This is an addendum to one of my posts last week regarding comments made by Navdeep Bains, Minister of Innovation, Science and Economic Development - he hopes that that Trudeau's new budgetary measures will attract "top-notch workers, scientists and scholars from the U.S."
Lets look at the competition he and Canada faces in trying to attract U.S. workers. USA Today published an article this past weekend on "Tech Job Migration" (the link is at bottom of Blog. The salient points from this article are...
Many Tech startups and even existing "Big Players" are relocating to cities like Phoenix, Tucson, Houston and Denver for reasons of lower operating costs and an increased ability to attract new talent based on the lower costs for housing and lower costs of living.
Lets take a look at the attraction for a potential tech employee and what they will choose Phoenix for example over Ottawa.
Taxes & Cost of Living
An individual in Phoenix making $80K will have a tax rate, before deductions of 17.9%. The save individual in Ottawa will have a personal tax rate of 31.5% (nearly double). In Phoenix the worker will be able to purchase a 2,000 sq/ft home, within a 30 minute commute, for approximately $250K. The same home within a hour commute of Ottawa will cost approximately $650K. The employee in Phoenix will only require a downpayment of $12.5K with 100% of the mortgage interest being deductible. The Canadian will need $65K downpayment to obtain a reasonable mortgages rate without CMHC Insurance. Taxes on the Phoenix house will be $1,900/yr whereas the property taxes on the Ottawa home would be $6,000/yr. Utilities, gas and other costs of living are approximately 17% higher in Ottawa than in Phoenix (https://www.expatistan.com). HST tax in Ottawa 13% in Phoenix 8.6% (only on goods, services not taxed). Health Care, the Ottawa employee will receive "Free" Healthcare, the company will, in all likelihood, have a Benefits package for the employee. As of January 2016 U.S. employers are required to provide adequate health insurance coverage options for employees. At a minimum the Phoenix company will provide the employee with 70 percent/30 percent. Out of pocket premium expense (fully deductible) for the employee would range from $1,118 for single or individual employee coverage; $2,824 for employee-plus-one coverage and $4,236 for family coverage.
Will all the above taken into consideration the Phoenix employee will have approximately $38,000 more for discretionary spending per year than the Ottawa employee!
Get ready for the stampede Minister Navdeep Bains!!!!!
Bombardier is in the news again so I’m jumping in with both feet. The federal government says it will provide $372.5 million in interest-free loans to Bombardier. This is short of the $1-billion that they have been asking for however, over the years, Bombardier has received roughly $1 billion in federal support. Last year, Bombardier received a $1-billion US investment from the Quebec government in exchange for a 49.5-per-cent stake. In August 2016 Bombardier handed out pink slips to aerospace employees in Montreal as part of its efforts to trim 7,000 workers over two years.
According to their most recent 5 year summary revenues have declined from a high of $20B in 2014 to $16B in 2016, approximately the same amount as in 2012. In the same time their EBIT has declined from $666M to -$58M with the biggest loss in 2015 of -$4.8B.
In addition to the Federal loans the media was also in an uproar as to Bombardier ‘s plans to offer hefty bonuses to six members of its senior executive team in the amount of $32 million in bonuses. In response to the backlash, the company made a concession late Sunday evening and announced the new plan will be to delay — but not reduce — the payouts to executives, as long as the company hits certain performance targets. 'I can understand why people were so angry,' CEO says in recommending deferment plan.
While the company has yet to repay all the money its borrowed from the federal government in the past its founder Joseph-Armand Bombardier’s descendants have collected approximately $150 million in dividend payments from Bombardier over the last decade as a result of the company’s dual class share structure.
Since half of the bonuses are now delayed to 2020 how many more times do you think they will go to the Provincial and Federal governments for additional funding.
Now I have run both Public and Private companies. When we, like many others, struggled to compete and increase sales there where no government monies made available to us. We had to go to the banks and if they didn’t like what they saw then we, as directors and owners of these companies had to make personal guarantees for the loans. We also had to have a good business plan and a detailed use-of-funds that would be monitored monthly by the banks “Special Loans” department. One slip up and all monies could be called in. In my experience in the high-tech sector I saw many companies go under resulting in thousands of lost jobs. The only interest the governments had was to make sure their taxes were paid before any monies where distributed to others, including employees.
Why Canada Will Not Let Bombardier, Inc. Fail
Bombardier is competing in a market, aircraft, with the likes of Boeing and Airbus both who are heavily supported via government loans. It is reported that Boeing has received over US$450 million in federal grants and tax credits since 2000, as well as more than US$64 billion in loan guarantees over the same time. Boeing has also received more state aid than any other corporation.
Bombardier employs roughly 45,000 people in Canada with over 18,000 of these in Quebec, and salaries are typically quite high. Many of these people would have great difficulty finding new jobs at the same level of compensation. Suppliers and other businesses would also fail as a result. There would be both a federal and provincial loss of tax revenue. Unemployment benefits, retraining and the potential loss of trained workers to the U.S. would also be expensive.
The federal and provincial governments learned a big lesson when Nortel collapsed.
What will the Canadian Taxpayer have to do?
Basically suck it up and live with it like we have for the past 5-10 years. Bombardier will continue to put its hand out and lean on governments for support. Executives will not only get the 2016 bonuses, well before the 2020 deadline, but will also continue to add additional bonuses and incentives year over year.
I am a concerned Canadian that is fed up seeing companies and people leave Canada due to the high cost of doing business and living.