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shalab
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We had a heated debate on US presidential race, now time for a discussion on Canada as we have so many board members who are very familiar with Canada.

 

Here are some factors to consider:

 

Housing prices in Canada are more expensive than the U.S. where the average is around 189K per Zillow.

 

http://www.livingin-canada.com/house-prices-canada.html

http://www.zillow.com/home-values/

 

Consumer taxes in Canada are higher than the U.S.

 

Average wages are higher in Canada than the U.S

 

http://www.livingin-canada.com/work-salaries-wages-canada.html

http://www.tradingeconomics.com/united-states/wages

 

Finally, the US trade deficit with Canada is dropping - it is expected to be the lowest this year since 1992 (pre NAFTA). While this can be partially attributed to drop in commodity prices, likely this is due to the strength in Canadian economy and the wealth of citizens.

 

http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

 

The median net worth of a Canadian household is much higher than that of a median American house hold.

 

Canadian GDP is at 1.8 trillion, the U.S Trade (export+import) is about a third of the economy.

 

Inspite of the commodity crash, the GDP has continued to grow - building on the wealth from last decade.

 

The questions are as follows:

 

Canadian GDP and wealth will grow in the next five years

Candian GDP and wealth will stagnate/decline in the next five years

Canadian currency will decline further in the next five years

Canadian currency will appreciate against the U.S dollar in the next five years

Canadian govt offers better(and more) services to its citizens compared to US

 

 

 

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The categories are not mutually exclusive, nor jointly exhaustive.  How can one vote intelligently?  It is completely reasonable to believe that 1) the Canadian economy will grow over the next five years AND 3) the Canadian dollar will weaken vis-à-vis the US currency AND 5) that there are better government services in Canada compared to the US.

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This entire conversation really rests on 3 questions:

 

Approval of, and commencement of, pipeline construction across Canada; East, West, North and South to tidewater. Our own view is that there will be protests, and there will be a nationalisation; but its a reasonable proposition. Trumps presence also makes it more likely.

 

Successful de-risking within the real estate sector, and restoration of a more conventional yield curve. We have great confidence in OSFI, and the Bank of Canada. A global focus on infrastructure investment would also make this easier.

 

Oil &/or commodity prices rise significantly, and for a extended period. The underlying driver of course being the overall level of global reinvestment in infrastructure spending. 

 

The issue is that it's unlikely to be smooth. If anything, it's a sharp drop (re trade treaties) followed by a general rise.

Time horizon matters.

 

SD

 

 

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income taxes are also significantly higher in Canada and kick in much lower. Above $150k USD you pay around 50% but in the States you pay 30% up to $413k USD. The difference is a not insignificant $53,000 extra per year. Probably you save even more on interest expense in the States if you buy a house as you can lock in a 30 year rate and deduct interest from your income tax. In Canada I think you can do 10 year intervals at a higher rate and I believe you can't deduct the interest.

 

 

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Average wages and net worth should always be looked at as a share of the developed world wages and net worth. Hence the need to adjust for currencies.

 

This is especially true for Canada since a lot of consumed goods are imported. The USD has a big impact on our costs. Moreover, competition seems lower: restaurants, banking, etc. and we get gouged by companies (cartels) not pricing goods at the same price that they sell them for in the U.S. even after adjusting for currencies. Cars, electronic goods.

 

Regarding net worth, that value is so influenced by the value of housing that it is hard to see if it is real or not.

 

Cardboard

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I have found that everything is more expensive in Canada compared to U.S - especially after 2007 or so. Everything costs more starting from orange juice, hotel rates, pizza  etc. Also, I was surprised they started charging for parking at Whistler/Backcomb - this wasn't the case before the Olympics.

 

Not sure why there isn't adequate competition in Canada - is this the tax structure or something else? (difficulty of doing business)

 

I have heard Canada has very generous pension/health care scheme - how much does one pay into it? What is even more surprising is that the median net worth in Europe is much higher - is this because of inheritance of wealth?

 

Average wages and net worth should always be looked at as a share of the developed world wages and net worth. Hence the need to adjust for currencies.

 

This is especially true for Canada since a lot of consumed goods are imported. The USD has a big impact on our costs. Moreover, competition seems lower: restaurants, banking, etc. and we get gouged by companies (cartels) not pricing goods at the same price that they sell them for in the U.S. even after adjusting for currencies. Cars, electronic goods.

