Canada's growing popularity with foreign investors has "staying power": CIBC World Markets Inc.

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Strategic advantages over many advanced economies increasingly well recognized

TORONTO, July 14 /CNW/ - Canada's outperformance versus many advanced economies is creating "staying power" for the country's growing popularity with foreign investors, notes a new report from CIBC World Markets Inc.
"Canada is increasingly on the lips and minds of international investors," says Warren Lovely, government strategist with CIBC's Macro Strategy group, fresh back from meetings with investors across the U.S. and Asia. "Those we've talked to are getting religion on Canada's potential outperformance versus a growing list of advanced economies. Indeed, it's hard to recall a time when the country possessed such relative, if not absolute, strength."
In CIBC's latest Global Positioning Strategy report, Mr. Lovely identifies a growing list of "strategic advantages" that are boosting interest in Canada and its weighting in global investment portfolios.
Central to Canada's strong story is its fiscal advantage, says Mr. Lovely. He points first to Canada's much smaller need for fiscal adjustments to stabilize debt ratios. "Canada's provinces are not feeling the same heat as some U.S. states, are less prone to severe program cuts or increased revenue measures, and are therefore putting their regional economies at less risk."
In addition, the revenue picture for Canada's federal and provincial governments is also "brightening materially" with $15 billion in extra revenue projected for the year.
Mr. Lovely says the fiscal improvement will serve to reduce borrowing requirements and protect federal and provincial credit ratings. It also means less bond issuance from Ottawa which will "leave plenty of room in the long end for provincial and corporate issuers."

Other distinguishing advantages for Canada noted in the report include the following:

 Years of fiscal outperformance and surpluses in Canada have created
        budgetary room to slash corporate taxes. This result combined with
        important tax reforms have given Canada a growing advantage over
        competing tax jurisdictions.

   Canada has emerged as a growth leader in the developed world, with
        the IMF the latest forecaster to see the country leading the G7 in
        terms of average real GDP growth during 2010-11. While Canada's
        growth rate is only modestly above that of the U.S., its indicators
        of domestic economic health, such as employment, are substantially
        brighter.

   Canada has a well-capitalized banking sector with a less dramatic
        adjustment to regulation in store.

   Canadian exporters have limited direct exposure to slow-growing
        Europe and at the same time have had success in increasing exports to
        the faster-growing BRIC region.

   Healthy international and interprovincial migration, particularly in
        western Canada has created less onerous demographic pressures which
        in turn support a faster potential economic growth rate.

But Mr. Lovely also sees some challenges to Canada's continuing outperformance. He notes that three quarters of Canada's exports go south of the border, meaning a "U.S. slowdown will leave its mark on Canada."
"Canadian and U.S. real GDP growth has never been more tightly correlated than during the past five years. So the end of an American inventory rebuilding process will sap demand for Canadian wares," adds Mr. Lovely.
Other risks to Canada's economic prospects include the impact of a continuing strong Canadian dollar on manufacturing, an overheated housing market and highly indebted household sector.
"Notwithstanding these challenges, Canadian governments are courting international investors from a position of strength, hardly beholden to foreign capital, but happy to take full advantage of a healthy appetite for Canadian fixed income product," says Mr. Lovely. "The message is getting through, and there's every reason to believe that today's strong foreign investor interest in Canada will have staying power."
The complete CIBC World Markets report is available at: http://research.cibcwm.com/economic_public/download/gps_jul10.pdf

CIBC World Markets Inc. is the corporate and investment banking arm of CIBC. To deliver on our mandate as a premier client-focused and Canadian-based wholesale bank, we provide a wide range of credit, capital markets, investment banking, merchant banking and research products and services to government, institutional, corporate and retail clients in Canada and in key markets around the world.

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How Canada can cash in on the U.S. economic malaise.

