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Brian Vickers Vice President, Financial Advisor (519) saeâ€"cess Those who believe in social programs tell us that they are not the cause of the government deficits and thus not a cause of debt. I agree. However, it is an illusion if one thinks we can correct the deficit/debt situation without tackling all spending. There is also much haranguing of those who argue for cleaning up the debt but it is an illusion if we think we can ignore the reality of the debt. First, in last week‘s Chronicle, there was an article which pointed out that 50 per cent of our present debt is due to tax expenditures and 44 per cent due to high interest costs. Many readers will have taken an introductory economics course in which they have learned that if the demand for something increases without a change in supâ€" ply, the price rises (by how much depends on the elasticity of demand and supply). If the price of money is interest rates, every time governments demand more money by selling securities, there will be an increase in interest rates. Further, it is also known that if the supply of money increases, there will be inflation by almost the same amount as the percentage increase in the supply of money. International exchange movements depend on interest rates around the world â€" people will move their money to where it will earn the most, driving currency values up and down in the process® It is virtually impossible to run an independent monetary policy within a country which keeps interest rates low enough to avoid adding to the debt. And yes, high interest rates in and of themselves add to inflation, particularly in Canada because we tend not to be a country with much cormpetition so firms include in their prices, amy interest costs which they undertake. * Tax expenditures are not going to go away either. Capital is far more mobile than is labor. Unless we want radical controls on what anyone can take in and out of the country (currency controls always incite a black market as was seen in Eastern Europe during the 1950s and 1960s), the only way we can attract the kind of capital that will create jobs is to treat that capital in the tax laws as do other countries. While I would not be adverse to a complete examiâ€" nation of tax expenditures (using the five principles by which to judge taxes â€" equity, neutrality, certainty, revenue productivity and administrative ease), I doubt it is possible to find many dollars there without driving investment out of the country since firms and indiâ€" viduals already pay more taxes in Canada than in the U.S. even with tax expenditures. In other words, if we were to eliminate tax expenditures, we would probably have to lower the general tax rates in order to keep capital investments in Canada which will not solve the deficit/debt problem. It would be foolish to cut tax expendiâ€" tures for a "fairer" tax system if it caused the loss of jobs which hurt the poor. Fimlly,flmeisthea:gmnennhatwemni@orethedebt. Yes, we can if we want the IMF to take control. In some countries where the IMF has entered, they have told the country it cannot spend any tax money on health care or education or welfare. Could we go it alone without the IMF? The answer is yes, if we take control of our own spending so we don‘t need the backing of the world bank or the IMF and that would mean not having to use foreign funds to borrow to pay for government and business debt. With governâ€" mentsdemandingg:Ohfllionayearandbusineasesmedingmore than that just to invest and create jobs, can anyone tell me that Canadians could finance that on our own? Again, we would take an extremely nasty drop in our standard of living which would hurt the poor most. If we must be concerned about our debt and if we cannot indepenâ€" dently lower interest rates or raise taxes, then we are only left with one solution and that is to cut expenditures. The federal governâ€" (Continued on page 17) Interest rates, taxes and social programs One of my colleagues recently drew my attention to a proposal our firm had prepared for a 65 year old client who was retiring in 5 years. He wanted his RRSP to grow for those 5 years and then produce a retirement income. And he wanted all of the growth and all of the income completely guaranteed. His current RRSP value is $200,000 and, using government guaranteed bonds, we mm en en enc o WE ALELLL 76 Vilk G