In my previous Huffington Post article, “Harper’s Huge Political Blunder,” I strongly suggested that Prime Minister Harper was committing a huge political mistake by permitting Flaherty to revive his obsession with imposing a single federal securities regulator on the provinces.
Such a proposal will unify Quebec against the Feds and alienate Alberta, Saskatchewan and Manitoba from Ottawa and Ontario. Flaherty’s Folly will be hugely divisive for Canada — politically and economically.
Especially when in 2015, Canada will have two competing securities regulatory systems: the Alberta/Quebec model versus the Ottawa/Ontario/B.C. model. Each fighting among themselves and both competing to attract local and foreign capital, issuers and investors to their competing and conflicting regulatory systems. Thus jeopardizing Canadian companies and the employment of Canadian workers, in this highly balkanized, uncertain and investment-unfriendly environment.
What is less obvious are the devastating economic consequences that the Wynne-Liberal government will inflict upon the Ontario economy, by signing on to Flaherty’s securities regulatory scheme.
But Ontario Finance Minister Sousa just happily signed on to Flaherty’s scheme. Why is such a single securities regulatory scheme contrary to Ontario’s economic and fiscal interests?
There are many reasons why this is a very bad deal for Ontario, grasshopper.
Here is one such reason.
I firmly believe that Flaherty’s scheme will restrict Ontario’s ability to access the capital markets, in order for Ontario to fund its annual deficits and its rapidly growing provincial debt. Thus forcing Ontario to drastically raise corporate and personal taxes and drastically cut its annual social welfare, health care and educational expenditures.
Under the current system in Ontario, the federal government led by Harper and Flaherty has no power over the ability of Ontario to regulate its securities and capital market.
Ontario’s securities and capital market are governed by the Ontario Securities Act (the “Securities Act”). The Securities Act consists of hundreds of pages of laws, regulations, rules and policies, that have been developed over decades by the Ontario Securities Commission, various Ontario governments and Ontario securities lawyers.
The Securities Act is administered by the Ontario Securities Commission, (“OSC”) an independent Ontario Crown Corporation.
The OSC is one of the most powerful government agencies in Canada.
It is self-funded by all the public companies and public entities that use the Ontario capital markets, through filing fees and registration fees. The OSC has an annual budget of over $90 million. The OSC employs hundreds of senior and experienced lawyers, administrators and investigators, many of whom earn well over $100,000 annually.
Since the Ontario capital market represents about 80 per cent of market activity in the entire Canadian capital market, it follows that the OSC which regulates Canada’s largest capital market, would be Canada’s largest, most powerful and most experienced securities regulator.
The powerful OSC is accountable to the Ontario Government through the Ontario Finance Minister.
So the Ontario Government currently controls and regulates 100 per cent of Canada’s largest securities and capital market through its own highly-developed Securities Act and its powerful Crown Corporation, the OSC.
Being in this position has its privileges for the Wynne Government.
Typically any public corporation or public entity which wants to raise funds by selling shares or issuing debt in Ontario’s capital market, must spend an enormous amount of time and money preparing a prospectus, obtaining OSC approval and issuing a prospectus which describes in great detail the issuing company and the nature of the security sold and the related risks, as outlined in the Securities Act.
However, the Ontario government, working with its own OSC and its own Securities Act, several years ago, amended its own Securities Act. In effect the Ontario Government exempted itself from having to incur the huge financial costs and the enormous time of preparing prospectuses for the numerous Ontario bonds that the Ontario government must sell regularly to the capital markets in order to fund its annual deficits and the interest on its growing provincial debt.
Section 73 of the Securities Act states:
“Exemptions, debt securities of governments in Canada.
The prospectus requirement does not apply to a distribution of any of the following debt securities:
1. Debt securities issued or guaranteed by the Government of Canada or the government of a province or territory of Canada.”
Obviously, the extensive review and approval of its own regulator, the OSC, is not necessary.
However, by the Wynne Government unwittingly signing on to Flaherty’s federal regulatory scheme, the Wynne Government risks giving up its ability to be Master of its own House. Or in this case, Master of its own Debt and Economy.
Flaherty’s proposed single set of securities rules for all the provinces, does not include a special prospectus exemption for the Ontario government.
In other words the federal government and other powerful provinces — i.e. B.C., Alberta and Quebec — could insist upon imposing onerous and costly conditions upon the Ontario government when it tries to sell its Ontario bonds to pay for its annual deficits and growing debt.
In addition, the federal government led by Harper and Flaherty could insist that it is in Canada’s national interest, for the Ontario government to stop incurring more provincial debt and instead pay down its debt by drastically increasing corporate and personal taxes. And drastically reducing its huge expenditures on social programs, health care, and education.
Flaherty’s plan is to reduce federal debt by pushing the rising costs of healthcare down onto Ontario . Also by controlling the federal securities regulator, Flaherty will have the power to prevent Ontario from incurring more debt to pay for these healthcare costs.
Great for Flaherty, but an economic and fiscal disaster for the Ontario government and the Ontario people.
In my next article, I will show how Wynne joining Flaherty’s federally-controlled “co-operative” scheme, will also lead to a serious decline in Toronto’s financial jobs and financial-related jobs, which will kill the Ontario economy.
Premier Wynne, you proclaim your desire to properly manage Ontario’s economy.
Just say No to Flaherty’s Folly, or you will be responsible for the irreversible decline of Ontario’s economy.