Archive for March, 2010

Notes from Budget 2010

March 4, 2010

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Finance Minister Jim Flaherty tabled his fifth budget in Parliament today. There is plenty of print, broadcast and online coverage of the budget in the mainstream press, but if you are so inclined, you can read the entire 451-page document here. If you are only interested in the bits that directly affect your pocketbook, feel free to skip to the pages indicated below:

  1. As expected the budget does not contain any new taxes or any additional tax relief. The budget document says that it delivers “$3.2 billion in personal income tax relief” but pretty much all of the tax measures are already in the books. (Page 47).
  2. While a hike in Employment Insurance premiums was expected, the Government is maintaining a freeze of premium rate at $1.73 per $100 of insurable earnings to the end of 2010. As already announced, EI premiums will be set from 2011 onwards by an independent arms length Crown corporation. (Page 51).
  3. The budget proposes a number of initiatives to close loopholes in the tax system. (Page 101).
  4. The Government is proposing to establish a federal securities regulator within the next three years. (Page 113).
  5. The Universal Child Care Benefit (UCCB) will be taxed in the hands of an Eligible Dependent for single-parent families. As the dependent child is unlikely to pay taxes, this measure will provide up to $168 in tax relief for single parents with one child under six in 2010. (Page 128).
  6. Families of children with disabilities can carry forward the Registered Disability Savings Plan (RDSP) grants and bonds for 10 years. (Page 129).
  7. The RRSP or RRIF proceeds of a deceased person can be transferred on a tax-free basis to the RDSP of a financially dependent disabled child. (Page 130).
  8. Good news for many Ottawa-area residents: The budget provides relief to taxpayers who elected to defer their taxes on stock option exercises.

That’s about it. The rest of the hefty document deals with such matters as a plan to reduce the deficit, support for ship building and (I couldn’t resist this) a Red Tape Reduction Commission to cut red tape.

What to expect in Budget 2010

March 4, 2010

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Unless the Government decides to spring a big surprise, the 2010 Federal Budget promises to be a big yawn. Here’s what we can expect in Budget 2010:

  1. The Government says that there won’t be any tax cuts (no surprise there, considering that the deficit will run at $56 Billion this year) or any tax increases in this year’s budget. But the Government’s understanding of the term “tax” is a lot narrower than the public’s. Employment Insurance premiums are expected to increase and it is almost certain that user fees will go up. Already the airport security fee has been increased to purportedly fund the new full-body scanners.
  2. It is almost certain that the popular Home Renovation Tax Credit won’t make a comeback.
  3. The budget will mostly talk about plans to tackle the deficit in future years while continuing to spend on stimulus programs. Look for words like “restraint”, “prudent” and “responsible” to precede spending plans.

That’s pretty much it. And it doesn’t look like there is much appetite for provoking an election over the budget either. So, all in all, this budget promises to be a rather boring exercise.

Notes from the 2009 Berkshire Hathaway Annual Report

March 3, 2010

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Warren Buffett’s annual Letter to Shareholders is always worth reading even if you are not a shareholder in Berkshire Hathaway (BRK.A, BRK.B). The letters provide valuable insight into the major industries that BRK is operating in — insurance, regulated utilities, retail and services — all delivered in Mr. Buffett’s trademark folksy and witty language. Also Mr. Buffett throws his insight into the investment themes of the day. The 2009 letter to shareholders, released over the weekend and available on the Berkshire Hathaway website, did not disappoint. Here are some of the highlights:

  1. Berkshire Hathaway acquired Burlington Northern Sante Fe (BNSF), a railroad operator, in 2009. As part of the acquisition was paid in BRK stock, Berkshire now has tens of thousands of new shareholders. Mr. Buffett explains why he measures Berkshire’s business results through changes in per-share book value. He also clarifies what new investors can expect him not to do. (Pages 3-5).
  2. The next few pages cover Berkshire’s business results for 2009. Mr. Buffett thinks the residential housing problems should be largely over within a year or so because housing starts in the US are running at a rate far below household formation.
  3. Berkshire’s investment holdings are discussed in pages 14-15. It includes this quote: “When it’s raining gold, reach for a bucket, not a thimble”.
  4. Mr. Buffett calls attention to “an inconvenient truth”: management paying a premium to acquire another company while paying for it with its own undervalued stock. Clearly, he is explaining why the BNSF acquisition was partially paid for in BRK stock, while at the same time, he publicly criticized the price that Kraft paid in acquiring Cadbury (part of which was paid in KFT stock). Pages 16-18.

Warren Buffett’s letters to Berkshire Hathaway shareholders going back to 1977 are available here. You can read Michael James’ take here. It is not often that you read columns that are critical of Buffett but there were two recently: David Olive of The Star says Buffett doesn’t practice what he preaches and Ian McGugan calls out what he says are Mr. Buffett’s “minor sins”.