Finance Minister Jim Flaherty says he is frustrated that Canadians are paying too much for imported goods and has told business leaders the government expects them to pass along savings from the higher Canadian dollar.
Finance Minister Jim Flaherty, seen here in March, conceded he cannot order price reductions, but added, 'We have some influence.'
(Tom Hanson/Canadian Press)
If consumers don't see benefits soon, he said, they should exert pressure by shopping around for the lowest prices.
In a wide-ranging interview from Coolum, Australia, where Flaherty was wrapping up two days of meetings with his counterparts from the 21 Asia-Pacific countries, Flaherty was upbeat about the economy and the prospects for bigger tax cuts in his next budget.
But he appeared displeased that the surging loonie has had little impact on prices Canadians pay on everything from food and books to cars.
"I won't name the companies, but have spoken to some business leaders about ensuring that they pass along savings … price reductions that should follow the higher Canadian dollar," he said.
Flaherty said the business response has been that there are inventories of goods purchased when the dollar was weaker and that corporate planning periods are longer than a few months.
"So my point to the business leaders has been, 'You should do what you can to accelerate the benefit to Canadian consumers,' and I think, quite frankly, that Canadian consumers can help by shopping around."
One reason for his concern, said Flaherty, is that Canadians might start shopping in the United States, where savings can reach 40 per cent. This would hurt the economy — as is the failure of the robust dollar to dampen inflation.
"It's an important issue for the economy," said Douglas Porter, deputy chief economist for the Bank of Montreal.
"The Bank of Canada is disappointed about how strong underlying inflation has been in Canada at a time when the currency is on fire."
Porter published a report in June showing that while the loonie has appreciated by 50 per cent over the past five years, import prices have not dropped accordingly.
The BMO report found magazines are between 10 and 23 per cent more costly in Canada than they should be. Other overpriced goods included foreign automobiles, cameras and books.
Flaherty conceded he cannot order price reductions, but added, "We have some influence." He did not elaborate.
The APEC meeting concluded with a brief statement highlighting concern over global economic imbalances.
Robust performance
However, despite currency imbalances, the buildup of reserves in China and the credit crunch stemming from the sub-prime mortgage meltdown in the U.S., the consensus was that problems are manageable, Flaherty said.
"I think there is a risk to the Canadian economy, but we have been saying that for 18 months," he noted.
In fact, the economy has performed better than the government had forecast in the March 19 budget, with strong 3.7 per cent first-quarter growth and the second quarter expected to register a three per cent gain.
This robust performance has filled government coffers with tax revenues at a faster pace than even last year, when Ottawa recorded a budget surplus of about $14 billion.
Flaherty said he wants to remain cautious, but "it may be possible to do more" on the tax relief front.
"I still think that Canadians pay too much tax. We can look at income splitting, we can look at increasing thresholds [at which higher tax rates kick in] or increasing exemptions. These are all possibilities in terms of further tax reductions."
Flaherty added that it is too early in the fiscal year to assess how much room he will have to reduce taxes.
At a news conference from Charlottetown on Thursday, Prime Minister Stephen Harper sounded more bullish about tax cuts, saying tax relief has been and remains a top priority for the government.
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