Flaherty's Two Gambits: FTQ/CSN & Women

[August1991]

First gambit?

I'm surprised that this has not received more attention in the English media. Within the 2013 federal budget, there is provision to withdraw a special tax exemption for mutual funds operated by unions. At present, if an individual buys such a mutual fund, the investment receives RRSP treatment and in addition, receives another 15% federal income tax reduction. (The Quebec government also offers special relief for its income tax calculation.)

As an example, if you place $1000 in a RRSP protected fund, you will likely lower your income tax (Federal/provincial) by about $300 since RRSP investments are designed to be taxed at withdrawal, not at the time of saving. Union funds are treated as RRSPs but in addition, they receive an extra income tax subsidy so that in effect, a $1000 investment would lead to a $200 additional income tax reduction - for a total reduction of $500.

Flaherty (and Harper) are proposing to remove this special (federal) treatment over the next three years, reducing the benefit by 5% per year.

In some ways, this policy change is similar to the elimination of the special tax treatment for income trusts (FTEs). The federal government is deciding to accord no longer special tax treatment to an otherwise similar organization. This is called horizontal equity and it prevents distortions, inefficiencies and rent-seeking.

-----

Quebec's two broad union coalitions are the largest users of this tax scheme and needless to say, they are incensed by this change. IMHO, Flaherty knows precisely the hornet's nest that he has opened - hence the first gambit.

The two union funds are worth about $8 billion and $1 billion. Many ordinary Quebecers have bought these funds as retirement savings. The funds are a small part of what is called "Quebec Inc" because they are used to make investments in a variety of Quebec businesses to keep them functioning.

At the same time, Claude Blanchet (the husband of Pauline Marois) and Raymond Bachand (ex Liberal Minister of Finance and losing leadership candidate) were both at one time managers of these union funds.

So, by taking this decision, Flaherty has hit directly the elite of Quebec Inc, Quebec's two major unions and a lot of small savers. (The FTQ and CSN were both concerned that the median age of investors was around 48. They have been wondering how to attract younger savers.)

What's the gambit? Well, this move will be attractive in parts of English Canada where the Conservatives might win votes since it will be perceived as "Quebec-bashing". In addition, this move will win votes in Quebec among a silent group of potential Conservative voters who are tired of unions, Quebec Inc, and paying taxes. At present, the Tories have 6 seats in Quebec. This policy might make 2 more seats possible in the ADQ/Quebec City area.

Maxime Bernier, from the Beauce, has lauded the move. In American political terms, this was a dog whistle.

[bTW, the funds never achieved much as measured by returns - despite the access to easy financial capital. The management fees are high and the investments too often badly chosen. Even taking into account the tax advantage, the return is less than other mutual funds. At the same time, these union funds encouraged many small savers to become investors.]

=============

The other gambit? Older single women, and Flaherty's pre-budget message about mortgage interest rates.

Statistics Canada offers this confusing percentage: about half of lone-mother households own their home. I'm willing to bet that that this means that 50% of single women own (with a mortgage) rather than rent.

These single women have access to a HELOC, and like many women (sorry to be sexist), they like to spend/indulge. A HELOC is like having a rich husband. Flaherty is playing the role of stern husband to remind them that they should be careful. IMV, many older single women now look to the State to perform the role of dutiful husband: the State provides security.

This is another dog-whistle to potential Conservative voters: older single women who may believe that the Conservatives (Flaherty) are being a good husband.

Edited March 23, 2013 by August1991

[RNG]

Why is it that when any measure to decrease the amount of special treatment Quebec gets in proposed or passed, it is called Quebec bashing?

I am not an expert, but with a fair amount of investment equity, I had never heard of these investment vehicles in Alberta and given the breadth of discussion I have had with my investment adviser, it amazes me I had never heard of it if it had been available to me.

Edited March 23, 2013 by RNG

[Argus]

I hadn't been aware of the favourable tax treatment, nor that they were particularly big in Quebec. All I knew was that their returns were unimpressive, so I was never tempted to touch them. Mind you, I stopped investing in mutual funds years ago anyway. They're nothing but a ripoff.

[Peter F]

Flaherty is playing the role of stern husband to remind them that they should be careful

...

Oh, yes. Sexist may be an apt description. Personally I would add completely out of touch with humanity.

A single male can have access to HELOC - no problem. But a female? Stern male supervision required.

Edited March 23, 2013 by Peter F

[Peter F]

Why is it that when any measure to decrease the amount of special treatment Quebec gets in proposed or passed, it is called Quebec bashing?

While August 1991 figures the issue was brought up by the government to gain 2 seats in Quebec, that doesnt change the fact that the government policy is directed towards all Labour sponsored funds - not just Quebec centric ones but all such funds across the country. As such it is not decreasing any special treatment Quebec supposedly gets

I am not an expert, but with a fair amount of investment equity, I had never heard of these investment vehicles in Alberta and given the breadth of discussion I have had with my investment adviser, it amazes me I had never heard of it if it had been available to me.

