are a member of CIPF) offered this service, I opened up an account immediately since I want to do some portfolio balancing and I will no longer have to pay $29 per trade at BMO (compared to $4.95), and I can do this without incurring conversion charges. I’ll be quite happy to get my RRSP out of BMO’s hands. A bonus is that they’ll foot the $100 account transfer charge.

I hope the account transfer is clean.

I have also noticed other finance weblogs out there spamming the crap out of themselves to try to get people to sign up with them and their affiliate program – the receiver affiliate gets $100 in free trades, while the sign-up person gets $50 in free trades. You won’t see any links for that crap here.