Sunday News Roundup 23.06.04: Hot economy, tax hypocrisy, and more Canadian accounting news

Wrapping up the odds and ends from the past week in Canadian accounting news

Jun 5, 2023 Author: Canadian Accountant

Subscribe to our weekly newsletter and get all the week’s stories. Click here to sign up.

TORONTO, June 4, 2023 – Economic analysts looked foolish this past week when Statistics Canada announced that Canada’s economy grew 3.1 per cent annually in the first quarter of the year. The GDP growth was stronger than what analysts and the Bank of Canada expected, as household spending bounced back, and raised the possibility of another interest rate hike.

The economic growth was also driven by an increase in exports, but the Globe and Mail tut-tut-tutted that Consumers defy recession forecasts and spend, spend, spend, and asserted that A recession might be just what Canada needs. Of course they’re not alone in their mystification. The CPA Canada Business Monitor reported that more than two-thirds of executive level CPAs believe there will be a recession in Canada this year, while RSM Canada’s latest report (The Real Economy, Canada) predicts Canada could enter a mild recession by end of 2023.

All of this could still be true, of course. Tuan Nguyen, an economist with RSM Canada, says the data pointed to a hot economy and the numbers "blew past expectations." Most upsetting to CPA business leaders is the prospect of many more months of tight labour conditions and inflation. They may find solace in the RSM Canada report, which says the BOC could actually cut interest rates this year, that tightening financial conditions continue to impact investment and borrowing, and Canada’s private equity industry is showing some cracks.

But forget about all that. The most interesting economic article this week arrived via The Economist, which coined a new term: “Ozanada.” After pointing out that “Australia and Canada are one economy — with one set of flaws,” The Economist warned investors to beware Ozanada’s business weakness, namely its “oligopolistic tendencies.” Its take was eerily similar to Monopoly, a series from Canadaland, that delved deep into what The Economist characterizes as Canada’s lack of competition and “toothless antitrust regimes.”

And now, on to the rest of the news and links from the past week in Canadian accounting.

CPP tax avoidance: Do as I say, not as I do?

There was a thought-provoking article from Amir Barnea this past week in the Toronto Star calling out the Canada Pension Plan. Apparently, “the CPPIB has established a vast network of at least 30 subsidiaries in the Cayman Islands, the tax haven capital of the world.”

Oh, dear. How embarrassing. At the same time as the Liberals have been cracking down on tax avoidance of all kinds, here’s the CPPIB — ostensibly an independent agency — making the Liberals look like hypocrites. (A familiar refrain, to be sure.) Barnea doesn’t just reveal the hypocrisy, he offers three reasons to be ashamed about it. Well worth reading.

Shareholders call for Brookfield tax transparency

And speaking of tax avoidance, shareholders are calling on Canadian multinational Brookfield to come clean about its global tax obligations. As reported by the Globe and Mail, shareholders have the backing of Glass Lewis & Co., in their bid to pressure Broofield into meeting the standards of the Global Reporting Initiative.

Canadians For Tax Fairness say Brookfield, which is headquartered in Canada but operated out of Bermuda, “had the largest tax gap in Canada for the five-year period 2017 to 2021, totalling more than $6-billion.” According to the C4TF, tax avoidance by Canadian corporations more than doubled in 2021.

PWC: Wash, Rinse, Repeat.

The latest news coming out of Australia has the country’s largest pension fund freezing its contracts with PwC over its tax leaks scandal. Apparently the firm was paying PwC A$2m a year for its services. And the firm won’t be appearing before a Senate inquiry into the consulting industry because of a pending Australian Federal Police investigation.

In the meantime, the scandal is riling up proponents and detractors, with The Mandarin arguing that that Consultancies provide valuable expertise to government, while The Guardian argues The Big Four firms are incapable of unwinding their own deep-seated conflicts.

Meanwhile, one wag in The Washington Post wants to get rid of audit altogether. According to Deloitte alumnus Duncan Mavin, “the big global auditors are never too far from a scandal … the solution may be to do away with corporate audits altogether.”

All we say is that now is not a good time for the Centre for Audit Quality, an industry lobby group in the US, is fighting the investor protection duty from draft rules proposed by the PCAOB, according to Bloomberg Tax.