Just as well, they were a scam anyways, and were only of real use to folks with lots of money. see http://www.caw.ca/en/8197.htm

Edited March 23, 2013 by Peter F

[kimmy]

The other gambit? Older single women, and Flaherty's pre-budget message about mortgage interest rates.

(...)

This is another dog-whistle to potential Conservative voters: older single women who may believe that the Conservatives (Flaherty) are being a good husband.

A dog-whistle? I think it's more like an August-whistle-- a secret message sent at a frequency that only you alone, among all earth's inhabitants, can hear.

Everybody else in Canada heard a warning against unsustainable borrowing, or meddling in the real-estate market, depending on your point of view.

August heard a ploy to win votes by playing the role of surrogate husband to single female voters who want to be lectured about their spending.

I'm speechless, really.

-k

[August1991]

A dog-whistle? I think it's more like an August-whistle-- a secret message sent at a frequency that only you alone, among all earth's inhabitants, can hear.

Everybody else in Canada heard a warning against unsustainable borrowing, or meddling in the real-estate market, depending on your point of view.

None are so blind as those who will not see. (Kimmy, I suspect that you don't understand how many people don't understand money.)

August heard a ploy to win votes by playing the role of surrogate husband to single female voters who want to be lectured about their spending.

I'm speechless, really.

I think Zsa Zsa Gabor described herself as a housekeeper: "After marriage, I keep the house."

-----

To ensure a majority in 2015, the Tories have to move about 3% of the vote in their favour. Quebecers who dislike unions are one target audience. Older single women who miss their husband and feel/fear they are spending too much are another.

Harper knows that he won't win massively. He's putting together some small, solid pieces.

Edited March 25, 2013 by August1991

[hitops]

First gambit?

I'm surprised that this has not received more attention in the English media. Within the 2013 federal budget, there is provision to withdraw a special tax exemption for mutual funds operated by unions. At present, if an individual buys such a mutual fund, the investment receives RRSP treatment and in addition, receives another 15% federal income tax reduction. (The Quebec government also offers special relief for its income tax calculation.)

As an example, if you place $1000 in a RRSP protected fund, you will likely lower your income tax (Federal/provincial) by about $300 since RRSP investments are designed to be taxed at withdrawal, not at the time of saving. Union funds are treated as RRSPs but in addition, they receive an extra income tax subsidy so that in effect, a $1000 investment would lead to a $200 additional income tax reduction - for a total reduction of $500.

Flaherty (and Harper) are proposing to remove this special (federal) treatment over the next three years, reducing the benefit by 5% per year.

In some ways, this policy change is similar to the elimination of the special tax treatment for income trusts (FTEs). The federal government is deciding to accord no longer special tax treatment to an otherwise similar organization. This is called horizontal equity and it prevents distortions, inefficiencies and rent-seeking.

-----

Quebec's two broad union coalitions are the largest users of this tax scheme and needless to say, they are incensed by this change. IMHO, Flaherty knows precisely the hornet's nest that he has opened - hence the first gambit.

The two union funds are worth about $8 billion and $1 billion. Many ordinary Quebecers have bought these funds as retirement savings. The funds are a small part of what is called "Quebec Inc" because they are used to make investments in a variety of Quebec businesses to keep them functioning.

At the same time, Claude Blanchet (the husband of Pauline Marois) and Raymond Bachand (ex Liberal Minister of Finance and losing leadership candidate) were both at one time managers of these union funds.

So, by taking this decision, Flaherty has hit directly the elite of Quebec Inc, Quebec's two major unions and a lot of small savers. (The FTQ and CSN were both concerned that the median age of investors was around 48. They have been wondering how to attract younger savers.)

What's the gambit? Well, this move will be attractive in parts of English Canada where the Conservatives might win votes since it will be perceived as "Quebec-bashing". In addition, this move will win votes in Quebec among a silent group of potential Conservative voters who are tired of unions, Quebec Inc, and paying taxes. At present, the Tories have 6 seats in Quebec. This policy might make 2 more seats possible in the ADQ/Quebec City area.

Maxime Bernier, from the Beauce, has lauded the move. In American political terms, this was a dog whistle.

[bTW, the funds never achieved much as measured by returns - despite the access to easy financial capital. The management fees are high and the investments too often badly chosen. Even taking into account the tax advantage, the return is less than other mutual funds. At the same time, these union funds encouraged many small savers to become investors.]

Sounds like a reasonable policy. I don't understand why this would hit the actual retirees though, since the extra benefit was only as a tax break to those paying in.

But ya it makes no sense that one form of RRSP should have a better tax break than another.

=============

The other gambit? Older single women, and Flaherty's pre-budget message about mortgage interest rates.

Statistics Canada offers this confusing percentage: about half of lone-mother households own their home. I'm willing to bet that that this means that 50% of single women own (with a mortgage) rather than rent.

These single women have access to a HELOC, and like many women (sorry to be sexist), they like to spend/indulge. A HELOC is like having a rich husband. Flaherty is playing the role of stern husband to remind them that they should be careful. IMV, many older single women now look to the State to perform the role of dutiful husband: the State provides security.

