This year’s Budget was instantly trademarked as a rebranded version of past versions. This is because it primarily offers extended and expected proposals.
That’s not a bad thing, however, says Ian Russell, president and CEO of IIAC. Consistent fiscal policy aimed at strengthening the country’s competitiveness is good for both Canadian and foreign investors, he adds.
Of late, Canada’s standing has come into question. Though the country jumped from 11th to 6th on the Conference Board of Canada’s recent economic report card, it was mainly due to lackluster performance of global peers.
While 2013’s document may seem run-of-the-mill and deficit-focused, Russell says advisors have to consider it along with the last six released.
“Reaching for growth and a balanced budget has been an incremental journey, and this Budget builds on measures aimed at improving Canada’s tax regime, fiscal standing and international trade position,” he says.
The most significant proposal for financial markets is a renewed push for a single national regulator. Russell says Flaherty has thrown down the gauntlet by putting pressure on provinces to come to an agreement over a single set of securities rules.
Or, in the words of the Budget document, “The government will extend the mandate of the Canadian Securities Transition Office, and is committed to introducing legislation to carry out its regulatory responsibilities, if timely agreement with the provinces on the common regulator cannot be reached.”
It adds the regulator must be “operationally independent and self-funded, as well as directed by a professional board of directors with broad capital markets-related expertise.”
- Fraudsters are ahead of regulators
- Provinces support national regulator plans
- National regulator could cure arbitrage
Though he applauds the government’s efforts, Russell is taking their proposals in stride. The time frame given to the provinces isn’t defined, and he’s a skeptical over whether the government’s plans will bear fruit.
Budget 2013 also offered no surprises in terms of its economic forecast. Canada’s GDP numbers have been revised down to 1.6%, and interest rates will remain low for longer than expected.
This news shouldn’t challenge advisors. And since the U.S. and emerging markets are outperforming current expectations, they can focus on helping clients look there for investment opportunities.
Also, most should welcome the government’s push for business innovation, says Richard Monk, CMA Canada’s advisor of national affairs. He adds it’s providing $60 million of funding for startup companies over the next five years, as well as $100 million for companies in the early development stage.
Russell warns, though, that for growing, middle-sized companies with less $200 million in capital, this isn’t enough. He would have preferred a broader program that helped businesses at all levels.
Insurance sector faces hurdles
The Budget’s no help to insurers.
Indeed, says Frank Swedlove, president of CLHIA, the industry will continue to face hurdles over the next year.
Along with forecasting long-term low interest rates, the Budget aims to crack down on the tax gains of leveraged life insurance arrangements.
It says, “In order to improve the integrity and fairness of the tax system, the government is acting to eliminate multiple and unintended tax benefits relating to two leveraged life insurance arrangements, commonly referred to as leveraged insured annuities and 10-8 arrangements.
Kevin Wark, president of CALU, says these are long-term products and many advisors have been using them to help provide liquidity for clients upon death.
However, he concedes, “Leveraged annuities have grandfathered arrangements in place.” The industry was warned last year these products were being looked at, and officials “[have] kept the scope of the proposal narrow so [most clients] won’t face collateral damage.
This isn’t the case with 10-8 arrangements. Clients will be pushed “to wrap these up by the end of the year. If they do, they’ll be offered tax deductions that will offset any liabilities,” he says.
Additionally, the federal government intends to make changes to the life insurance policyholder exemption test, as first announced in 2012’s Budget. Though talks have been going on since last year and the rules do need to be updated, Wark stresses any changes will have a big impact on the entire insurance industry.
For instance, he adds administrative procedures and selling practices will have to change across the industry as a whole if the rules aren’t altered appropriately.