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By Harvey Enchin and Fazil Mihlar, Vancouver Sun

"Sometimes we stare so long at a door that is closing that we see too late the one that is open."
-Alexander Graham Bell
---
Canada has the opportunity of a lifetime waiting to be seized.
Non-financial institutions in the United States have almost $2 trillion US in cash on their balance sheets but have no desire to invest there. Luring some of that money to Canada will help further modernize our economy, create jobs, generate more tax revenue and raise our standard of living.
This window of opportunity won't be open for long, so Ottawa and the provinces should launch a major marketing effort now to turn American apprehension into economic gain for Canada.
What does Canada have to sell to those holding the $2-trillion US purse strings? A comparative advertising strategy would focus the minds of American investors on the advantages Canada offers, including some of the following:
- Lower corporate income tax rates. The U.S. statutory federal corporate income tax rate is 35 per cent, a number that is more likely to go up than down given the country's debt burden. Canada's is 18 per cent, down from 19 per cent in 2009. Scheduled tax cuts will bring Canada's rate to 16.5 per cent in 2011 and to 15 per cent in 2012, giving Canada the lowest statutory tax rate in the G7.
- Competitive personal income tax rates. It may comes as surprise for Americans to learn that Canada's federal personal income tax rates are lower than those in the U.S. The U.S. rate on income between $34,000 US and $82,400, US for example is 25 per cent. In Canada the rate on income between $40,970 and $81,941 is 22 per cent. On income from $171,850 US to $373,650 US the U.S. rate is 33 per cent. Canada's rate reaches a maximum of 29 per cent for all income over $127,021.
Of course, most of Canada's provinces and territories impose personal income tax as well, but so too do many U.S. states and some municipalities. It is true that Canada obtains slightly more personal tax revenue per capita than the U.S. does -$5,800 US vs. $4,700 US -but this difference is easily offset by the cost of health care that Americans incur privately and Canadians cover through taxation. It's worth noting that the U.S. has inheritance taxes and Canada does not.
- Lower capital gains tax rates. Canadians pay tax on 50 per cent of their capital gains at their marginal rate. On a gain of $1,000, for instance, only $500 would be subject to tax. At a combined federal-provincial rate of, say, 35 per cent, the tax payable would be $175. Americans pay tax on the net total of capital gains. More importantly, the reduced rates introduced in 2003 by then president George W. Bush, initially due to expire in 2008 and extended until 2011, will finally sunset, raising the discounted rate of 15 per cent to 28 per cent. So, on that same $1,000 capital gain, an American investor would pay $280.
- Canada can maintain low tax rates: Because Canada is in better fiscal shape than the U.S., Ottawa can keep taxes low while Washington will have little choice but to raise them. The U.S. national debt is $13.6 trillion US, or $42,942 US per capita. Canada's is $534.7 billion, or $15,715 per capita.