 

Regarding net worth, that value is so influenced by the value of housing that it is hard to see if it is real or not.

 

Cardboard

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Another advantage for Canada is the money spent on military - it spent 1% of GDP which is nothing as its security is pretty much guaranteed by the U.S. So it is free to spend the cash on other things - the U.S spends 3.3% of GDP on the military.

 

 

http://news.nationalpost.com/news/canada/trumps-win-will-increase-pressure-on-canada-to-ramp-up-defence-spending-military-analysts-predict

 

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Another advantage for Canada is the money spent on military - it spent 1% of GDP which is nothing as its security is pretty much guaranteed by the U.S. So it is free to spend the cash on other things - the U.S spends 3.3% of GDP on the military.

 

 

http://news.nationalpost.com/news/canada/trumps-win-will-increase-pressure-on-canada-to-ramp-up-defence-spending-military-analysts-predict

 

IMO, there is way more to it than the way the numbers are presented.  The US uses its military for multiple purposes, most of which have nothing to do with defense.  The military in the US serves as a social welfare system for the poor, and an employment program via production plants spread thoughout the states.  Senators and governors fight to get plants in their jurisdictions.  Poor people enlist for job security, education, free healthcare, retirement after 20 years, etc. 

 

The notion that the US actually has to spend the amounts they do on military is ludicrous.  They could ratchet expenditures way down, and still have the most powerful military in the world.  However, the US would have to make up the social welfare elsewhere, in ways that are less palatable to those who believe that government handouts are bad.  Hypocrisy at the highest level.  So, every once in a while the Us gets involved in a war, kills a few people, gets rid of all their older equipment, to justify a new spending cycle. 

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Costs have always been more expensive.

 

Logistics is a big issue. Canada's population is essentially tucked against the U.S. border and it is something like 90% who live within 100 km of the border. Then you have a huge hub in the center or Toronto with 1/4 of the overall population. This is vastly different than the U.S. where you can place a distribution center in Columbus, Ohio and reach 100 million people in roughly one day of driving.

 

Climate is another. There is a cost for this harsh winter in terms of heating cost, road maintenance, infrastructure, delays, clothing, etc.

 

Quotas. Food cost is highly impacted by production quotas on chicken, eggs, milk, and others. Even maple syrup in Quebec! It has only benefited a small number of farmers who are now multi-millionaires because of that inherited quota.

 

Duplicate costs. There is an EPA, car testing facilities, food safety, drug safety, etc. Basically, every regulation system that the U.S. has is duplicated in Canada. So you have to share that cost over 1/10 of the population. While Canada and the U.S. are separate countries, there are a lot of these that could be shared as they do in the EU for example.

 

Language. There is a cost for having two official languages. It is also a huge disadvantage for french speaking people in terms of mobility.

 

Buying peace. A lot of people, and that includes a lot on this board, like to pay taxes to keep poor people in check. Make no mistake, this is not charity. The only thing that they don't realize is that once the well runs empty, then it is a guarantee that entitled's will come for them and their daughters.

 

Cardboard

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Costs have always been more expensive.

 

Logistics is a big issue. Canada's population is essentially tucked against the U.S. border and it is something like 90% who live within 100 km of the border. Then you have a huge hub in the center or Toronto with 1/4 of the overall population. This is vastly different than the U.S. where you can place a distribution center in Columbus, Ohio and reach 100 million people in roughly one day of driving.

 

Climate is another. There is a cost for this harsh winter in terms of heating cost, road maintenance, infrastructure, delays, clothing, etc.

 

Quotas. Food cost is highly impacted by production quotas on chicken, eggs, milk, and others. Even maple syrup in Quebec! It has only benefited a small number of farmers who are now multi-millionaires because of that inherited quota.

 

Duplicate costs. There is an EPA, car testing facilities, food safety, drug safety, etc. Basically, every regulation system that the U.S. has is duplicated in Canada. So you have to share that cost over 1/10 of the population. While Canada and the U.S. are separate countries, there are a lot of these that could be shared as they do in the EU for example.

 

Language. There is a cost for having two official languages. It is also a huge disadvantage for french speaking people in terms of mobility.

