MONEY/COVER

SOME 'RECOVERY'!

MARY JANIGAN February 17 1997
MONEY/COVER

SOME 'RECOVERY'!

MARY JANIGAN February 17 1997

SOME 'RECOVERY'!

MONEY/COVER

MARY JANIGAN

Sure, Jeff Telford expected that the budget-cutters would snip away his job. What else could he think when, for two months, his employer had been offering free courses in career switching, financial planning and résumé writing? Even so, after six years, Telford found it wrenching to open his Ontario government layoff notice in late November. g His job had been to search out low-cost construction * materials for highway repairs. Now, he is hunting for □ work as a computer consultant while worrying about 1 how he will support his 18-month-old daughter, Holly, § and his wife, Kim, who works part time as a babysit| ter. ‘You go through every emotion: the shock, the J fear that you can’t provide for your family, the realiza§ tion that you have lost your benefits, the excitement of “ a new career,” says the 29-year-old Telford. “There have been a lot of tough nights.”

So let us raise the question that the federal Liberals probably will not venture to pose in the next election: are you better off today than you were when they won office on Oct. 25,1993? Given his plight, Telford’s answer is perhaps startling. In October, 1993, newly married, secure in his job, he was unquestionably better off than he is today. “But the country is better off today than it was then,” he maintains. “The economy is turning around.

Interest rates are down. I don’t blame the Ontario government for the cuts. They had to be made. At least it’s better to be laid off now than it was then because the opportunities are out there now.”

That forlorn declaration of hope captures the mood of many Canadians today.

Individually, they are probably worse off than they were in October, 1993. After adjusting for inflation, workers have less disposable income than they had then. The gap between high-income earners and lower-income earners has widened. Strapped for cash, Canadians are saving a much smaller slice of their incomes: 5.1 per cent of after-tax income in the third quarter of 1996, compared with 9.2 per cent at the same time in 1993. The percentage of the working-age population that has jobs or is looking for work has decreased, to a large extent because many Canadians have given up hope. And everywhere, governments are paring vital programs. “I am paying more taxes today for much less services,” asserts James Mosher, who runs a fish-dragging company

Canadians dearly want to believe the good times are back

in Lunenburg, N.S. “Look at health care. Look at education.” Yet many Canadians are convinced that the country is on the cusp of better days. By the year 2001, after more than a decade of spending cuts and tax increases, all federal and provincial deficits should be eliminated, provided that the economy and its leaders stay the course. Inflation appears to have been tamed. Mortgage rates are hovering near their lowest level in a generation. The Organization for Economic Co-operation and Development in Paris predicts that, this year, Canada and the United Kingdom will have the fastestgrowing economies among the Group of Seven leading industrial nations. The OECD also foresees that unemployment will decline to 9.4 per cent, which compares poorly with the United States’ 5.4 per cent, but is comfortably below Germany’s 10.4 per cent, Italy’s 12.2 per cent and France’s 12.5 per cent. “The negative on the Canadian scene is the stubborn unemployment rate,” says OECD president Donald Johnston. “But the general appreciation of the Canadian economy is positive internationally. Canada’s prospects are excellent.”

One by one, economic indicators are picking up. Housing starts are rebounding after a three-year decline. Retail sales are picking up after a lively Christmas. The Royal Bank of Canada predicts that workers’ real disposable income and living standards will finally increase—although they will still lag behind 1993 levels. In a survey last November, the 87,000member Canadian Federation of Independent Business found

that almost half of its respondents expected that they would experience stronger growth in 1997. Across the land, there are stirrings of economic activity—and brave, relieved voices of optimism. “Jobs are in the pipeline and will come over the next 12 to 18 months,” asserts John McCallum, chief economist at the Royal. “The domestic economy is finally poised for takeoff,” adds Nesbitt Burns Inc. chief economist Sherry Cooper.