The ratio of debt to gross domestic product stands at about 93 per cent in the U.S., and the U.S. Treasury Department sees it rising to 102 per cent when debt is expected to reach $19.2 trillion US in 2015. Canada debt-to-GDP ratio is 33 per cent.
Government spending as a percentage of GDP has declined in Canada since hitting a peak of 53 per cent in 1992 and recently slipped below 40 per cent. In the U.S., it has turned sharply higher, rising to 42.7 per cent in 2009 from 39 per cent in 2008. It is expected to reach 45 per cent next year.
The White House has forecast the U.S. deficit for 2010 to be $1.6 trillion US or 10.6. per cent of gross domestic product, the highest level since the Second World War. Canada's deficit is seen at $49.2 billion, or 3.7 per cent of GDP. Canada should be able to manage its debt and still lower taxes. The U.S. clearly cannot.
- Canada's universal health care system is good for business. In Canada, health care is paid for mainly by employees through their income taxes. In the U.S., most companies pay for health benefits for their full-time employees. In 2002, automotive companies confirmed that Canada's health care system saved labour costs.
About 70 per cent of all health-related spending is financed by the Canadian government, while the U.S. government covers about 46 per cent. Yet the U.S. government spends more on health care than the Canadian government does -- 14.6 per cent of GDP in the U.S. compared with 10 per cent in Canada. And that translates into higher health care spending per capita -- $6,714 US in the U.S. vs. $3,678 US in Canada.
A number of studies have concluded health outcomes are better in Canada, particularly on life expectancy and infant mortality measures, but these findings are controversial.
Canada can offer the stability of a universal health care system that has been in place for many years while the U.S. faces the uncertainty of new health care legislation passed this spring that will not be fully implemented until 2014 and carries a price tag estimated at $940 billion US.
- Canada's banking system is sound. The credit crisis and recession that ravaged U.S. financial institutions caused barely a ripple at Canada's banks. A cautious business culture and tough regulation steered them away from the toxic derivatives and lax lending practices that brought down major Wall St. investment firms and countless small banks across the U.S. Moody's scores Canadian banks at the top of its ranking of the world's banks and Global Finance magazine lists them among the safest banks of the 500 it reviews. The World Economic Forum's Global Competitiveness Report ranked Canada's banking system No. 1 in the world, ahead of Switzerland's and Hong Kong's.
The number of bank failures in Canadian history can be counted on one hand, while many thousands have collapsed in the U.S. Bank regulation in the U.S. is highly fragmented with as many as half a dozen federal and 50 state regulatory authorities involved, depending on a bank's charter. In Canada, the regulatory responsibility rests with the Office of the Superintendent of Financial Institutions.

- Regulation is similarly stable and streamlined in other sectors of the Canadian economy, resulting in less uncertainty, better planning and a lower cost of capital.
- Canada is a safe country. The homicide rate in the U.S. is three times higher than Canada's, the rate of aggravated assault is double and the incidence of robberies is 65 per cent higher. Seventy per cent of murders in the U.S. are committed with firearms, compared with 30 per cent in Canada.
Canada has first-class infrastructure. Road, rail and air, power grids, pipelines, fibre optic and wireless networks are all the equal of any in the world. Put it all together and, in the final analysis, the unit cost of doing business is lower in Canada than the U.S.
Some studies attribute Canada's low -- and falling -- crime rate to social cohesion; a multifactor measure that gauges trust in people, confidence in institutions, respect for diversity, and a sense of belonging, along with more common indicators of poverty, income distribution, employment, health, mobility, literacy, education and housing.
- Canada has an educated workforce. In fact, it boasts the highest proportion of postsecondary graduates (46 per cent) in the 25-to-64 age group among member countries of the Organization for Economic Co-operation and Development and the G-7.
- Arguably, Canada is more welcoming to immigrants than the U.S. and newcomers to Canada have higher levels of education attainment than native Canadians. By comparison, the quality of the U.S. workforce may suffer, given the desperate budget problems many states face. If these fiscal challenges result in cutbacks and layoffs, school performance may suffer.
- Canada has abundant resources. The availability of affordable energy, rich mineral deposits, fresh water, arable land and thousands of kilometres of forests offers benefits to any company, whether a producer or consumer of commodities.
- Canada has first-class infrastructure. Road, rail and air, power grids, pipelines, fibreoptic and wireless networks are all the equal of any in the world.
Put it all together and, in the final analysis, the unit cost of doing business is lower in Canada than the U.S.
The 2010 KPMG study of 95 cities across 10 countries concluded that Canada was the best place to invest, with a five-percent cost advantage over the U.S. Out of the 35 major cities with populations of more than two million, Vancouver, Montreal and Toronto ranked in the top 10 in terms of cost of doing business.
We could provide further inducements by setting up processes that put out the red carpet for businesses -- not wrap them in red tape -- by having one number to call or an e-mail address that would deal with any problems firms encounter at the federal, provincial or local levels of governments.

Read more: http://www.vancouversun.com/health/Canada+cash+economic+malaise/3340011/story.html#ixzz0vDShCeV9

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