Wednesday, June 13, 2007

Canada's New Government is working at cross purposes with the interests of the broad electorate

Take your pick of poison, whether it’s the alleged torture of Afghan prisoners, honouring the Atlantic Accord or the taxation of income trusts, Canada’s New Government is working at cross purposes with the interests of the broad electorate, a small percentage of whom were responsible for electing them into office. Recent polls would clearly suggest that an even smaller percent would elect them to office this time around. Yesterday’s New is today’s Old and tomorrow’s Same Old, Same Old.

I have a particular interest in the income trust tax matter, in that it was the original sin of this government of ours. Many had predicted at the outset that the resultant decline in the market value of these public income trusts, combined with the cash flow rich nature of the underlying businesses involved, would ensue in a wave of foreign takeover of these income trusts, lead by foreign private equity. Happy Halloween would be followed by happy hollowing. Sure enough, the pent up demand that resulted was so competitive in nature that many didn’t wait for the ill-conceived legislation to pass and they acted preemptively. To date some 19 income trusts totaling $10 billion have been acquired. !5 by foreigners. Finance Minister Jim Flaherty’s thoughtful response: “it’s not my fault”.

We always knew that this was a preposterous response. We also now know it to be patently false, as documents obtained by Globe and Mail reporter Steven Chase reveal otherwise. In the internal Finance memo to Assistant Deputy Minister of Finance Bob Hamilton, Steven sums up the content of the memo by saying: “ one conclusion that's easily drawn from the memo is that taxing trusts out of existence would likely usher in even more private equity buyouts by Canadian and foreign investors, which is what happened”. What’s the official Finance response? “Finance Canada spokesman David Gamble played down the memo, saying it's merely a summary of one of many conferences attended by his department”.

Well, Milton Friedman warned us about people like David Gamble and Bob Hamilton and others in Finance like ex-Goldman Sachs investment banker Mark Carney who are proponents of taxing the living existence out of public income trusts for the ultimate benefit of foreigners and to the detriment of all Canadians who will have to supplement the loss of some $6 billion in taxes. Milton Friedman said:

“The danger of the Galbraithian view is that it stresses the importance of the expansion of the government's role. Unfortunately, while he assumes that the government is carried out by disinterested intellectuals, it will not be. It will be carried through by very highly interested bureaucrats, and they will run society from the centre, as such societies have always tended to be run: as collectivist societies which reduce and greatly limit the freedom and choices of individuals." How correct he was as this whole situation was dreamt up by a handful of bureaucrats at the DoF who want to impose their view of the "correct form" of business organization on all Canadian businesses.

There are obviously those in Finance who look for ways to benefit from upcoming tax changes. Serge Nadeau, is perhaps the most criminal example. However the greater crime may be those in Finance who look for ways, as Friedman suggests, to bring their vision of correctness to bear, on behalf of those whose agenda they are serving. It is clear whose agenda is being served here by the taxation of public income trusts at five times the effective tax rate of corporations band the double taxation of RRSPs. You need only look at the legislation to find out: Foreign Private Equity. Canadian Pension Plans, large and small. Marketers of competing investment products, most notably life insurance companies, Corporate Canada, and Foreign Oil. How much more at cross purposes can Canada’s New Government be at with the interests of the broad electorate?

Meanwhile the NDP is the all important Enabler of this hoax of a tax policy. Have Jack and Judy figured it out yet, or do they prefer to be educated one all candidates meeting at a time in the next election? So too perhaps the Bloc. So too, the Provincial Finance Ministers like Ontario’s Greg Sorbara who dutifully sent in supportive letters, without even asking for the supporting proof of tax leakage. Whose idea of public service is that?


Anonymous said...

So, we finally see some Canadian investigative reporting from the Globe and Mail. The story ‘Trust tax linked to private equity buyouts’ by STEVEN CHASE makes it clear that the effect of the income trust tax was well known to the Honourable Minister. The tax was not done to level the playing field, or to prevent tax revenue leakage. The tax is all about forcing Canadian assets out of the hands of many small Canadian investors and into the private equity vaults of large pension funds or multi-national oil companies. The major premise of the Tax Fairness Plan was a falsehood—a known and an intentional falsehood—and a lie.

I have another question, skeptic that I am: Is it merely coincidental that this story was released the day after the Third Reading of the tax in the Commons? Or did the Globe & Mail not release the story because the editors wanted the tax implemented? Why would that be?

Randy Meyer said...

What I have to laugh about is the statement by Harper that the CONservatives "... do not break contracts." I howled with laughter when I read this line. The only funnier thing is that these provinces are getting what they deserve. They supported the income trust lies of the CONservatives and now they don't like reaping what they've sown.

I say sock it to'em Harper. Serves them right for suporting a liar.

nineofiveland said...

Why is it so hard to get the general populace involved in this issue? How do we show the damage these policies do to all Canadians, not just those of us who chose income trusts to produce a bit of retirement cash flow? What is the "tipping point" here?

Randy Meyer said...


Good question. Ignorance is bliss I suppose. The onlything we can do as individuals is engage people around us. If each of us engage and educate 2 or 3 people and they in turn educate some people maybe the message will get through.

I think the tipping point will come though when some massive name-plate buy out occurs. I think its then that we really have to put the number up on the TV screen to directly show how the CONservatives have ripped off the public.

We need to have a buy out of say Canadian Oil Sands Trust (part of Syncrude) by a US MLP in the US. That would get Albertans as fired up as the Newfoundlanders or Nova Scotians.

Of course an election would work nicely as well so we can boot the CONservatives out.

Randy Meyer said...

Well it looks like Total is going to buy Western Canadian Oil Sands trust. I was close. this time the French are getting Canadian tax dollars. Why not? It's a free for all.

Doug said...

The question has been raised about why Canadians are not more concerned about some of these issues - and in my case, particularly the Income Trust taxation issue. Have any surveys been done on the possible changes in voting patterns of retail income trust holders. In the end, that is all that will count.

I wrote to my own Conservative MP, who passed it on the Minister or Finance who sent me the DoF standard reply. I indicated I would no longer support the party financially. Despite this, I have never even had any kind of a personalized reply from my MP or his fundraisers, although my contributions were quite generous for someone of my means.

Very difficult to know what to do next.