But while Canadians are slowly regaining their incomes, they face a far more precarious world. A growing national economy no longer guarantees security in work or wealth. One in three respondents tells Liberal party pollster Michael Marzolini,

_ chairman of Toronto-

based POLLARA, that they expect they or a member of their im-

‘You go through every emotion. There have been a lot of tough nights.’

mediate family will become unemployed within the next 12 months. Only seven per cent expect that their incomes will grow faster than inflation. “Slowly but surely, Canadians are being asked to take on more risk—by employers, by governments and even by their own families,” notes Judith Maxwell, president of Canadian Policy Research Networks, an Ottawa-based social policy thinktank. She rhymes off the problems that feed the current mood of economic and personal insecurity: job loss or jobs with no benefits, higher debt burdens, reduced public services, crime and family breakdown. “More and Inore, we are facing a risk society,” she adds. “People are preoccupied by the need for security.”

In that environment, the Liberals might appear foolhardy to face the voters in an election that is tentatively scheduled for early June. Pollster Marzolini admits that most Canadians do feel worse off now than they felt in October, 1993. But he insists that they do

not blame the Liberals for their predicament, since they—like the unemployed Telford—believe that it was necessary to rein in the deficit. “First, optimism went down, but the resolution to fix the problem of the deficit went up,” Marzolini asserts. “Now, we are actually seeing the return of some optimism. People expect positive things to happen as a result of the improvement in the deficit.”

Of all the things that voters still crave from government, perhaps the most important is increased security. Look around: almost every government service—from Employment Insurance to funding for the Canadian Broadcasting Corp.—has eroded since the Liberals came to power. Cutbacks in federal transfers to the provinces for health, postsecondary education and social assistance have touched almost everyone. Hospitals are closing—and the list of medical services covered by public health insurance is shrinking.

University tuition fees have increased. According to the National Anti-Poverty Organization, every province has cut welfare payments, pared special benefits or tightened welfare eligibility. “When you have a massive withdrawal of money, you are going to be worse off in terms of services,” asserts Sherri Torjman, vice-president of the Caledon Institute of Social Policy. “These are quality-of-life factors that are very important when you ask if you are better off.”

is not available, Queen’s University economist Charles Beach, an expert in income-distribution patterns, believes that the poor are probably getting poorer because their earnings are stagnant. Since federal cash payments to the provinces and to individuals have also declined, there is not as much government money to compensate for that shortfall. “It appears that there is a growing inequality in the labor market itself,” he says. “So when the government cuts back on social security programs, that reduces the buffer against inequality.”

If Beach is correct, one consequence may be increasingly strained relations among social classes. “By the time I pay my bills, it has got to be cheap groceries— maybe bruised fruit and dented cans and day-old bread—with every penny accounted for,” says Tammy Liddicoat, a single mother who lives on social assistance in Victoria with five-year-old Hannah. “Yet I see wealthier people spending what seems to be a ridiculous fortune on a car.”

After five years on welfare and two training cours-

‘They don’t understand what it is like for poor people’

Voters can feel the strain in their pocketbooks. Personal incomes have eroded. In 1993, Canadian workers had an average disposable income, after taxes, of $37,787. Last year, adjusting for inflation, that figure was down by $1,108 to $36,679.

Although basic federal tax rates have not budged, Canadians have been “nickeled-and-dimed” to the brink of revolt. Tax exemptions have dwindled. Deductions for meals and entertainment expenses dropped to 50 per cent from 80.

Employer-paid premiums on the first $25,000 of life insurance became taxable benefits. The lifetime >.

$100,000 exemption on capital gains ¿ disappeared before the vast major£ ity of middle-income earners could ¡ even come close to exhausting it.

Consider just a few of the user fees that have risen or been imposed for the first time. The air transportation tax on overseas flights went up. Ottawa imposed an immigration fee of $975 per adult. Fees rose for food and meat inspection, the use of national parks, drug approvals, fisheries inspection, fishing licences and marine services. Nova Scotia’s Mosher, the president of Scotia Trawler Equipment Ltd., was hit with a new $300,000 annual fee for his share of the scallop harvest. “I applaud their efforts to get their deficit under control, but it was difficult for us,” he says. Explains David Perry, senior research associate at the Canadian Tax Foundation: “Probably everybody trips over higher user fees in one way or another, even if they just brought mother over from Europe and took her camping in the park.”

