Low-Interest Rates, Naheed Nenshi, Rachel Notley, the NDP, Liberals, and CMHC have cost Calgary $300M in tax revenue from downtown offices now sitting empty – June 7, 2019,
I’ve been writing about Alberta for years, they have Canada’s freest market, many Albertans can comprehend a market economy, sure I disagree with the protectionism that’s pervasive all over Canada, but we have democracy and I accept the good with the bad. Although many point to the Oilpatch economic downturn as the problem, the truth is that oil prices fluctuate all the time, what I’ve always argued about Alberta are the prices that aren’t allowed to fluctuate. When the Government and central banks get involved in a market economy, you get a lot of price fixing, now what happened to Venezuela when the price of Oil dropped was that the Venezuelan costs and liabilities related to the Venezuelan public sector exceeded revenues generated from Oil. This, of course, meant bills couldn’t be paid and any loans they had couldn’t be serviced.
This has always been the price of socialism and in Europe, their cure for this is regressive taxation, which of course leads to stagnant economies. In Canada, we have the luxury of having the United States as a trading partner, this, of course, gives us as a Country an appearance of unlimited wealth, which a lot of Leftist politicians have used for years, to run up municipal debts. Now, I’ve often argued that Canada’s system of government allows municipal leaders to be intentionally inefficient. Naheed Nenshi isn’t alone for being a Mayor who’s proven to be incompetent of leading. It’s the economic downturns that tell you if a Mayor knew what he was doing.
Costs and Liabilities are important to managing anything, and the complications that CMHC and the Bank of Canada bring to every city in Canada are as follows. The BoC lowering interest rates and keeping rates low for a long period of time equates to lower borrowing costs, which can result in inflated prices, now when real estate prices are inflated, it’s not an open invitation for the Municipal governments to spend more money, it’s a warning sign that it’s time to cut back spending.
Compounding this problem is CMHC, which allows more residential buildings to get financed, an empty condo is an empty condo, sure there could be projections that people might move into the area, but central planning that isn’t backed by any market fundamentals often lead to a city not making any sense for consumers from a practical standpoint. As an example when a city is formed based on demand, business is often located when and where energy and wealth are being generated. So if a massive job creator exists, then naturally other businesses will form around it. Derivatives of large scale businesses will come into existence based on the ever-increasing demand for them.
If the central planners assume that wealth should be generated in such and such location based on no market fundamentals and they’re wrong, what often happens especially with inflated lease and rental prices is that businesses will go bankrupt or be forced to leave faster than expected. When people leave an area, only jobs can bring them back and if as an example you have a very high minimum wage, it will be hard for you to attract businesses that can’t afford that high minimum wage, compounding the problem will of course, be raising property taxes for on the people that haven’t left. Big businesses pay people to find the locations where they could save the most money, while at the same time generate the most wealth. Big businesses pay close attention to politics, Amazon passed on New York because of U.S. Representative Alexandria Ocasio-Cortez and her huge following of supporters. Amazon didn’t want to be blamed for everything wrong with New York, they have an image to maintain. Now if Calgary is raising taxes while it’s losing people and businesses, what kind of message does that send?
If you wonder why I constantly write about minimum wages(provincial) the CMHC(Federal) and the Bank of Canada, it’s because if you’re a mayor, you have to be able to comprehend how price fixing will affect your city. In Vancouver as an example, property taxes were relatively low, why? Because the initial concept was to lure more people into the housing market, the problem, however, was that low property taxes lured the wrong type of people into the housing market, then interest rates dropped, the value of the Canadian dollar declined and because more people had access to cheap Canadian money, housing prices inflated, now attracting money launderers has its perks, because you collect more tax revenue, but in the long term it has the effect of destroying your middle class, now on the flipside when your city is on the decline, your public servants still need to be paid and your public services still have to be financed.
Because your city had been living off of inflated prices that also inflated tax revenues, the assumption of Naheed Nenshi is the assumption of most center Left and Center Right politicians, that the economy simply fixes itself. Raise taxes, we’ll be ok, it’s only a few dollars he tells himself, the oilpatch will rebound and people and businesses will return, they have too?
My point is that Canada is now in unchartered territory, in the past Canadians didn’t have this much debt, so when an economic downturn occurred, the effects on us were minimal, but now, Canadians need access to credit, we’re very dependent on credit and let’s ignore interest rates for a moment and talk about debt servicing, as we dig ourselves deeper and deeper into debt, there comes a time where debt servicing might consume a Canadians entire income and if this thinking that we have, which entails us simply kicking the debt can down the road and maintaining the status quo isn’t challenged or talked about seriously, when the next global crash hits us, things are going to get very, very bad.
The Canadian economy is currently shaped to benefit Government unionized workers and the upper middle class rich. Deflation helps the poor, when a store has a liquidation sale and prices come down this helps the poor, in Canada our government our public sector is so large and the benefits the public sector gets are so massive that if the provinces in Canada that generate a profit ever become have not provinces, Canada could have a currency crisis that either force the BoC to raise rates, which would cause a lot of people to declare bankruptcy or lower rates which could trigger hyperinflation. Calgary is a city to play close attention to going forward.
interesting times ahead