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Ukraine: Fixing a Broken Country

by John Brian Shannon

HISTORY:

As far back as the early 1980’s the ‘Donbas region’ of Ukraine was a hotbed of separatist sentiment and was mostly ignored by the former Soviet Union although it was occasionally useful for Moscow to support the separatists to better control successive independent-leaning Ukrainian governments.

Over decades of time, this situation evolved so that whenever Luhansk or Donetsk separatists pushed their agenda in Ukraine too far, Ukrainian governments simply called Moscow to assist by delivering a military-style thrashing to the Donbas separatists, effectively ending further protests, demonstrations, or separatist leaders speaking on either Ukrainian TV or Donbas television or radio stations (and sometimes, illegal Donbas radio stations).

It was such a small matter that Western policymakers criticised Soviet actions in the Donbas region less than once per decade. Nobody cared because eastern Ukraine was one of the least important places on planet Earth from 1945-onward.


MAJOR AIRLINE CORRIDOR PASSES RIGHT OVER DONBAS REGION:

In the 1990’s, the airspace above Ukraine suddenly became useful for transcontinental airlines which were able to shave hundreds of miles from their route when travelling from Europe to the burgeoning Middle East, India, anywhere along the refurbished Silk Road route (China’s One Belt-One Road route, first proposed by former President of China Hu Jintao in 1999) and Australia.

This huge surge of tourism created virtual traffic jams in the skies over eastern Ukraine — home of the Donbas separatists.

Airlines saved millions of dollars of fuel per year by taking the Ukrainian route to and from the Middle East, India and Western Australia. But the separatists were wary of such overflights. In fact, there were a number of aircraft shootdowns in the skies over Donbas since 1998, although the separatists were never directly implicated in these incidents.

NOTE: Since the Russian Army commenced hostilities with a view to complete occupation of the Donbas region on February 24, 2022, the world’s airlines have taken care to stay away from Ukraine as you might expect.


WHAT DOES EVERYONE WANT?


Russian president Vladimir Putin just didn’t wake up one day and suddenly decide to attack eastern Ukraine.

It seems that the Russians have become uncomfortable with a separatist region located near their southern underbelly. Several strategic Russian cities and military bases (including Russia’s largest and most secret nuclear airbase) are located within 600-miles from Luhansk, Ukraine = less than 30-minutes flight time for a western fighter jet.

You can be assured that more than any other security issue Russian generals face, it’s that nightmare that keeps them awake at night.

With increasing talk of Ukraine joining the EU and NATO, and the broken promise by Western countries to not invite the Baltic republics to join NATO (at the end of the Cold War in 1990, Western politicians agreed with Russia that Estonia, Latvia and Lithuania wouldn’t join NATO for 50-years) it looks like the Russian president decided that the West intended to again act in bad faith.

Op-Ed: Russia’s got a point: The U.S. broke a NATO promise (LA Times)


The EU leadership doesn’t want all of Ukraine:

1: Ukraine has always been an economic black hole — as far back as Peter the Great — and every year since, the country has been a drain on Russian and later, Soviet finances. Even since Ukraine won their independence from the former Soviet Union in 1991 it can barely afford to exist. It’s a ruggedly beautiful and harsh land, populated with durable people who somehow manage to grow millions of tons of hardy wheat, barley, and sunflowers every year. But not as profitably as the United States or Canada.

2: For it’s part, the EU doesn’t want to inherit a troubled eastern Ukraine that borders Russia’s most strategic region. If the EU were to attempt to solve the problem of the Ukrainian breakaway republics it would carry huge geostrategic implications for the EU-Russia relationship. And the EU would find themselves at a distinct disadvantage should the Ukrainian separatist republics call Moscow for military assistance. Never in history would a major power have willingly walked into such an obvious and well-laid trap. No way at all for the EU to win, even if the American military were to offer significant help.

Which is why the EU seems to be passively watching the convulsions in the Donbas while trying to provide maximum humanitarian assistance to those fleeing the conflict zone.

Eventually, Russia will fully occupy and control the Donbas region and those republics will simply and quietly become part of Russia and the remainder of Ukraine will join the EU.

And because the strategic eastern portions of Ukraine would by then belong to Russia, any future Russian president would see little remaining threat to whatever happens to be left of Ukraine, joining NATO.


The US and Canada don’t want to get involved in another shooting war in Europe:

Neither country wants a war with Russia, especially over two breakaway republics in eastern Ukraine, nor will they offer anything more than moral support to Ukraine, to the EU, or to NATO, combined with humanitarian support for the millions of Ukrainian refugees.

Let’s hope that North America’s greatest contribution will come in the form of humanitarian assistance by accepting Ukrainian refugees into their countries with easy entry requirements.