Most worrisome, it appears that the gap between highand lowincome earners is widening. Statistics Canada recently reported that low-income families rose from 17.1 per cent of the population in 1994 to 17.8 per cent in 1995. Although more recent information

es in office work, Liddicoat is desperate for a job. Just about any job. Her clothes are old. Her shoes, which were purchased secondhand, are as patched as those of a Victorian orphan. She wears the single legs from two sets of pantihose under a long skirt because she does not own an untorn pair. She and Hannah walk almost everywhere because she cannot afford $2.50 for the bus. She understands that middle-income taxpayers feel taxed to the limit, too resentful and too frazzled to give any more. “But if I don’t understand how they live on what seems like a fortune, they don’t understand what it is like for poor people,” she says. ‘You spend your last $2 to copy your résumé and no one even bothers to send a rejection letter.”

The Liberals have a ready, if painful, answer to such complaints. In the coming election campaign, they will argue that Canadian living standards would be far worse today if they had done nothing yesterday. When they took office, the 1993-1994 federal deficit was rolling towards $45 billion. Left unchecked, interest payments on the debt would have eventually gobbled almost every penny of rev-

THAT SINKING FEELING

At almost every income level, in every province,

Canadian workers take home less money in 1997 than they did in 1993, after allowing for inflation. The figures below, supplied by David Perry, senior research associate for the Canadian Tax Foundation, show the net change in real after-tax income since the Liberals were elected for a single person with no dependants who, in 1993, had a gross income of either $30,000, $50,000 or $100,000. (All figures are in 1993 dollars.)

‘I don’t have faith in politicians. You have to rely on yourself.’

enues. Today, most economists predict that Finance Minister Paul Martin will easily undershoot his 1996-1997 deficit target of $24.3 billion by about $5 billion. Perhaps more significant, the federal debt is now actually starting to decline in relation to the size of the economy—after a generation of near-constant growth. “What we started to do in 1993, [previous governments] should have started much, much earlier, and it would have been a hell of a lot easier,” Martin told Maclean’s. “But today, I can’t think of another country that is as well positioned as we are. It gets better with every year.”

The finance minister bases much of his optimism on one key indicator: lower interest rates. The Bank of Canada’s benchmark lending rate now stands at 3.25 per cent—compared with 4.63 when the Liberals were elected. The prime rate—the rate from which most consumer loans and mortgages are calculated—is now 4.75 per cent, down one per cent from October, 1993. To Ottawa, those figures represent the pulse of economic revival.

It is four years since Toronto public relations assistant Ann Gaulton first put her house on the market—and then withdrew it in despair when nobody nibbled. Last November, she and her husband, Charles, nervously tried again, and their cozy west-end home sold within three weeks. Now, she is hunting for a larger house on a larger lot in nearby Mississauga. “It’s low interest rates,” she says simply. “That man bought my house because the rates are down. And low rates mean that I can buy a better house and my monthly payments will still be lower.”

The cumulative effect of such decisions is massive. David Rosenberg, senior economist at Nesbitt Burns Inc., estimates that Canadians borrowed about $30 billion in five-year mortgages during the first half of 1992, at rates of approximately 10 per cent. As they renew those mortgages, as they renew consumer and business

Average after-tax income per Canadian

resident, in 1994 dollars

*estimated

loans, their monthly payments will decline sharply. “There will be a tremendous, tremendous, tremendous boost to household cash flow from these lower mortgage rates,” asserts Rosenberg. “I estimate conservatively that the savings to borrowers are going to be $4 billion over 1997, as long as rates don’t rise materially.”

