The Federal Government Receives a Failing Grade for it's Handling of the Unity File According to 90 Percent of Top Canadian Money Managers Surveyed
Release Date: 16 July 1997
VANCOUVER, BC>>> Canadian money managers responsible for over $130 billion in total assets under management disapprove of the manner in which the federal government has handled the unity file, a Fraser Institute Survey has found. Indeed, 90 percent of the respondents either strongly disapprove or disapprove of the federal government’s actions to date on the unity file. “Canada as an entity barely survived the last referendum. Canada already pays a price for our ‘constitutional malaise’ in the form of increased uncertainty and its associated economic costs of high real interest rates and unemployment. It is time for the federal government to embark on reforms to resolve the unity issue,” commented Fazil Mihlar, senior policy analyst at The Fraser Institute.
Separation of Quebec a likely prospect
When asked whether the province of Quebec will separate within the next five years, 63 percent of the respondents said it was either very likely, likely or somewhat likely. This result is consistent with the results of the Spring 1996 survey. It appears that there is an on going concern about the prospect of Quebec separation. “In light of the concerns expressed by the fund managers, Ottawa should redouble its efforts on the unity file in the next parliament,” said Mr. Mihlar.
Personal income tax file: a failing grade
Eighty-three percent of the Canadian fund managers surveyed either strongly disapprove or disapprove of the federal government’s handling of personal income tax policy. Canadian taxes are about 8.5 percent more as a percentage of GDP than its major trading partner, the United States. Economic studies indicate that high tax rates hinder economic growth and consequently job creation. “It appears that the survey respondents are justified in their disapproval of the way in which the federal government has handled personal income tax issues,” noted Mr. Mihlar.
Major areas of concern: high taxes, deficit reduction and national unity
When asked what the most important issue is which faces the federal government, 37 percent of the respondents indicated it was tax reform/high taxes, 28 percent cited deficit reduction, and 26 percent suggested national unity. “The fund managers appear to view these three issues as the most important priority items for the federal government to tackle in the next parliament,” said Mr. Mihlar
Most popular derivative instrument: Canadian stock index futures/options
The survey asked respondents to list the type of derivative products they currently use. Mr. Mihlar reported that “among those surveyed, the most widely used derivative is the Canadian stock index futures/options.”
Forty-two percent of respondents indicated they use Canadian stock index futures/options, down from 52 percent in the last survey. This was followed by international stock index futures/options, which are used by 35 percent, down from 44 percent from last year’s survey. Twenty-eight percent of fund managers indicated that they use forward rate agreements and OTC currency options/forwards respectively.
Relative growth in the use of derivatives
Respondents were asked whether there has been growth in the use of derivatives over the last two years. While 57 percent of the participants said the use of derivatives has grown, 41 percent said their use of derivatives remained the same.
In Canada, the popularity of OTC derivatives appear to be waning. Twenty-six percent of respondents stated that OTC derivatives were either very important or important portfolio management tool. This is down from 40 percent last year. Seventy-three percent said that OTC derivatives were not very important or unimportant. This is an increase from 58 percent in last year’s survey.
Motivating factors for the use of derivatives: foreign property exposure, hedging, and asset allocation
Foreign property exposure, hedging, and asset allocation were cited as the biggest motivating factors for trading in derivatives. These three factors scored 7.4, 6.6, and 6.6 respectively out of a possible 10 and were rated as the highest contributing factors. These were followed by cost efficiency (6.3) and liquidity (6.0). Derivatives were also used as a custom investment strategy (5.2). “It appears that the federal government’s 20 percent ceiling on foreign holdings in pension plans is one of the contributing factors driving the use of derivatives in Canada,” explained Mr. Mihlar.
Risks facing Canadian financial markets: U.S. financial market instability, Quebec referendum, and slow down in economic growth
The survey respondents were asked which issue or event poses the greatest risk to Canadian financial markets over the next six months. Forty-eight percent of those surveyed suggested the instability of U.S. financial markets, 17 percent cited the Quebec referendum, and 14 percent were of the opinion that a slow down in economic growth would pose the greatest risks to financial markets.
Bank of Canada receives a thumbs-up for its conduct of monetary policy
The Bank of Canada maintained its high approval rating once again. In fact, 98 percent of the survey respondents said that the Bank was either doing an excellent, very good, or good job in its conduct of monetary policy.
Unanimously high approval rating for the Minister of Finance
Ninety-eight percent of the respondents rated the performance of the Finance Minister as either very good or good. In budgetary matters, fund managers appear to have confidence in the Finance Minister. “The re-appointment of Paul Martin to the finance portfolio must appease the markets,” commented Mr. Mihlar.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
info@fraserinstitute.ca
4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7
Tel: (604) 688-0221 Fax: (604) 688-8539 Book Orders: 1-800-665-3558 ext. 580
You can contact us at the above email address for any comments or information requests. Please report any dead links or technical problems.