Other than the fact that eastern Ukraine was a useful flyover route for European and Middle Eastern airlines, there’s nothing in Ukraine of any real value to US or Canadian investors — no oil, no natural gas, no mining. It’s mountainous, swampy, brutally cold in winter, and the land there is only useful to those willing to engage in subsistence farming or timber production.

Why Donbas is at the heart of the Ukraine crisis (CNN)


Vlad Putin wants the Donbas region; The EU wants the rest of Ukraine to join the EU; And North America is playing along:

The only factors then are time (because, given enough time these three goals will reach a point of convergence) and the unfolding humanitarian disaster.

Russia, the European Union, and North America need to dramatically ramp-up their response to those negatively affected by Russia’s military action in eastern Ukraine.

Each of these blocs must immediately begin to offer expedited travel and immigration arrangements to a people that are simply and profoundly victims of geography and circumstance. They’ve done nothing to deserve what’s happening to them and it’s up to Western countries do the right thing.

And so far, the response by these three blocs has been underwhelming.

Ukrainian refugees fleeing a war they didn’t start or want, deserve a Western response orders of magnitude better than they’ve experienced to date.

Why the UK Should Match Canada’s 15% Corporate Tax Rate

by John Brian Shannon

Canada’s corporate tax rate remains at 15% and that low tax rate was one of the reasons the country essentially cruised unharmed through the financial crash of 2008 and its bloody aftermath.

Throughout the global financial meltdown Canada easily led all G7 countries in growth (although Canadian growth was curtailed as compared to pre-crash projections) and the country didn’t need to increase taxes, nor make major fiscal or monetary adjustments during that period.

Corporate Income Tax Rates for Canada in 2018.

Corporate Income Tax Rates for Canada in 2018. For active business income — includes all rate changes announced up to June 15, 2018. Information courtesy of www.EY.com

Although the country isn’t thought of as an offshore tax haven by any stretch, having a 14.5% corporate tax rate during the global economic crisis (it’s since risen to 15%) meant the country avoided the exodus of capital that other nations experienced.

That reasonable corporate tax rate as much as any other factor helped Canada to survive and thrive in the face of one of the most damaging economic meltdowns in modern history.

Money fleeing the country to low corporate taxation destinations is NOT what the UK government needs any time over the next decade.


Will There be Another Recession?

Of course there will be another recession. Recessions in Western countries occur every 25-years on average although unexpected economic shocks have been known to occur. Just because the average interregnum is 25-years, doesn’t mean recessions can’t also happen randomly — which means that the UK needs to begin playing it smart, now, to better survive the next global downturn.


Why Match Canada’s Rate?

Canada’s corporate tax rate just happens to fall within an economic ‘sweet spot’ — high enough that it doesn’t get named and shamed as an offshore tax haven (which tend to get a lot of bad press when a recession is on) yet is close enough to other developed nation corporate tax rates that it doesn’t get a bad reputation.

All else being equal, you want to go with what works. And Canada’s low corporate taxation plan worked wonders to help the country coast through the last recession — and it performed even better than expected, pre- and post-recession.

Sure, there were nervous moments here and there, nobody denies that. But that 15% rate combined with a steady hand on the economic tiller by Mr. Mark Carney then-governor of the Bank of Canada (now governor of the Bank of England) and the country under the steady leadership of (then-Prime Minister) Stephen Harper added gravitas and confidence to the Canadian economy at a time it was needed.

That’s all it takes to survive and thrive in recessionary times, folks.


Philip Hammond’s Next Budget

UK Chancellor of the Exchequer Philip Hammond should match Canada’s corporate income tax rates exactly, and publicly commit to that at Spring Budget 2019. Or even better, in Autumn Budget 2018.

Due to Brexit there is a real need to write both a spring and autumn budget each year, at least until the 2-year implementation period is complete.

Lowering corporate taxes could mean less revenue for HM government. That’s a possibility. But there are positives to a lower corporate income tax rate for the UK, particularly during the present economic uncertainty:

  1. More companies will move their headquarters to the UK to obtain a better corporate tax rate.
  2. More UK companies will decide to stay in the UK rather than leave it for (perceived) greener pastures during this period of economic uncertainty, although they could well have plans to return 5-years on from Brexit. (But can you count on that?)
  3. UK-based companies will have more money to invest in their UK operations, to increase non-labour purchases, and perhaps expand their existing factories, facilities, or number of retail outlets.
  4. UK companies that presently fear Brexit may hurt their business may find that as the UK corporate income tax rate falls to 15% it gives them a competitive advantage of 5% they didn’t have prior to this (proposal). Less fear and better after-tax profits. ‘Gotta like that’ said every CEO ever.
  5. Instead of the government needing to stimulate the economy, increased spending by UK companies flush with newfound cash will help to stabilize the economy now and through the 2-year implementation period via increased spending and hiring.
  6. Hiring more workers with a 5% tax savings means more revenue for HM government — as many of those workers will earn enough to pay an average 45%-55% personal income tax rate.