Consumers, to put it mildly, could use a break. Saving less, borrowing more, some have been unable to keep their heads above water. There were 8,851 consumer and business bankruptcies in October, 1996, 61 per cent more than in October, 1993. The retail industry has been reeling, but Peter Woolford, senior vice-president of the 6,500-member Retail Council of Canada, says that customers “will spend a little more freely this year as they start to feel better.” He takes comfort from the fact that sales of furnishings and appliances usually pick up within six to nine months of the housing market. Nevertheless, he adds, “the customer is still very cautious. In today’s low-inflation environment, customers feel that if they don’t buy it today, it may even be on sale tomorrow.”

That guarded optimism is spilling down to the mall level. Brent Trepel, the president of Winnipeg-based Ben Moss Jewellers Ltd., plans to open four more stores in Ontario and Western Canada this year—he already has 31—and bolster his staff of 300 employees by about 30 people. Trepel has survived the retail shakeout because he knows his market: middleincome consumers who shop in regional malls. He made money in 1993 because “people are always going to get married and have birthdays and celebrate Christmas.” But he expects to do even better in 1997. “Consumers are still very frightened. But with low interest rates, people will have more money— and their average purchases will be higher.”

In many cases, Canadians are also getting more value for their money. University of Regina economist Chris Nicol, an expert in consumer patterns, points out that today’s computers, for example, offer more features at a lower price than those of 1993. And while car prices have risen, current models are often better built and offer a wider array of safety features. “Consumers, though perhaps earning less and spending less, have available to them laborsaving devices, entertainment equipment and household durable goods such as VCRs on a scale never before realized,” notes Nicol.

Canadians, not surprisingly, tend to connect their quality of life with their economic well-being. In a poll released last December, the Angus Reid Group reported that 53 per cent of respondents were very satisfied with their lives—and 26 per cent believed that their lives had improved over the past six months. While Canadians took

the greatest satisfaction from their families and relationships, they acknowledged that the state of their pocketbooks was the most important influence on their serenity. And only 19 per cent were very satisfied with the amount of money they had left after expenses. ‘What is really driving the quality of life, what has the biggest impact, are economic concerns: monetary savings, shortterm savings, disposable income,” says Angus Reid vice-president Natalie Lacey.

That suggests that the economy must keep improving if the Liberals hope to retain their healthy majority in the next election. Conservative Leader Jean Charest intends to base his campaign on the assertion that Canadians are definitely not better off than they were in 1993. The unemployment rate was 9.7 per cent in January— the 75th consecutive month that it has been above nine per cent. ‘The Liberals ran on the issue of jobs,” Charest says. “But for the first time, we may have a generation of young Canadians who have a lower standard of living than their parents. Canadians are slipping badly.” In response, Liberal strategists are scrambling for ways to shore up that elusive notion of security. As Martin told Maclean’s: ‘The role of government ought to be to make sure that it is possible for people who are living in this very insecure time to set aside the savings required for retraining at

various stages in their lives or for their kids.”

But Martin’s message may be a hard sell. Jo-Ann Ramsey, 37, has owned and operated her Market at Mahone Bay on the dazzling Nova Scotia coast since 1986. With its deli, its bedding plants and its fancy foods, it is a six-month seasonal business, dependent on the tides of tourists. Compared with 1993, sales and « profits have increased. She I has expanded twice, adding k ice-cream and rôtisserie ma1 chines and doubling her liv5 ing quarters. After paying I her basic bills^ she has about ö $20,000 left over for the win| ter to buy food, heat her home 1,5 and run her van.

Ask her if she is satisfied and her answer is no. “I know that I am better off than most,” she says. “I only work six months of the year. Some years, I go to Mexico in my off time. But I want to make more money. I want to drive a nice car. I only have $10,000 saved for my retirement.” She maintains that the federal government has done little to help: it is the local business association that has attracted the tourists, largely with its own money. But then, she wants and expects nothing from Ottawa. “I don’t have a lot of faith in politicians,” she says. “You have to rely on yourself.” That is the stark lesson that many Canadians have learned in the 1990s. They must decide for themselves if it is a change for the better. □

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