Lies, damned lies, and Harper's 2006 election campaign platform

Here's a link to the CONs 2006 Election Campaign Platform entitled: “Stand Up for Canada”.

Today, that same platform would probably be entitled “Stand up or get off the pot, Canada”, as Harper’s New Government is a government of bluster and daily ultimatums.

Harper’s New Government most certainly isn’t a government of accountability or transparency, as promised on page 8. Apart from 18 pages of blacked out documents in support of the government’s allegation of tax leakage, we certainly didn’t get :”People who work hard, pay their taxes, and play by the rules want accountability from their political leaders. We don’t expect politicians to be perfect. But we do want to know that our tax dollars – money we’ve worked for – are being spent properly and wisely.”

Hey, the false construct known as tax leakage is borne out of the fact that the government doesn’t acknowledge the TAXES paid on the 38% of income rusts held in RRSPs. If not, then why do we pay them in the first place? So that they can be ignored which forms the basis of policies that are regressive to RRSPs and the 70% of Canadians saving for retirement who, unlike the politicians and bureaucrats themselves, don’t have pensions?

Nor is Harper’s New Government the government who thought it unwise and unjust to raid seniors nest eggs in the Section entitled “Security for Seniors” on page 32 where they shamelessly exploited “The Liberal track record for Canadian seniors is a sad story of unfair taxation, poor government services, and now an inexcusable policy blunder that has destroyed the retirement savings of Canadians invested in income trusts.” That’s only wrong on both accounts, as the Liberals didn’t destroy anything in the end, and the CONs were soon going to destroy the entire income trust market after they broke their campaign promise on page 32 that read “Stop the Liberal attack on retirement savings and preserve income trusts by not imposing any new taxes on them.”

What could be clearer than that?

Harper’s New Government also broke their promise of: “ Protect the integrity of the CPP investment fund to stop politicians from raiding it to balance the budget” on two accounts, since the CPP has lost $158 million year to date on their income trust portfolio and Flaherty actually deducted the full value of the assets of the CPP against the federal debt when he proclaimed that Canada’s debt would be paid off by 2010.

If that ain’t raiding then what is raiding?

Then there was the promise/lie contained on page 43 that read: “timely compensation will be paid to all persons who are deprived of personal or private property as a result of any federal government initiative, policy, process, regulation, or legislation.”

If that’s the case, then we’re still waiting for our $35 billion cheque. Is it in the mail?

There are no end to the other lies in Harper’s 46 page manual in How to deceive the public, but I will let you find them on your own. This document was a precursor to Harper’s 200 page How to obstruct Parliament manual

No doubt you have some personal favorites of your own from this CON election manual of just how Harper promised he would Stand up for Canadians. Enjoy

He who has betrayed the most: Stelmach or Harper?

Both of these presumed Conservatives have each implemented their own version of the National Energy Program, and yet both hail from Alberta. How strange indeed.

Both of these presumed capitalists thinks it’s okay to impose retroactive tax measures, and apparently haven’t heard of the concept of grandfathering.

Both of these presumed arbiters of just measures decided to brand these acts as “fair”. For one the retroactive tax was known as the Tax Fairness Plan. For the other, Our Fair Share plan

That’s where the similarities end, and Harper carries on alone with his unique brand of betrayal

Because unlike Stelmach, Harper promised he would never do what in the end he did. Stelmach (apparently) campaigned on the basis that his government would review the royalty regime in Alberta and carried through with this measure. Harper mislead the public by promising one thing and doing the exact opposite.

Unlike Stelmach, Harper cooked up his plan amongst a handful of six insiders consisting of two elected politicians and four bureaucrats and hatched his plan of betrayal in a surreptitious manner on Halloween, and fought tooth and nail to avoid holding public hearings or to require Flaherty to give testimony or evidence on the cornerstone assertions. Whereas Stelmach commissioned a panel and allowed for public input which in the end served to modify Stelmach’s adoption of what the panel recommended.

Stelmach’s royalty measure will actually serve to increase royalty revenue to the potential betterment of Albertans. Harper’s royalty measure will only serve to reduce tax revenue to Ottawa to the detriment of all Canadians and the loss of $35 billion in Canadians hard earned savings, translating into a significant diminution of many seniors’ standard of living in retirement and greater reliance on Canada’s social system. The takeouts to date from Harper’s plan have casued a $2 billion loss in annual taxes to Ottawa, that will eventually rise to $7.5 billion a year in lost taxes. A classic lose, lose, lose.

