Simple to the extreme

The entire income trust fiasco turns on one very simple point, so too the does the broken promise to never tax income trusts and the loss of $35 billion in Canadian’s life savings and the loss of an important investment choice that provides the 70% of Canadians without pensions with a chance for decent retirement income in today’s protracted low interest rate environment.

The simple point at issue is whether pension funds and RRSPs are tax exempt or tax deferred. Jim Flaherty’s tax leakage analysis treats the 38% of income trusts that are held in RRSPs and pension plans as if there are never any taxes paid on these income trusts’ distributions, not today, not tomorrow, but simply never. Even Jack Mintz acknowledges this methodological flaw in correspondence with me that states “I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero”.

There is no mystery to any of this for those who are receptive to the truth. The 18 pages of blacked out documents provided to Gordon Tait under the Access to Information Act prove it categorically. That’s why Flaherty has requested in writing that all these documents be returned. As if the were even possible after their publication in newspapers and billboards across the nation. What these documents reveal is available here under the heading: Public Hearing Support Documentation: Deconstructing Tax Fairness. You owe it to yourself to review these documents, lest their be any doubt in your mind.

Here we take one of the 18 blacked out documents and reveal the analytical deception that is going on. We know irrefutably what is going on since Dennis Bruce of HLB Decision Economics worked collaboratively with the Department of Finance during the Goodale public consultative round to develop the tax “leakage” model. Dennis knows first hand precisely what they are doing, and what they are doing wrong. The gross methodological error occurs on line G entitled Future Tax Revenues (Tax Exempt)(7). This is where the Department of Finance chooses to ignore the 38% of taxes paid on all outstanding income trusts by treating RRSPs as Tax Exempt, rather than tax deferred by not adding these taxes in their analysis. This is the epicenter of the income trust fiasco and the bureaucratic deception and policy driven sleight of hand.

To resolve this analytical difference of opinion between the Department of Finance and the realities of Finance 101 and Canadian tax laws, we simply need to turn to the Minister of Finance himself, who was commenting on the recently announced purchase of BCE by Teachers’ pension plan and foreign private equity, whose purchase many in the media have said will result in the loss of $1 billion in taxes to Ottawa per year. This is a sale Mr Flaherty has endorsed, by saying which of the following:

(1) "The purpose of the pension funds, ultimately, is to ensure they can honour their pension obligations. And there is taxation, of course, when pensions are paid out."

(2) "The purpose of RRSPs, ultimately, is to ensure they can honour their retiree’s obligations. And there is no taxation, of course, when savings are paid out."

The entire income trust situation turns on this very simple and central point. Many believed that the damage associated with this policy nightmare was limited to a handful (2.5 million) of Canadians, however it is now becoming obvious to all from the recent sale of BCE and the many BCE like companies that are sure to follow, together with the $200 billion income trust market itself, that will fall victim to the voracious appetite of foreign private equity and our own cannibalistic pension funds, that the Tax Fairness Plan to double tax income trusts held in RRSPs is simply a wolf in sheep’s clothing or a Trojan Horse that will result in nothing more than a Deficit Inducing Plan (DIP). The DIP has made possible by the combined actions of the Minister of Finance and most appropriately with the solid support of the NDP, who many refer to as the Dippers. Now I know why. Now you know why, as this whole fraudulent mess is simple to the extreme. Simple is as simple does. That said, it’s never to late to admit an error and take corrective policy action. Every day that we wait, may mean one more BCE, or one more Union Energy Waterheaters.

Since when was it ever intended that Canadians pay their phone bills and utility bills to foreign private equity and cannibalistic domestic pension plans? Think of it as Canada’s New Landlord brought to you by Canada’s New Government.