Thursday, April 7, 2011

On Pensions And Corporate Tax Cuts

In March of 2010 corporate tax cuts passed in the Canadian budget with the approval of the Liberal Party. The Liberals flipped their position about a month later at Thinkapalooza after initially supporting the cuts. The position they initially supported but flipped on is now among their top fiscal complaints in the 2011 election. They are now promising to pay for all their spending promises by reversing tax cuts they helped pass in last year's budget. Just out of curiosity, how has the TSX (Canada's top stock exchange) fared in the last 13 months? It has gained over 2,200 points from 12,000 to over 14,200.

There has been a lot of talk about pensions in this election, both securing them and increasing their payout. So how much is the CPP invested in Canadian stocks and bonds? 75%? The Canada Pension Plan has recovered all its losses from the 2008 meltdown, plus profit, thanks in part to a lowering of the corporate tax rate. The large majority of Canadians pay into the CPP, and virtually all are entitled to it when they retire. Raise corporate taxes, lower the value of the CPP, and lower the amount they have to cover guaranteed Canadian pensions.

Sure, anyone is welcome to condemn Canadian banks as greedy capitalists, but how much does the CPP have invested in those banks? I'm guessing it is substantially above 0. Lowering taxes on banks increases their value and thus increases the value of the CPP and Canadian mutual funds. Do you own shares in a mutual fund? How much does your mutual fund have invested in Canadian business?

Just in case you weren't following at home, the TSX has almost doubled in value since its low point in early 2009. Remember that so-called "Great Recession"? Aug 1st 2008 a month ahead of the global market collapse, the TSX was trading at 13,645. April 1st 2010 it was trading at 14,118. If you want to talk retirement, how many of you have retirement investments? I'm guessing it has been a good two years.


  1. Oh Dear, lefties won't be able to understand that Iceman. All they know is what Iggy tells them. Economics? Yikes!

  2. And remember how all the pundits and the media laughed when the PM said during an interview with Peter Mansbridge that "now would probably be a good time to invest"?

    If I had followed that advice and bought some Google shares at $280 ... today they're at $580.

  3. Ice - I've been saying that for yoinks. It's not just the CPP that depends upon corporate profits. Any pension plan has investments, and corporations and their profits are a large part of said investments. Not to mention all those RRSP's and RRIF's out there.