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OTTAWA–Federal Conservatives opposed to a new tax break for education savings are finding themselves in an awkward situation – blocking a tax cut and relying on the Senate, which they have said should be abolished, to help them stop it.

Conservatives are trying to muster Senate opposition to a Liberal private member’s bill, quietly passed on Wednesday night, that would allow parents to contribute up to $5,000 a year to a registered education savings plan for each child and deduct that amount from their income taxes.

Dan McTeague, the Liberal MP for Pickering-Scarborough East who sponsored the bill, said the program would be similar to registered retirement savings plans and help encourage parents to save more for their children’s education.

McTeague said yesterday he was willing to compromise on the limit that can be deducted, although he said he was prepared to fight for the bill in the Senate.

The Tories are balking at the price tag, warning the proposal would mean up to $900 million in lost revenues for the federal government.

The proposal would cost the provinces another $450 million in lost revenue, the Tories say.

Conservative MP Ted Menzies, the parliamentary secretary to the minister of finance, accused McTeague of "underhandedly" introducing a measure that would cost the federal coffers – already emptied by a string of Tory tax cuts – almost $1 billion.

"I would argue it’s abuse of his privilege by adding that kind of cost onto … the government through a private member’s bill," Menzies told reporters yesterday.

"My plan right now is to talk to the Senators and, there’s some reasonable-minded Senators that will look at this and say this is not good use of taxpayers’ dollars," said Menzies. But that strategy is raising eyebrows on Parliament Hill, since it was the Tories who slammed Liberal Senators for their delay in considering crime legislation earlier this year free credit report without a credit card. At the time, Tory House Leader Peter Van Loan criticized the "Liberal Senate delay-and-obstruction grinding machine."

Last fall, Prime Minister Stephen Harper, an advocate of Senate reform, said there’s "no role in a modern 21st-century democracy for an unelected legislature." But Menzies had changed his stance yesterday.

"I’ve always found a use for the Senate. There’s some good people there. It’s a house of sober second thought," he said.

But the Conservatives, who have painted themselves as tax cutters, could pay a political price for blocking a bill bound to be popular with parents who are already saving for their kids’ education and are keen to get a tax break, warned Garth Turner, the Liberal MP for Halton.

"I think this has the potential of being extremely popular. The reaction I’ve had so far is people are delighted," Turner said.

He said the RESP tax deductions would benefit families more than the Tory savings plan, introduced in the Feb. 26 budget, that would allow anyone 18 or older to save up to $5,000 a year without paying taxes on the earnings or investment income generated.

"This actually allows families to get a net benefit back instantly from when they contribute," Turner said of the RESP proposal.

Under current rules, RESP contributions grow tax-free, but are not tax-deductible. Investment earnings are taxed in the hands of the student on withdrawal.

With files from The Canadian Press

 

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SYDNEY, Australia – Australia's economy slowed slightly in the fourth quarter due to sluggish export growth but domestic demand remained robust, according to data released Wednesday that affirms the central bank's aggressive interest rate stance.

Gross domestic product grew 3.9 per cent in the October-December period from a year earlier, the Australian Bureau of Statistics said, down from the 4.3 per cent growth in the third quarter.

Domestic demand grew 5.7 per cent on year, up from 5.5 per cent in the previous quarter, presenting a headache for policy-makers. The Reserve Bank of Australia has warned that a significant slowdown in demand is needed to tame rising inflation, which has risen above the central bank's two to three per cent target band.

On Tuesday, the central bank raised its key interest rate to 7.25 per cent, the highest in 12 years.

Malcolm Edey, assistant governor of the bank, said ahead of Wednesday's growth data that the economic outlook was finely poised with forces working both for and against the economy.

Risks associated with higher inflation are balanced by “appreciably" tighter financial conditions and concerns about the global growth outlook, Edey told a conference in Sydney.

Edey's remarks strengthen the view that the bank is now on hold awaiting confirmation that four interest rate hikes since July 2007, coupled with a credit crunch in debt markets and a slowing world economy, will cool demand and lower inflation.

A strong Australian dollar will also act to contract demand, Edey said.

Treasurer Wayne Swan said the growth data shows domestic demand has not been matched by increases in productive capacity.

"Australia is failing to meet its productivity challenge, which is critical to sustaining growth into the future and easing inflation pressures," Swan told reporters in Canberra cash til payday loan. High inflation "remains a major risk to the economy," he said.