 

Buying peace. A lot of people, and that includes a lot on this board, like to pay taxes to keep poor people in check. Make no mistake, this is not charity. The only thing that they don't realize is that once the well runs empty, then it is a guarantee that entitled's will come for them and their daughters.

 

Cardboard

 

Good points, all.  The last point is universal to all countries, except North Korea, these days.  Wherever the social welfare network has broken down there are wars. 

 

 

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We had a heated debate on US presidential race, now time for a discussion on Canada as we have so many board members who are very familiar with Canada.

 

Here are some factors to consider:

 

Housing prices in Canada are more expensive than the U.S. where the average is around 189K per Zillow.

 

http://www.livingin-canada.com/house-prices-canada.html

http://www.zillow.com/home-values/

 

Consumer taxes in Canada are higher than the U.S.

 

Average wages are higher in Canada than the U.S

 

http://www.livingin-canada.com/work-salaries-wages-canada.html

http://www.tradingeconomics.com/united-states/wages

 

Finally, the US trade deficit with Canada is dropping - it is expected to be the lowest this year since 1992 (pre NAFTA). While this can be partially attributed to drop in commodity prices, likely this is due to the strength in Canadian economy and the wealth of citizens.

 

http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

 

The median net worth of a Canadian household is much higher than that of a median American house hold.

 

Canadian GDP is at 1.8 trillion, the U.S Trade (export+import) is about a third of the economy.

 

Inspite of the commodity crash, the GDP has continued to grow - building on the wealth from last decade.

 

The questions are as follows:

 

Canadian GDP and wealth will grow in the next five years

Candian GDP and wealth will stagnate/decline in the next five years

Canadian currency will decline further in the next five years

Canadian currency will appreciate against the U.S dollar in the next five years

Canadian govt offers better(and more) services to its citizens compared to US

 

Answers:

1) Probably

2) Not likely

3) Currency - at the moment it tracks the price of oil which is interelated to the US dollar.

4) Some yes, some no.  In some cases it is better to use Europe and GB as comparators.  Partly of the reason the US is so innovative is the nature of its winner take all society.  The most innovative people in many industries go to the US.  Elon Musk being an obvious, non Asian example.  Why didnt he build Tesla in Ontario, Canada?  There are a whole host of reasons.  Its better to be poor and disadvantaged in Canada, GB, or EU, than in the US.  It is better to be highly skilled and ambitious in the US. 

 

 

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Some additional grist .....

 

In todays Trump, & Euro break-up world?; Canada is looking very, very attractive - to a great many new people. We have systematically moved Canadian sourced gains into London (UK) real estate for a great many years; a very common diversification strategy amongst the wealthy of most of the Arabic, Asian, and African countries of the world. A large number of those people are now looking to Canada - & further diversification, primarily via infrastructure projects.

 

Canada's multiculturalism has always been strongly linked to the Trudeau name. In todays more uncertain NA & European worlds, that multiculturalism is acting like the flame on the statue of liberty. Establishments younger generations are increasingly being sent to Canada to establish themselves (via start ups), and Canadian firms with extensive US interests are being heavily favoured. Long term roots and influence, in the modern day equivalent of Canada's accepting US Vietnam draft dodgers all over again.

 

Everybody gets better when they have to play Gretzky every night; in the early days he gets a lot of wins, but it gets harder and harder very quickly. We just end up playing a different type of hockey, and at a higher level.

 

Progress.

 

SD

   

 

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I have heard Canada has very generous pension/health care scheme - how much does one pay into it? What is even more surprising is that the median net worth in Europe is much higher - is this because of inheritance of wealth?

 

Specifically to this. Health care is paid out of income tax. Pension is paid for through payroll taxes. The rate is 4.95% of salary up to 54k income and 0 above 54k. This deduction is matched 1:1 by the employer. After reforms in the late 90s the pension system is very well run. I'm not sure how generous it is. Everyone gets a fixed amount based on years or residence then the rest is determined by how much you paid into the system. I think it maxes out around $1,600 per month if you've paid the max into it. Most people get less.

 

Regarding the disparity between Europe and Canada there are several factors ate work. Yes there's more inherited wealth it Europe. There are some countries in Europe with really high savings rate (Germany, France, Italy), more organized labor in Europe, more income inequality in Canada. Also Canada is a country with high immigration (about 0.8% per year), more than 20% of the population was not born here and were quite poor when they came. So they didn't really have the time to build that wealth.

