Finance Minister Bill Morneau is considering a conclusion to the Canada Savings Bond program in his next federal budget. Sales of the federal government bonds have been in a free fall since the late 1980s, when the program was a lucrative savings tool for consumers looking to cash in on then sky-high interest rates. The bonds have been seen as one of the most secure investment vehicles, since they are completely backed by the federal government and can be cashed out whenever. Interest earned is additionally compounded, and now and again returns could be elevated.
In any case, now banks and financial institutions offer promptly accessible items like GICs, self-directed trading accounts, mutual funds and exchange-traded funds (ETFs), which frequently offer better rates of return. Less individuals are buying Canada Savings Bonds every year, as a result of irrelevant payouts in a time of sub-one per cent bank rates, and the government is scrutinizing the $60-million price tag to run the project every year.
Morneau has in his hands a report from accounting firm KPMG, commissioned by the previous Harper government, which recommends Ottawa pull the plug. “There are currently no valid economic reasons to justify this program,” the report reads.
Its main recommendation: “An orderly phasing out of the program.”
The auditor general has in the past brought up issues about the program’s profitability. Administered by the Bank of Canada, it is excessive to run since a large number of Canadians still hold bonds (regardless of the fact that they are purchasing less every year) and their principle purpose of contact is the central bank itself.
The national advertising campaign, which agrees with the two-month sales period every year, likewise costs millions.
A spokesperson for Morneau was unable to comment Monday.
Canada Savings Bonds were first offered in 1946 with an end goal to imitate the achievement of Victory Bonds campaign, launched amid the First World War, which solicited funds from individual Canadians to fund the war effort.
“This is probably the most expensive loan tool for the government, and it can borrow on world capital markets with much lower costs,” he said. “It’s a program that was developed for another time, another world.”
It was then a great deal more troublesome for a nation to finance its sovereign debt, Serge Coulombe, an economist at the University of Ottawa, said in an interview, as international bond markets were not as nearly well-developed as they are currently. Canada would follow Germany, which also eliminated its savings bond program in 2012.