The government and central bank face strong economic growth this year as rising commodity prices boost export earnings – especially of resources to energy-hungry China and India – and heavy summer rains sharply lift farm output.

Macquarie Bank economist Brian Redican said there was "no relief in sight for the RBA," with strong growth still across all growth components.

"The kind of slowing that the Reserve Bank is talking about isn't reflected in these numbers yet," he said.

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BAIE-COMEAU–Alcoa is investing $1.2 billion in its aluminum smelter in Baie-Comeau, Que., a move the company says will guarantee 3,900 direct and indirect jobs.

CEO Alain Belda and Premier Jean Charest said Tuesday the money will go to modernizing the 51-year-old facility.

Investissement Quebec, a provincial investment agency, is offering a $228-million interest-free loan guarantee as part of the project.

The modernization will boost the smelter's production capacity to 548,000 metric tonnes a year, which represents an increase of 110,000 metric tonnes.

The project is slated to begin in 2008 and to end in 2015.

Alcoa is one of the world's biggest producers of aluminum and is active in aluminum smelting and recycling.

The company made a bid for Canadian aluminum giant Alcan last year, but lost out to global mining giant Rio Tinto.

"I am very proud and very happy to be among our employees today," Belda said faxless online payday advances. "Their work and their commitment to the success of their smelter constitute a guarantee of Alcoa's future in Quebec.

"Recently, each of our Quebec smelters celebrated the anniversary of their start-up: 50 years in Baie-Comeau, 20 years in Becancour, and 15 years in Deschambault. We can now face the future with confidence."

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The Toronto stock market was slightly lower late Monday morning as big gains in commodity stocks were balanced by losses in the financial sector, while data showed the American economic slowdown put the Canadian economy into reverse at the end of 2007.

New York markets were weak after reports showed further contraction in the American manufacturing sector and sharply lower construction spending.

Toronto's S&P/TSX composite index fell 40.67 points to 13,542.02 with support coming from higher energy and precious and base-metal stocks, despite glum economic data from the United States as investors hope emerging markets will take up the slack from a slowing American economy.

"I think they are looking for other (emerging) markets to pull up their bootstraps and carry on," said Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

"I think most of those investors want to be optimistic. You can see that."

The Canadian dollar dipped 0.47 cent to 101.11 cents US after Statistics Canada reported economic output contracted 0.7 per cent in December because of "significant reductions in manufacturing activities, wholesaling and in oil and gas extraction."

The economy advanced 2.7 per cent for the full year, but fourth-quarter growth slowed dramatically to 0.2 per cent.

The report increased expectations that the Bank of Canada will cut interest rates aggressively Tuesday when its next decision is announced.

"Given the weaker-than-expected Q4 data, a Canadian dollar currently sitting well above the 98 cent US assumption in the latest monetary policy report update, and that U.S. growth will likely be very weak over the first half of the year, we see the Bank of Canada cutting rates by 50 basis points," said RBC economist Rishi Sondhi.

The TSX Venture Exchange ticked 24.49 points higher to 2,806.56.

In New York, the Dow Jones industrial average lost 76.77 points to 12,189.62 following a 315.79-point tumble Friday.

The Nasdaq composite index was down 13.06 points to 2,258.42 while the S&P 500 index edged 5.22 points lower to 1,332.48.

The Institute for Supply Management reported that its February manufacturing index registered at 48.3, the weakest reading in nearly five years. And the Commerce Department said construction spending in January took its biggest nosedive in 14 years, plunging 1.7 per cent.

The TSX gold sector gained three per cent as bullion crept closer to US$1,000 an ounce payday loans. The April bullion contract on the New York Mercantile Exchange was up $11.30 to US$986.30 an ounce after earlier hitting US$992.

Barrick Gold (TSX: ABX) gained $1.40 to $52.60 and Kinross Gold Corp. (TSX: K) improved $1 to $25.35.

Oil prices were also on the rise following comments by a senior Libyan official that the Organization of Petroleum Exporting Countries will hold production levels unchanged this week as it continues to gauge the state of the global economy.

The April crude contract on the Nymex rose $1.66 to US$103.50, taking the TSX energy sector up 0.9 per cent. Suncor Energy (TSX: SU) rose $2.85 to $104.35 and UTS Energy Corp. (TSX: UTS) gained six cents to $5.88.