That’s just a short list of the benefits of lowering the corporate income tax rate to 15% and if the tax reduction announcement is timed correctly HM Revenue and Customs shouldn’t suffer any loss of revenue — and it’s possible that HMRC may receive slightly more revenue courtesy of additional personal income tax contributions if companies go on a hiring spree with their saved money.


Here’s a bonus graphic to show *what can happen* when you cut the UK corporate income tax rate…

UK Corporate Income Tax Rate drop

UK Corporate Income Tax Rate drop increased tax revenue by 50% from 2010-2016. Image courtesy Daily Mail.

How Canada and the UK Could Work Together post-Brexit

by John Brian Shannon

Until the official Brexit date of March 29, 2019 the UK remains in the European Union — which means that Britain remains a party to the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.

And the CETA accord is a very fine agreement (as it should be, because it took 7-years to negotiate) but it may take another year or two to become fully implemented. At the moment CETA is only partially implemented, but eventually 98% of tariffs between Canada and the EU will be eliminated.

Once Brexit happens on March 29, 2019, the UK will cease to be a CETA signatory and something else (a ‘drop-in’ agreement) will need to replace it.

That is the topic of this blog post.

Enter the United States, Canada, and NAFTA.


Where’s Canada on the International Trade Map?

Canada is a surprisingly strong exporting country. With a population of only 36 million and a territory that measures 3.855 million square miles, it means the country is practically empty.

Across this huge landscape are fields of crops larger than the entire UK, but Canada’s few cities are large. In fact, the Greater Toronto Area (the GTA) is larger and has a greater population than the New York Metropolitan Area.

And it’s an exporting superstar; Making it the 11th highest exporting nation in the world.

“Canada is currently the fourth largest exporter of cars in the world and the ninth largest auto producer in the world, making 2.1 million cars a year. Trade with the U.S. is by far the most powerful driver for the automotive sector.”Export Development Canada


What if There’s No New NAFTA Agreement?

If the NAFTA agreement falters due to insufficient efforts between U.S. and Canadian negotiators Canada will end up producing cars for itself — which means it won’t be exporting 1.8 million cars to the United States annually once NAFTA is terminated (or) once President Trump slaps a 25% tariff on Canadian cars exported to the United States.

Which means a lot of Canadian autoworkers are going to become unemployed the day after that announcement.

Which means that Canada (insert drum roll here) needs a ‘Plan B’.


President Trump Isn’t ‘Being Evil to Canada’ He’s Protecting American Interests Because That’s His Job!

You can’t blame him for that. For goodness sake he’s the President of the United States, not of Canada.

But Canada can’t sit idly by and wait for the world to end. The country must pick itself up and get on with business.

And the best way to do that is to respectfully approach the UK and inform them that it’s likely NAFTA will be terminated or changed in ways that result in Canada having an excess auto manufacturing capacity of up to 1.8 million units per year.

Such manufacturing capacity could be very useful to the UK government and to UK industry.


How Canada and the UK can Work Together for Mutual Benefit

The cost of living in the UK is much higher than it is in Canada, therefore wages in the UK are higher than in Canada.

And it’s the reason why only premium car lines are built in the UK where the high labour cost for exceptional hand-built cars are reflected in the final price and nobody minds paying extra. See; Aston Martin, Jaguar, Land Rover, etc.

Even Rolls Royce and Bentley were forced to move to continental Europe because they couldn’t afford the high labour costs of UK workers and the costly land/building/business costs of manufacturing cars in the United Kingdom.

Post-NAFTA, huge opportunities exist for Canada to export lower-priced GM, Ford, and Fiat Chrysler (FCA) cars and trucks to the UK — freeing-up huge amounts of disposable income for Britons.

Which means that saved money will be spent elsewhere in the UK — whether on home renovations, tuition, school supplies, vacations or investments — because it isn’t going anywhere (it isn’t going to magically vanish!) it will simply be spent on other items.

Any Canadian-built vehicles that are exported to the UK over what the UK market can sustain can be forwarded to Commonwealth of Nations countries by UK re-exporters.

India alone has a population of 1.32 billion and its economy is rising fast to become the third-largest consumer economy in the world. There’s no lack of demand for cars and trucks in the Commonwealth.

A Must Read: India Poised To Be Third Largest Consumer Economy (Forbes)

All of which works to help the UK economy.


Trump Wins, Trudeau Wins and May Wins!

President Trump wins because he will have prevented Canada from exporting 1.8 million vehicles to the United States annually, and American factories (meaning American workers) will need to fill that demand gap, Prime Minister Trudeau wins because he will have saved the Canadian jobs associated with the manufacturing of those 1.8 million cars and trucks, and Prime Minister May wins because she will have ushered in three new lines of lower-priced vehicles for UK consumers and those savings will translate into higher levels of disposable income for British consumers that can be spent elsewhere in the UK economy.

It’s so easy when you know how...

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