C Bae JMN Wuselan (Chimn N21 Do,oumagmmdmtmwmmymb!Wmdethkmdo\VmChwckJSKme S., Box 1000, Waterloo, Onuano N2J 1P2 A weekly series from Brian Vickers, Midland Walwyn. THE BLUE CHIP TH Waterloo mayor Brian Turnbull and Virtek President and CEO Norman Wright, pull the switch launching a new line of Virtek laser equipment at the company‘s open house last week. Waterloo firm poised to crack international markets Peter Cudhea Chronicle Staff Virtek Vision Corp. of Waterloo is taking a big step forward to reach the world stage. e Virtek (Vision Intelligence Robotic Technology Corp.) started seven years ago with three researchers and a string of impressive patents in laserguided manufacturing. However, up until last year the UW based company hadn‘t cracked the bigâ€"time internaâ€" tional markets. s Enter Norman Wright, a specialist in the field of highâ€"tech management, as the company‘s new presiâ€" dent and CEO. Feeling ill equipped to attract the cash and sales they needed, the company founders â€" Andrew Wong, Tom King, Mohamed Kamel] and Bob Malley â€" hired Wright because they felt the company needed someâ€" body with a strong background in marketing. It turned out to be a key decision. Within his first five months with the company Wright, who had been executive viceâ€"president of Alias Research Inc., a Torontoâ€"based software comâ€" pany, has helped Virtek raise $850,000 through priâ€" vate placement on Bay Street and landed Virtek two major contracts â€" the first with Cutting Edge in Boston through Virtek‘s LeatherCam division, folâ€" lowed by a $500,000 contract to supply Boeing with machine vision equipment. Virtek‘s LeatherCam diviâ€" sion is also enjoying record sales boosted by contracts to automotive upholstery giant Golden State Tanning, and to Kaufman Footwear. Just last month, sales of Virtek‘s TrussLine systems were in excess of U.S. $1 million, following the recent signing of a North American distribution agreement with Truswell â€" a subsidiary of Allstate Insurance. "We‘ve reported thirdâ€"quarter earnings, which were structured a portfolio where he‘ll receive $25,000 per year for the first 10 years of retirement â€" guaranteed. At that point, his principal remaining will be $375,000 â€" guaranteed. Not bad for a portfolio worth $200,000 troday. If you‘re approaching retirement, and would like to see how a plan like this would work for you, just give me a call at 888â€"6688. | _ 1 _ WATERLOO CHRONICLE, WEDNESDAY, DECEMBER 14, 1994 â€" PAGE 15 _\ _ ‘, Pn ns "| - Through its recent contracts, the company will be focusing on its three key markets â€" acrospace, leather industry and housing industry â€" all of which it is purâ€" suing aggressively. "Obviously, our big expansion will be to Europe and the Far East. We expect about 25 per cent of our sales next year to be nonâ€"North American, as opposed to this year where our sales were five per cent. "However, the US market will continue to be the bulk of what we‘re going to be doing for the next year, but it‘s going to be very important for us to ramp up those European and Pacific Rim sales." Virtek has already established offices in Europe and Japan and has appointed distributors in Zunch, Lonâ€" don and Paris and another in Tokyo. Last week the company nearly tripled its facilities with the addition of space to be used for expanded manufacturing, customer service and marketing departments. The customer support team is involved in the installation of Virtek equipment, as well as in training and ongoing support for all systems sold by the company. close to $4 million and will exceed our original foreâ€" cast of $5 million this year," said Wright, who joined the company at the end of Nov. 1993 oo The company, which just a year ago employed 30. has grown to 43 employees, and by Jan. 3 1995 will increase staff size to 53. "We have Conestoga College people for the manuâ€" facturing, but the people we‘re hiring for January are ;l:sfly UW engineering programmers and coâ€"op stuâ€" nts." Virtek is one of 108 reported spinoff company‘s of the University of Waterloo. Many of its ideas were born in the university‘s Pattern Analysis Machine Intelligence Lab, and the research was sold to other companies. P MIDLAND WALWYN B oL U E0 C M IP T H TN K IN G ‘* Midiand Capital inc. amms\-m Waterioo, Ontario N2J 4V2 T* BLUE CHIP THINKING is a trademark of Midland Walwyn Capital Inc Suite 100 Financial imite d talktea