Keynes, the Dollar, and Personal Investments

Transcription

1 Keynes, the Dollar, and Personal Investments CEOs Repudiate Keyes, Embracing Tax Cuts Instead; Favour Strong Dollar to Enhance Standard Of Living and Innovation; In Personal Investing, Are Increasingly Oriented to Active Investments. CIBC/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication December 10th COMPAS Inc. Public Opinion and Customer Research

2 CEOs Repudiate Keyes, Embracing Tax Cuts Instead As shown in table 1, CEOs overwhelmingly repudiate a Keynesian emphasis on increased spending in these recessionary times. A clear majority (59) favours tax cuts alone while a minority (32) is inclined to a combination of increased spending and reduced taxes. While almost united on the value of tax cuts, CEOs are divided about which kind, as shown in table 2. The largest groups favour across-the-board personal income tax reductions and GST/sales tax reductions while smaller groups advocate across-theboard reductions in corporate taxes and in personal income taxes for families earning less than $ 60,000 p.a. One respondent volunteered, GST and sales tax cuts may spur spending but the real concern is still high taxes overall and poorly managed government spending. If Canadians want to spend on ridiculous things, let them make those choices personally rather than having government do it!! Table 1: (Q1) One continuing issue in discussions of government budgets is the issue of government priming of the economy through spending vs. stimulating the economy through tax cuts. In light of current economic circumstances, if this were the choice, would you [ROTATE] Strongly favour increased government spending 2 Somewhat favour increased government spending 5 Support a mix of increased government spending and tax cuts 32 Somewhat favour tax cuts 18 Strongly favour tax cuts 41 No opinion or other 1 1

3 Table 2: (Q2) If you had to choose, which of the following type of tax cuts would be best for the economy? [ROTATE] Corporate tax cuts for all types of companies 12 Corporate tax cuts for large employers 1 Corporate tax cuts for small employers 9 Personal income tax cuts across the board 30 Personal income tax cuts for individuals earning less than $40,000 7 p.a. Personal income tax cuts for families earning less than $60, p.a. GST and sales tax cuts 28 No opinion or other 2 Favour Strong Dollar to Enhance Standard of Living and Innovation Despite the fact that Canada is an exporting nation and despite discussion among other countries of the potential value of devaluation, this is not an option welcomed by CEOs in Canada. To the contrary, a two-thirds majority favours keeping the Canadian dollar at its present level or achieving parity with the U.S. dollar. Indeed, an amazing 50 favour parity with the American currency, as shown in table 3. One respondent emphasized the urgency of achieving parity: What would it take to get our Canadian Dollar at par with the U.S. Dollar? Too many people are going south to the U.S. because they earn the same amount but are paid in U.S. Dollars. Should this trend continue, Canada will be devoid of qualified tradesmen! 2

4 Table 3: (Q3) As you may know, some Asian countries are discussing the possible advantages to them of currency devaluation. Which of the following opinions is closest to your own? [ROTATE] Canada should adopt tax and/or other policies that would strengthen our economy so that the Canadian dollar could achieve parity with the U.S. dollar in the long run, thereby increasing our real standard of living Canada should do whatever is necessary to stabilize our currency s value relative to the U.S. dollar Canada should have a strategy of an orderly currency devaluation in order to benefit from the export advantages that this may offer Canada should accept the inevitability of a continuing slow decline in our currency and appreciate the export advantages that such a decline may offer No opinion or other To the extent that CEOs are willing to consider the advantages of a low Canadian dollar, they see merit in the price advantage given to exports in general. This is the argument favouring a low dollar that elicits the most agreement among CEOs. In practice, 58 agree that this is a good reason for a low dollar, scoring the argument as 5-7 on the 7 point scale, while 28 disagree, scoring it 1-3 on the scale. CEOs certainly see no or little merit in the argument that a low dollar is an effective way of reducing the value of negotiated gains in union agreements, as shown in table 4. Table 4: (Q4) On a 7-point scale where 7 means a very good reason and 1, the opposite, how would you score the following as reasons for having a low Canadian dollar? [ROTATE] Helps exports by keeping export prices low Helps our natural resources industries through lower export prices Helps our services industry through lower export prices Helps governments deal with public sector unions by reducing the true value of the wage agreements they get Mean

5 As for arguments against a low dollar, CEOs are especially persuaded that a low dollar is undesirable because it lowers the standard of living by increasing the cost of imports and because it discourages companies from finding better ways of doing things, as shown in table 5. Thus 57 agree that a low dollar is harmful because it reduces the standard of living and increases the cost of imports while 28 disagree with this view. By the same token, 56 agree that a low dollar is harmful because it discourages innovation while 27 disagree with this perspective. One respondent summarized the impact of a low dollar on innovation and standard of living: The low value of the Canadian dollar is a serious impediment to Canadian businesses investing in more productive automation and technology, as it cost 60 more for a Canadian firm than a U.S. competitor, given that most such items are imported. This seriously lowers our productivity and thus our standard of living, by about $10,000 per family of four, compared to what it would have been if we in Canada had matched the U.S. increases in productivity. Table 5: (Q5) How would you score the following as reasons against having a low Canadian dollar? Please use a 7-point scale where 7 means a very good reason against a lower dollar and 1, the opposite. [ROTATE] It lowers our standard of living by increasing the cost of imports and foreign travel It discourages companies from finding better and more efficient ways of doing thing instead of relying on a cheaper dollar It discourages governments and big employers from negotiating honestly with unions Mean

6 In Personal Investing, CEOs Increasingly Oriented To Active Investments CEOs invest on average about a third of their personal assets in the shares of companies that they do not run, as shown in table 6. Almost none have no stock market investments. Among those who invest in the markets, a bare majority 52--are increasingly oriented to active or managed investments. Only 14 have opted for a greater reliance on index funds or passive investments while 35 have not changed their investment management strategy, as shown in table 7 below. 5

7 Table 6: (Q6) Turning now your own personal investment and retirement plans, approximately what proportion of your own wealth or assets are normally invested on the stock market, excluding your firm if it is publicly traded? Mean 32 No opinion or other 15 Table 7: (Q7) [ASK ONLY IF A PERCENT HIGHER THAN ZERO] When thinking of your stock market investments, are you thinking A lot more about passive or index investments 3 Somewhat more about passive or index investments 11 No more, no less 35 Somewhat more about active or managed investments 29 A lot more about active or managed investments 23 Methodology The National Post/COMPAS web-survey of CEOs and leaders of small and large corporations and among executives of the local and national Chambers of Commerce was conducted December 5-6, Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=260 are deemed accurate to within 6.1 percentage points 19 times out of 20. The principal and co-investigators on this study are Conrad Winn Ph.D. and Robert Laufer. 6