The Dollar: Taxes Matter, Speeches Don t, and Ottawa Gets Poor Grades for Its Efforts

Transcription

1 The Dollar: Taxes Matter, Speeches Don t, and Ottawa Gets Poor Grades for Its Efforts Financial Post/COMPAS Poll of CEOs and Other Business Leaders for Publication February 4, 2002 COMPAS Inc. Public Opinion and Customer Research

2 Overview CEOs and other business leaders 1 in this National Post/COMPAS study of business executives hold tax policy to be the key to saving the Canadian dollar, not speeches and not foreign policy. As for speeches, they give the Prime Minister a failing grade for the effectiveness of his declarations in defence of the currency along with a grade not much better to the Governor of the Bank of Canada. Business leaders give the federal government an apparently lower grade for its handling of currency issues, a bare 50% on a report-style 100 point scale, than three months ago, when Ottawa earned a grade of 58%. Respondents foresee no essential change in the value of the loonie in 60 days or in a year s time. On the issue of whether the Canada should adopt the American dollar as the currency of exchange, business leaders remain divided as they were three months ago, albeit with a hint of a stronger will to retain the loonie. Paradoxically, the proportion favouring continued life for the Canadian dollar might be growing even as confidence in the federal government s handling of currency issues may be slipping. Leadership and Defence of the Dollar Poor Ratings for Federal Leaders The Prime Minister gets a failing grade for the effectiveness of his public interjections to defend the dollar, his government gets a bare pass, and Governor Dodge of the Bank of Canada does hardly better. These findings are displayed in table 1, below. Table 1: On a 100 point report card, what grade would you give [ROTATE] The federal government for its handling of our currency The Prime Minister for his statement defending the dollar The Bank of Canada Governor for his statement defending the dollar Week 4 Week See methodology section, below, on the size and nature of respondent sample. 1

3 The Primacy of Tax Policy over Speeches The roots of business leaders misgivings about the effectiveness on currency matters of the government, its Prime Minister, and its bank governor lie in business executives convictions that taxes matter and speeches do not. As one respondent put it, the dollar needs deeds not words. Table 2: There s been talk about various things that the federal government has done or could do to strengthen the Canadian dollar. On a 7 point scale where 7 means very effective and 1, the opposite, what effectiveness score would you give [ROTATE] If the federal government made a longterm commitment to cut corporate taxes and tie them to U.S. levels If the federal government and key provinces made longterm commitments to cut personal income taxes and tie them roughly to U.S. levels To the recent statement in defence of the dollar by Governor David Dodge of the Bank of Canada If the federal government adopted a strategy of protecting the Canada-U.S. economic relationship by backing the U.S. more consistently in international affairs in order to strengthen American goodwill towards us To the Prime Minister s recent statement in defence of the dollar Mean DNK

4 Speeches in defence of the dollar are not more effective at strengthening Canadian currency than a foreign policy designed to win the goodwill of the American government and people, according to respondents. Whether goodwill is sought by Prime Ministerial declarations or pro-american foreign policies, goodwill has limited value, say business executives. The only potent solution is tax reductions, which spur investment and thereby strengthen the currency. The following comment from a business executive reflects the general opinion of the sample: Governments seem to not know that high taxes and especially corporate taxes reduce the capital available to invest in machinery, people, and the future of a company. Incremental higher taxes compared to others reduce our productivity and gradually erode the productive capacity of the country in comparison to others. High taxes reduce the ability to invest and produce wealth and weaken the value of the C dollar as a result. On a 7 point effectiveness scale, respondents were asked to score the effectiveness in defending the currency of the interventions of the Prime Minister and Bank Governor and of potential actions to cut corporate and personal taxes or to align Canadian foreign policy more closely to American policy so as to earn more goodwill. More than two-thirds of respondents see tax strategies as effective, yielding means of 5.1 for each tax strategy. By contrast, only small minorities see a closer international alignment with the U.S., Governor Dodge s interjections, or Prime Minister Chretien s interjections as effective. In the latter s case, 18% of CEOs and other business leaders considered the intervention effective as compared with 53% who see it as ineffective and 9% who offer no opinion on the matter. No or Little Change in Predictions or Preferences for the Loonie Predictions of a Stable Value Asked to forecast the value of the Canadian dollar in 60 days and one year, business respondents provide much the same prediction as they did nearly three months ago little or no change, as shown in table 3. 3

5 Table 3: As you know, the Canadian dollar is worth about US$0.62 cents today. What do you forecast will be the value of the Canadian dollar in U.S. currency in Week 4 Week days year Respondents are not unduly concerned about threats to the Canadian dollar for a variety of reasons. As one respondent put it, The dollar always falls in value in mid to late January as Canadian subsidiaries give the parent U.S. companies a good portion of any profits, payable in U.S. dollars. More demand on U.S. dollars and more selling of Canadian dollars necessarily lead to a weaker Canadian dollar. While equanimity about the future value of the dollar was a majority view, it was not unanimous. As one business executive put it, I agree with (Nesbitt-Burns Economist and National Post contributor) Sherry Cooper in that the Canadian dollar is on a longterm downward spiral, and nothing anybody does will fix it. Ultimately, the only real option is full-out dollarization with no say in how the Federal Reserve policy works. Another respondent put it this way: The government has used the decline of the dollar as means for concealing from Canadians the reality of the Canadian economy, to boast about creating jobs in industries that are not really competitive and to artificially boost exports. We pay the price. There should be a major wake up call. Whether or not the loonie will fall further, a number of respondents volunteered a concern that it was presently too low. As one observed: The decline in our dollar relative to the US dollar is a serious problem that the federal government has simply ignored. The decline reflects a decline in our standard of living and most politicians, media people and so-called experts are simply in denial on this point. One suspects because they have a great deal of their personal credibility tied into the current policy. Adopting the Greenback Continued Division with a Hint of Greater Resolve to Keep the Loonie Business respondents remain divided about whether to adopt the U.S. dollar. But the data contain a hint that enthusiasm for considering a currency switch may be abating down from 54% almost three months ago to 42% today, as shown in table 4. 4

6 As one respondent put it, Il est important que nous gardions le contrôle sur notre politique monétaire. Table 4: Should Canada seriously consider adopting the U.S. dollar? Week 4 Week 15 Definitely consider Probably Probably not Definitely not DNK/No opinion* - ** *Note: Respondents did not have a no opinion option in week 4. ** Less than 0.5%. Methodology The National Post/COMPAS web-survey of CEOs and leaders of small, medium, and large corporations and among executives of the local and national Chambers of Commerce was conducted January 29-31, Because medium and small companies are more numerous in the economy and hence among Chamber membership, actual respondents are drawn more from these strata than from the stratum of the largest companies. 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=224 are deemed accurate to within 6.6 percentage points 19 times out of 20. The principal and co-investigators on this study are Conrad Winn Ph.D. and Robert Laufer. 5