"Hardly an epic betrayal"

Now that the pigeons have come home to roost on the unintended and yet infinitely foreseeable consequences of the Tax Fairness Plan, namely the hollowing out of a once vibrant and growing sector of the Canadian economy and the consequent destruction of Canada’s tax base as a result of the leveraged buyout of these businesses with the end result that taxes to the tune of $5 to 6 billion a year will be lost, rather than preserved, it is interesting to see the rationalizations du jour that were being advanced back in November. I looked far and wide to locate that most memorable of comments by Stephen Harper that went to the effect that: “he did not want to be the First Prime Minister to see BCE and Telus not pay taxes”.

That most memorable of quotes surely is deserving of being filed under “be careful of what you wish for”, since that is exactly what the private equity takeout of BCE will assure him of now that he (for reasons only known to himself) stood in the way of BCE’s becoming an income trust. A couple of facts would have served Stephen well on this decision. First, BCE doesn’t pay taxes as a corporation, at least not for the next four years according to their own forward looking financial statements. As a private equity owned entity that it is well on the road to becoming, BCE’s tax “holiday” will extend long beyond four years. Meanwhile as a public income trust, BCE would have paid distributions to average Canadians seeking retirement income who would have gladly paid the government $800 million in taxes per annum. I guess the government doesn’t like the colour of retired Canadian’s money. They musn’t like the colour of private equity money either, since they are assured of not seeing any of that either, at least not in the form of taxes paid to the Canadian government.

Unfortunately, I was unable to locate this exact quote of Stephen Harper’s and I do not want to be guilty of misquoting our Prime Minister. Therefore I had to settle for the wise words of his Chief of Staff, Ian Brodie, who was able to rationalize events as follows:


This would be a more compelling analysis if the government weren’t already in the midst of a steady program of cutting tax rates, including corporate taxes, across the board. The alternative to breaking the election promise and taxing trusts was to abandon all other tax cut plans as the corporate tax base quickly disappeared. Instead, Flaherty acted quickly, in the face of rapidly changing conditions, to break the trusts promise and save the rest of the government’s promises. Not a pretty choice, to be sure, but hardly an epic betrayal either.

Ian Brodie
Chief of Staff / Chef de cabinet
Office of the Prime Minister / Cabinet du Premier ministre
Ottawa, Canada, K1A 0A2
Office / bureau : 613.992.4211

The key words of this wise missive are “as the corporate tax base quickly disappeared”. There it is again, that bugaboo assumption about tax leakage. Does anyone in Ottawa ever challenge assumptions or do they simply throw more fuel to the fire called tax leakage? Or perhaps the speed at which these wise individuals thought that the corporate tax base was disappearing wasn’t fast enough, so they thought that they would accelerate this outcome by Flaherty’s collection of three” not my fault” provisions:

(1) tax public income trusts, but no other tax flow through entity, including private income trusts held by pension plans,
(2) limit the growth of public income trusts while in the hands of average Canadians, but under no other business ownership arrangement, and
(3) eliminate the 15% withholding tax paid on leverage buyout loans, previously paid by foreigners.

As to whether this was a betrayal of epic proportions remains to be seen. Is not being re-elected considered epic? However, for many that possibility will be viewed as a pretty choice indeed.