California likes Facebook. Well, it did when it looked like the social media giant was going to flood government coffers with desperately needed cash. When the state crunched its budget earlier this year, it took for granted that the company’s IPO in May would lead to a tax windfall as Facebook insiders cashed out. The bean counters banked on US$1.9 billion in tax revenue for the state. But then Facebook shares lost nearly half their value after the IPO. Officials now say the state may be out “hundreds of millions of dollars” as a result.
It would seem old habits die hard in the Golden State, where politicians can’t bring themselves to say no to more spending, but don’t have the money to meet those commitments. And so California spends beyond its means, and prays the manna (in this case Facebook riches) will fall from the sky.
There’s a lesson for Canada in all this. Substitute Facebook shares with barrels of oil or containers filled with minerals, and Canadian provincial governments have proven they’re every bit as dependent on wishful windfalls to make ends meet. Back in February, Alberta announced massive spending increases. Officials boasted that a “gusher” of revenue from the oil sands would turn this year’s $886-million provincial deficit into a $5-billion surplus in just two years. But oil prices haven’t co-operated. Amid a commodity sell-off, they fell from US$109 in March to around US$75 in June. Though the price crept back up to US$90, that’s still nearly US$10 shy of what the province wagered it would be this year. The Fraser Institute predicts Alberta’s deficit will rise this year. The province “bet the budget on overly optimistic oil and gas prices.”
The same pattern has played out across the country. Newfoundland faces a potential shortfall of hundreds of millions of dollars because oil is so far below what the government assumed it would be, while Saskatchewan just signed a deal to build a $278-million stadium in Regina, convinced that resource revenue will jump 14 per cent this year.
It’s far easier to bet on a potential bonanza than to make tough spending decisions. It’s how politicians get voters to like them. And it’s why governments keep finding themselves in such a fiscal mess.
By the numbers
76 per cent: The proportion of Americans who say “too much power is concentrated in the hands of a few large companies.”
300: people who are declared insolvent each day in Britain, a figure that’s down 10 per cent from last year.
6,400: The number of jobs that could be lost when HBC shuts its remaining 64 Zellers stores, after all the others were sold off to Target and Wal-Mart.
$9 million: An estimate for how much U.S. Olympic gold-medal gymnast Gabby Douglas, whose mother filed for bankruptcy this year, will earn from product endorsements over the next four years.
$2 billion: The sum British banking giant HSBC Holdings set aside to cover legal costs from a money-laundering investigation and other regulatory settlements.
$32 trillion: How much wealthy individuals worldwide have stashed offshore and out of reach from the taxman
At Citigroup in the 1990s, Weill did more than anyone to create the concept of the super-bank, but in a recent CNBC interview he said big banks are too unwieldy.
Signs of the Times: China’s McSlump
For years, ING Canada told Canadians to “Save your money” by stuffing it in a high-interest online savings account. But the bank’s Dutch parent now wants to do the exact opposite: withdraw some badly needed cash from its Canadian and British operations. ING Groep NV said it’s looking at selling the two businesses as part of an effort to repair its broken balance sheet and repay government bailout loans.
It started with slumping sales of gold-trimmed handbags and gold-plated watches. Now China’s glum economy is taking its toll on the golden arches. With retail sales falling to levels not seen since the global recession, McDonald’s has joined scores of other businesses in China by slashing prices and introducing a dinner-hour value meal that costs just $2.40—less than the regular price of a single Big Mac.
Microsoft, in its ongoing battle with Google, is dumping its venerable Hotmail email service, replacing it with Outlook.com (named after its desktop email software). It’s still free, and boasts a cleaner interface and more social networking tools. Plus, you’ll be able to keep that clever email address you scored back in 1996.
Vancouver home sales fell to their lowest levels in a decade last month, while Toronto condo sales dropped 10 per cent, sparking renewed speculation about a Canadian housing bubble bursting. But don’t look to the experts for answers, unless you want to be confused. Real estate agents talk about a “summer lull.” RBC says Toronto’s ever-expanding forest of condo towers are nothing to worry about. Meanwhile, Capital Economics is warning of a nationwide 25 per cent price drop. Take your pick.
The good news
For the first time in 75 years, Prairie farmers can sell their grain to the highest bidder, after the Canadian Wheat Board’s monopoly on grain marketing and handling finally comes to an end.
WestJet will install seats with more legroom on its planes in a bid to steal more business flyers from Air Canada. But unless you’re willing to pay extra, be prepared to keep hugging your knees.
U.S. employers hired 163,000 workers in July. It was the biggest job gain in five months, offering hope that a labour recovery is just around the corner.
Ottawa managed to shave its budget deficit to $832 million in April and May compared to $2 billion last year, thanks mostly to an increase in tax revenue. Canadians do their part.
It didn’t get much attention, but RIM launched a mobile Internet version of its PlayBook tablet. Any indication the Canadian tech giant plans to stay in the game should be applauded.
In a tasty victory for consumers, a federal judge has struck down a bid by Canadian dairy processors to keep U.S.-made Chobani Greek yogourt off store shelves.
Apple has spent more than $1 billion on advertising for the iPhone and iPad since 2005. It’s just another example of how the world’s most successful company is spreading the wealth around.
The bad news
A key Purchasing Managers Index survey of large manufacturing firms in Asia, Europe and North America suggested a continued slump in the global economy.
Nervous retailers have launched their back-to-school sales early this year in anticipation of a weak season. Kids across the country will never forgive them.
Banks are once again offering debt-addled Canadians record-low mortgage rates. Not what Finance Minister Jim Flaherty had in mind when he tightened borrowing rules in July.
Canada’s economy grew just 0.1 per cent in May, below the already meagre 0.2 per cent that most economists had been expecting.
Japan’s bad luck seemingly never ends. The government now faces the prospect of running out of money by October while a debt-financing bill languishes in Parliament.
The Detroit Three automakers—General Motors, Ford and Chrysler—all recorded slower-than-expected sales in July as Americans steered clear of showrooms.
Tim Hortons is raising the price of sandwiches and muffins to reflect higher ingredient costs. Mercifully for double-double addicts, the price of coffee stays the same.