Ontario’s road to collapse

Ontario’s road to collapse

Ontario’s road to collapse (By Mike Gentile)

My dear old dad always said there are two certainties in life – death and taxes.

On that note let me begin by quoting a self-proclaimed energy guru and his predictions about oil being at $225 per barrel by 2012. Hovering around $40 per barrel three years later the future price of oil is at best uncertain.

Given the impact oil has had on economies from Venezuela to Canada, why hasn’t anybody commented on the flip side of the coin? I.e. transportation (trains, boats, trucks and planes). From that point of view the transportation industry with its previously added fuel surcharges must be laughing all the way to the bank.

When is the last time you saw an airline pass on to its customers the lower fuel costs they have enjoyed? Given the current surplus in oil reserves, without adding Iran’s potential production to the glut, I have to believe that carbon-based fuels won’t be going up in price in the immediate future.

This suggests that transportation costs should go down.

So, it remains to be seen whether the savings get passed on to the consumer? I suspect that the governments won’t let that happen as they are in desperate need of taxes derived from those sources of energy, i.e. excise taxes.

Add to this the province of Ontario’s ongoing boondoggles ranging from ORPP, the cost of electricity, OCAP and trade initiatives and you have most of the ingredients necessary to stall what was once the economic engine of Canada.

Mr. Sousa’s [Ontario’s finance minister] recent announcement that Ontario’s debt was $1 billion less than originally forecast was the direct result of money derived from the sale of shares in Hydro One, the province’s power utility.

I would characterize this as robbing Peter to pay Paul.

Unless things have changed unbeknownst to all of us taxpayers, you can’t spend what you don’t have and if your bank account continues to have a negative balance, your credit rating is going to suffer significantly, which in turn means that it will cost you more to borrow money.
The Ontario provincial credit rating has fallen from AAA to A+ at one rating agency and to Aa2 – (negative) from another.

As a financial advisor I have to take into consideration the impact of the macro economic environment along with a variety of legislative issues, i.e., governments looking to find more tax dollars to fulfill promises they made without fully understanding or appreciating the unintended consequences.

Many of the tax initiatives we are seeing today can only be described as spend, tax and tax, with much of the employment created in the public sector instead of the private sector where real jobs and real productivity deliver measurable GDP.

Using a hockey analogy let me conclude my argument about good government.

Good government is like referees on the ice. When you have more referees than players you don’t have a hockey game anymore. What you do have is dysfunction at the highest level and no way to achieve measurable and positive results.

Ontario advisors take note.

Mike Gentile is a CFP who’s been in the financial services business since 1974. A graduate of McMaster University (background in Economic Geography), he served as past President of The Region of Waterloo Canadian Association of Insurance and Financial Advisors. Mike has authored over 60 magazine and newspaper articles on subjects ranging from investment vehicles to financial planning.