Shares in Petrolifera Petroleum Ltd. (TSX: PDP) were off 15 cents at $12.35 after the company said it will restate 2006 results to correct tax reporting. It expects earnings for 2006 to be cut by $2.6 million from the previously reported $39.9 million.

Base metals stocks supported the Toronto market with the mining sector ahead three per cent. Teck Cominco Ltd. (TSX: TCK.B) ran ahead $1.79 to $41.06 while HudBay Minerals (TSX: HBM) advanced 85 cents to $19.65.

Worries about the credit crisis and the spectre of another round of big writeoffs linked to U.S. mortgages sent the TSX financial sector down two per cent.

Bank of Montreal (TSX: BMO) fell $1.65 to $48.05 and Royal Bank (TSX: RY) retreated $1.01 to $48.38.

Shares in Rogers Communications Inc. (TSX: RCI.B) were up 40 to $39.25 after ratings agency DBRS placed the ratings for its notes under review with positive implications. It said the move "follows a period of continued growth in the company's wireless and cable operations and a demonstrably more focused approach to financial management . . . "

London's FTSE 100 index declined 49.5 points to 5,834.8.

Frankfurt's DAX 30 lost 73.27 points to 6,674.86 and the Paris CAC 40 gave back 43.72 points to 4,746.94.

Hong Kong's Hang Seng index dropped 3.1 per cent to 23,584.97.

Japan's benchmark Nikkei 225 index plunged 4.5 per cent to close at 12,992.18 and India's benchmark Sensex tumbled 5.3 per cent to 16,639.54.

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OTTAWA–Canada's trade record with the rest of the world fell into negative territory for the first time in nine years at the end of 2007, signalling that a long run of muscular trade surpluses is over.

The combination of the high Canadian dollar, low consumer demand in the United States, low domestic prices for foreign goods and a flood of cross-border bargain hunters chopped the current account by $1.8 billion, compared with the third quarter, for a net deficit of $513 million.

"I think we're seeing a shift in the trade balance that's going to be with us for a few years," BMO deputy chief economist Douglas Porter said Friday.

"And for one of the few times in decades, we may see an overall merchandise deficit. We're more than halfway there from the peak levels."

For the full year, Canada's current account – the broadest measure of international trade – still registered a $14.2-billion surplus, down from $23.6 billion in 2006.

But many economists are predicting 2008 will only see red ink, with the deficit reaching as high as $20 billion.

The new sign of growing economic weakness will likely cause new Bank of Canada governor Mark Carney to make his move on interest rates a dramatic one Tuesday and slash the overnight rate by half a percentage point to 3.5 per cent, said CIBC economist Krishen Rangasamy.

The news also curbed the recent runup by the Canadian dollar as it slipped almost half a cent to 101.96 cents US by midday.

"The Bank of Canada has to react to this," said Rangasamy. "A 50-basis-point reduction would stimulate the economy by reducing the cost of borrowing, which encourages investment and spending."

Most of the major indicators that go into the current account numbers suffered setbacks in December, Statistics Canada said.

The normally strong goods surplus continued to fall as exports, particularly to the U.S., dropped for the third-straight quarter to $9.3 billion easy payday loans. Meanwhile, Canada's traditional deficit in services grew to $5.8 billion.

"This is consistent with the trade sector acting as a restraint on gross domestic product growth again in the fourth quarter," said RBC's Dawn Desjardins. "We expect that the real net exports trimmed the quarterly growth rate by about 2.6 percentage points in the quarter."

In addition, foreign firms continue to grab Canadian assets, particularly in the desirable resource sector. Direct inflows surged to $47 billion in the fourth quarter, making last year's total inflows of $115.4 billion even larger than during the tech bubble of 2000.

"This certainly raises some serious questions about whether hollowing-out is a myth after all," said Porter. "We've seen cash-rich companies snap up whatever they could in the resource sector even though the Canadian dollar is very high."

But Porter added that Canada's deteriorating trade balance should be put in perspective with the U.S., which is paying a steep price for many years of trade deficits.

"Even if our deficit rose to $20 billion, which is quite possible, that would only be a little more than one per cent of GDP, whereas the United States has come off a string of years when their deficit has been five or six per cent of GDP," he noted. "We're a long way from the U.S. situation."

Statistics Canada said the country's travel deficit also hit a record in the fourth quarter, as the strong loonie helped send Canadians to the U.S. – both for vacations and for short shopping expeditions.

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