Whose job is it to create jobs?
Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been chastising Canadian corporations because they are sitting on an estimated $526 billion in cash. They should put the money to productive use or give it back to investors in the form of dividends, Carney says.
Please, someone spend the money and get some tax dollars rolling in.
It’s easy to understand the frustration of Carney and Flaherty. The federal government believes that its mix of incentives and tax reductions should have Canadian businesses rushing to invest and create jobs, but they aren’t. Ontario Premier Dalton McGuinty has expressed similar frustration.
The problem is that government and business have fundamentally different goals.
Business success is measured by revenue growth and profit, not by creating new jobs. For businesses, jobs are an expense. The point in investing in machinery and technology, as Carney urges, is to increase the productivity per worker, not to employ more workers.
Businesses don’t expand, buy machinery and hire new people on speculation that there will be an expanding market for their products. They do it because they have orders they can’t fill without the expansion.
It’s fair to say that Canadian businesses could do more to push their products into foreign markets, but conditions in most of those markets are not encouraging. Europe is struggling, the U.S. hasn’t fully recovered from the last recession, and even the formerly booming economies in China and India have slowed their pace of growth.
Much, far too much, of Canada’s economy is reliant on supplying raw materials to other people who make things. If they aren’t making as many things, demand for our products will slow down. There’s not much we can do about that.
Flaherty and Carney know all this, of course, but government is desperate for economic growth. While revenue growth and profits are vital to business, tax growth and job growth are vital to government.
When the economy is growing, tax dollars flow to government as if by magic. Government doesn’t have to announce any tax increases because its share of the expanding pie naturally gets larger. In Ontario, a one-per-cent increase in gross domestic product will bring government $800 million in taxes.
The new money from growth means that governments can balance their books and maybe even have something left over for tax cuts or popular new programs. They can look like astute fiscal managers without really having to do anything.
Jobs count, too. The employed voter is a happy voter. In good economic times, governments tend to get re-elected. When the economy is bad, government gets blamed. It’s not always government’s fault, but that’s what happens when you take credit for economic success. You get stuck with the blame for failure.
The frustration for government is that there is a wide array of things it can do to slow economic growth, but not much it can do to speed it up, short of another unaffordable infrastructure spending binge. High taxes and complex regulations deter business growth. Reducing those barriers makes growth more likely, but it’s certainly not automatic. To make it even tougher, job growth has to come from the private sector because government can’t afford to expand.
The corporations that Carney and Flaherty are criticizing all have their own plans for the money. Some want a pot of cash as a hedge against fluctuating commodity prices. Others plan expansion when the economy improves. Some have increased dividends, most notably the major banks. No one is in a rush to create jobs for the sake of creating jobs. You can hardly blame them, unless you’re the finance minister or the governor of the Bank of Canada.
Like governments, businesses are expected to grow, although profitable stability isn’t the worst thing that can happen. Where governments differ from business is that they really have no plan other than to rely on growth. Government spending increases every year, even when the fact that some jobs or programs are being cut would leave you with a different impression. This year, for example, federal spending is expected to increase by $3.2 billion.
Slow growth is bad news for government. No growth is a nightmare. That’s why Carney and Flaherty are trying to whip corporations into action. In doing so, they are asking them to put the government’s interests or more charitably, the national interest, ahead of that of their own shareholders. If growth slows, companies with lots of money in the bank will still be OK. It’s government that will suffer.
Unfortunately for the hundreds of thousands of Canadians looking for work, the people who want to create jobs can’t and the ones who can afford to do it are reluctant. No amount of government hectoring is going to change that.
Original Article
Source: canada.com
Author: Randall Denley
Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney have been chastising Canadian corporations because they are sitting on an estimated $526 billion in cash. They should put the money to productive use or give it back to investors in the form of dividends, Carney says.
Please, someone spend the money and get some tax dollars rolling in.
It’s easy to understand the frustration of Carney and Flaherty. The federal government believes that its mix of incentives and tax reductions should have Canadian businesses rushing to invest and create jobs, but they aren’t. Ontario Premier Dalton McGuinty has expressed similar frustration.
The problem is that government and business have fundamentally different goals.
Business success is measured by revenue growth and profit, not by creating new jobs. For businesses, jobs are an expense. The point in investing in machinery and technology, as Carney urges, is to increase the productivity per worker, not to employ more workers.
Businesses don’t expand, buy machinery and hire new people on speculation that there will be an expanding market for their products. They do it because they have orders they can’t fill without the expansion.
It’s fair to say that Canadian businesses could do more to push their products into foreign markets, but conditions in most of those markets are not encouraging. Europe is struggling, the U.S. hasn’t fully recovered from the last recession, and even the formerly booming economies in China and India have slowed their pace of growth.
Much, far too much, of Canada’s economy is reliant on supplying raw materials to other people who make things. If they aren’t making as many things, demand for our products will slow down. There’s not much we can do about that.
Flaherty and Carney know all this, of course, but government is desperate for economic growth. While revenue growth and profits are vital to business, tax growth and job growth are vital to government.
When the economy is growing, tax dollars flow to government as if by magic. Government doesn’t have to announce any tax increases because its share of the expanding pie naturally gets larger. In Ontario, a one-per-cent increase in gross domestic product will bring government $800 million in taxes.
The new money from growth means that governments can balance their books and maybe even have something left over for tax cuts or popular new programs. They can look like astute fiscal managers without really having to do anything.
Jobs count, too. The employed voter is a happy voter. In good economic times, governments tend to get re-elected. When the economy is bad, government gets blamed. It’s not always government’s fault, but that’s what happens when you take credit for economic success. You get stuck with the blame for failure.
The frustration for government is that there is a wide array of things it can do to slow economic growth, but not much it can do to speed it up, short of another unaffordable infrastructure spending binge. High taxes and complex regulations deter business growth. Reducing those barriers makes growth more likely, but it’s certainly not automatic. To make it even tougher, job growth has to come from the private sector because government can’t afford to expand.
The corporations that Carney and Flaherty are criticizing all have their own plans for the money. Some want a pot of cash as a hedge against fluctuating commodity prices. Others plan expansion when the economy improves. Some have increased dividends, most notably the major banks. No one is in a rush to create jobs for the sake of creating jobs. You can hardly blame them, unless you’re the finance minister or the governor of the Bank of Canada.
Like governments, businesses are expected to grow, although profitable stability isn’t the worst thing that can happen. Where governments differ from business is that they really have no plan other than to rely on growth. Government spending increases every year, even when the fact that some jobs or programs are being cut would leave you with a different impression. This year, for example, federal spending is expected to increase by $3.2 billion.
Slow growth is bad news for government. No growth is a nightmare. That’s why Carney and Flaherty are trying to whip corporations into action. In doing so, they are asking them to put the government’s interests or more charitably, the national interest, ahead of that of their own shareholders. If growth slows, companies with lots of money in the bank will still be OK. It’s government that will suffer.
Unfortunately for the hundreds of thousands of Canadians looking for work, the people who want to create jobs can’t and the ones who can afford to do it are reluctant. No amount of government hectoring is going to change that.
Original Article
Source: canada.com
Author: Randall Denley
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