This is another dog-whistle to potential Conservative voters: older single women who may believe that the Conservatives (Flaherty) are being a good husband.

Not so sure about that. Single women tend to be those who make stupid choices and would up pregnant without the guy. Those are usually the 'mad at the world' type, and will normally go for anything that takes money from anyone else to give to them. After all, its hard to be a single mom so therefore we should all pay for their sexual choices and relationship misfortunes, right? Only a small fraction are spinsters or widows.

Edited March 25, 2013 by hitops

[August1991]

Sounds like a reasonable policy. I don't understand why this would hit the actual retirees though, since the extra benefit was only as a tax break to those paying in.

But ya it makes no sense that one form of RRSP should have a better tax break than another.

You clearly don't understand Quebec politics.

Not so sure about that. Single women tend to be those who make stupid choices and would up pregnant without the guy. Those are usually the 'mad at the world' type, and will normally go for anything that takes money from anyone else to give to them. After all, its hard to be a single mom so therefore we should all pay for their sexual choices and relationship misfortunes, right? Only a small fraction are spinsters or widows.

Women outlive men and many marriages end in divorce. Single, older women are a significant voter group - one that traditionally has not voted for Harper. These women typically own their home/condo (with or without mortgage) and by world or Canadian standards, they are financially comfortable. Yet, they fear becoming a bag lady. They often have HELOCs and are large users of State health care services.

----

As I posted to Kimmy above, Harper is aiming for about 40-42% of the vote, in specific regions, among specific voters. (Unlike Romney, you will never hear Harper say this in public but it's obvious.)

To pursue this idea further, Harper is looking carefully at getting sufficient votes in 170 ridings (exact geography to be determined) since he has added 30 seats to the federal parliament.

Flaherty's gambits are two further steps in this direction.

Edited March 27, 2013 by August1991

[Peter F]

I am curious why you describe Flahertys actions as a gambit. A gambit requires risking something. What is Flaherty risking?

[August1991]

I am curious why you describe Flahertys actions as a gambit. A gambit requires risking something. What is Flaherty risking?

In chess, a gambit is an apparent loss with a potential gain.

By removing the special federal tax-exemption (above their RRSP status) for union funds, Flaherty seems to have lost votes in Quebec. Yet, I think that this will mean the federal Tories may gain more seats in the next election from what they have now.

By reminding Canadians to borrow less, and telling banks to keep mortgage/HELOC rates constant, Flaherty sounds like a harsh father. But then, maybe that's his point.

IMV, his moves are political gambits.

[Moonbox]

Your description of the spending habits of single women is disturbing. I would say that single mothers (in my experience working in the financial industry) are some of the most responsible and frugal Canadians out there. Raising a kid by yourself makes you that way. The implication that women somehow will appreciate tighter lending rules or something more than the average man or married woman is totally ludicrous.

You're usually way smarter than that August...

[August1991]

Your description of the spending habits of single women is disturbing. I would say that single mothers (in my experience working in the financial industry) are some of the most responsible and frugal Canadians out there. Raising a kid by yourself makes you that way.

Exactly. Whatever their net worth, they are invariably terrified of becoming a bag lady.

Hence, the logic of Flaherty's comment.

---

You're usually way smarter than that August...

For the record, my ex-wife claims that I'm way stupider. Edited April 6, 2013 by August1991

[jacee]

Single women tend to be those who make stupid choices and would up pregnant without the guy. Those are usually the 'mad at the world' type, and will normally go for anything that takes money from anyone else to give to them. After all, its hard to be a single mom so therefore we should all pay for their sexual choices and relationship misfortunes, right? Only a small fraction are spinsters or widows.

Such a steaming pile of crap!

The older single women of this generation are those who divorced the loser ball-and-chain once the kids were grown and are financially self-sufficient from their own careers.

They like rock music, and they like it HARD!!!

Not sure what August is on about with the whole "stern husband" pile of crap either, as no link is provided that justifies such idiotic claims.

I must have wandered in to a neanderthal thread by mistake!

Edited April 7, 2013 by jacee

[August1991]

Such a steaming pile of crap!

The older single women of this generation are those who divorced the loser ball-and-chain once the kids were grown and are financially self-sufficient from their own careers.

jacee, rather than pronounce your opinion, I suggest that you check out the data:

If you spend time worrying that you'll end up on the street in your old age with your belongings stuffed into plastic bags in a shopping cart, you have good company.

A new survey shows that almost half of American women fear they will become "bag ladies" some day, and the anxiety ripples across all income groups.

http://www.cnbc.com/id/100606605 Edited April 10, 2013 by August1991

[kimmy]

I'm still speechless.

-k

[August1991]

I'm still speechless.

-k

A poll shows that many older, single, wealthy women fear that they will become bag ladies.

Then, a male politician from one political group (with a reputation for cautious wisdom) reminds voters to take care of their finances.

And Kimmy is speechless.

Edited April 13, 2013 by August1991