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We had a heated debate on US presidential race, now time for a discussion on Canada as we have so many board members who are very familiar with Canada.

 

Here are some factors to consider:

 

Housing prices in Canada are more expensive than the U.S. where the average is around 189K per Zillow.

 

http://www.livingin-canada.com/house-prices-canada.html

http://www.zillow.com/home-values/

 

Consumer taxes in Canada are higher than the U.S.

 

Average wages are higher in Canada than the U.S

 

http://www.livingin-canada.com/work-salaries-wages-canada.html

http://www.tradingeconomics.com/united-states/wages

 

Finally, the US trade deficit with Canada is dropping - it is expected to be the lowest this year since 1992 (pre NAFTA). While this can be partially attributed to drop in commodity prices, likely this is due to the strength in Canadian economy and the wealth of citizens.

 

http://www.freedomthirtyfiveblog.com/resources/median-and-average-net-worth

 

The median net worth of a Canadian household is much higher than that of a median American house hold.

 

Canadian GDP is at 1.8 trillion, the U.S Trade (export+import) is about a third of the economy.

 

Inspite of the commodity crash, the GDP has continued to grow - building on the wealth from last decade.

 

The questions are as follows:

 

Canadian GDP and wealth will grow in the next five years

Candian GDP and wealth will stagnate/decline in the next five years

Canadian currency will decline further in the next five years

Canadian currency will appreciate against the U.S dollar in the next five years

Canadian govt offers better(and more) services to its citizens compared to US

 

Answers:

1) Probably

2) Not likely

3) Currency - at the moment it tracks the price of oil which is interelated to the US dollar.

4) Some yes, some no.  In some cases it is better to use Europe and GB as comparators.  Partly of the reason the US is so innovative is the nature of its winner take all society.  The most innovative people in many industries go to the US.  Elon Musk being an obvious, non Asian example.  Why didnt he build Tesla in Ontario, Canada?  There are a whole host of reasons.  Its better to be poor and disadvantaged in Canada, GB, or EU, than in the US.  It is better to be highly skilled and ambitious in the US.

 

2) I am not sure because most of the networth is made up of equity in housing combined with highest debt loads in Canadian history. If housing prices go back to long term averages, that leveraged equity could disappear very quickly. With the steps that cities, provinces and Feds are taking to reign this in, I expect things to be very difficult over the next 5 years.

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The pension tax is pretty reasonable - it is higher in the U.S (with higher salary cap of close to 120K) and our social security system is about to break down. Hopefully there will be some reforms will be made so it remains solvent for the needy.

 

I have heard Canada has very generous pension/health care scheme - how much does one pay into it? What is even more surprising is that the median net worth in Europe is much higher - is this because of inheritance of wealth?

 

Specifically to this. Health care is paid out of income tax. Pension is paid for through payroll taxes. The rate is 4.95% of salary up to 54k income and 0 above 54k. This deduction is matched 1:1 by the employer. After reforms in the late 90s the pension system is very well run. I'm not sure how generous it is. Everyone gets a fixed amount based on years or residence then the rest is determined by how much you paid into the system. I think it maxes out around $1,600 per month if you've paid the max into it. Most people get less.

 

Regarding the disparity between Europe and Canada there are several factors ate work. Yes there's more inherited wealth it Europe. There are some countries in Europe with really high savings rate (Germany, France, Italy), more organized labor in Europe, more income inequality in Canada. Also Canada is a country with high immigration (about 0.8% per year), more than 20% of the population was not born here and were quite poor when they came. So they didn't really have the time to build that wealth.

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This occurs because the proprietor is both the employer and the employee;

hence the proprietor/employee pays the 4.95% for each legal party. The same applies to EI, except the employer portion is 140% of the employee portion. The plus side is that as with any company, all business expenses are tax deductible - lowering the taxable income on which the employer/employee will pay taxes.

 

For most applications the structure works very well; the employer surplus cash is typically used to buy the office building as the interest expense is tax deductible. On employee retirement, the employer sells the office building and pays the proceeds out as a dividend to the employee for the rest of his/her life - the building essentially becomes the employees private pension plan.   

 

SD

 

Note that the self employed/sole proprietors pay a 10% pension-payroll tax instead of 5% even though they have no employer or salary. This has always been a bit of a head-scratcher for me. Same in most countries I presume.

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