Unlike Stelmach, Harper is a total hypocrite, since on the one hand he has never heard of the concept of grandfathering when it comes to trusts held by average Canadians, and yet he instantly cites this very concept to allow Abu Dhabi Energy to acquire Prime West Energy, a deal that had only just been announced and not even formally made, on the basis that: ““Changing the rules in the middle of the game is not how this country does business.”.. Two days after the fact hardly constitutes the “middle of the game”, although ten years on with income trusts in the marketplace most certainly does.

Unlike Stelmach, Stephen Harper operates a minority government and is itching for an election. That’s the good news, since no doubt Harper would quote his good buddy George Bush (to the insurgients in Iraq) “Bring ‘em on”.

The origin of species: RRSPs

On a very macro level, there is something going on here with our unethical Finance Minister Jim Flaherty that seems to be lost on people, namely the original intent behind the creation of RRSPs. The concepts of leveling the playing field and tax fairness are very germaine to this simple but revealing story.

The concept of RRSPs was introduced 50 years ago this year by Liberal Finance Minister Walter Harris with the express purpose of allowing average Canadians without pensions to replicate some of the advantages conferred on individuals who were members of defined benefit employer sponsored pension plans.

When you think of it, it really wasn’t much of a reach for government to do this, because all it entailed was allowing people to take a limited amount of their pretax earnings and put it in an investment account where it would earn a return and be taxed at a later date. It’s not as if the government was losing taxes by waiting, since the money in the account (across all such accounts) would, by economic definition, earn a return higher than the government’s cost of capital (over time). As such a dollar of taxes that has been deferred from today to a future point in time has a value today of at least a dollar. The simple reason for this, as Jim Flaherty could tell you if he had taken Finance 101, is that, again by definition, the government has the lowest cost of capital in any economy, therefore meaning that the returns across all RRSPs will, over time, always exceed the government’s cost of borrowing (or discount rate).

So what does Flaherty do on the 50th anniversary of the RRSP? He celebrates by double taxing it. By doing so he has stripped away any incentive associated with saving via RRSP. He further unlevels the playing field by not doing the same thing for pesnion funds, thereby, going against the original intent of Walter Harris and 50 years of ongoing precedent.

It gets worse.

Flaherty then performs his good/bad analysis of income trusts versus corporations by ARBITRARILY and without any economic or financial rationale, totally excluding the taxes paid by income trusts in RRSPs. Nada. Zip.

It gets worse.

Its bad enough that Flaherty doesn’t acknowledge these taxes people are paying, especially when you realize that 38% of all income trusts are held in RRSPs. He then goes on to create policies that are regressive to these very people who are saving for retirement using the only vehicle available to them.

It gets worse.

He then has the gall to call this abomination of inequity, the Tax Fairness Plan

It gets worse.

Having created this inequity, and having taken away an essential investment choice for those without pensions, and having evaporated $35 billion of their life savings, Flaherty has the unmitigated gall to tell people that the quid pro quo is income splitting. Close but no cigar, as Flaherty’s income splitting is actually only pension splitting and it just so happens that this measure doesn’t apply to RRSP income, just to pension funds, like his. Again more inequity, more tax unfairness, more unleveling of the playing field

Golden Anniversary

So on the 50th anniversary of RRSPs, Flaherty has rendered this one retirement savings vehicle virtually useless. By not acknowledging the massive taxes paid by RRSPs, the government is implicitly saying, WE DO NOT BELIEVE IN RRSPs. I think the government is covetous of all the money tied up in RRSPs, which I believe is around half a trillion dollars or more. This is like a reservoir of taxes that the government wants to get its greedy paws on. They consider it “money in the bank”, which it clearly is. Flaherty’s goal is to rob this bank.

Evolution of the species.

In the world of Darwin, species only survive by improving and evolving over time. Flaherty is acting against these forward moving principles and regressing the concept of RRSPs. Who elected him to do that? What mandate did Harper have to do that? 70% of Canadians don’t have pensions and rely on their RRSPs. Harper is undermining these peoples' futures. He was elected by some 36% of Canadians. To screw 70%? Time to make him extinct.

Pump it Up!

Here’s today’s lesson in why citizens need transparency in government: Mark Carney.

Mark Carney’s intellectual capacities know no boundaries. Correction. Make that, Mark Carney’s zealousness knows no boundaries. Mark Carney brings new meaning to the term multiplier effect. Mark was probably working hand in hand with Flaherty’s communications director Dan Miles when they made the decision to “pump up the volume” on tax leakage. Given that they had abandoned all reason and logic in the methodology they used to fabricate tax leakage, by leaving out the 38% of taxes paid by income trusts held in RRSPs, they probably felt no hesitation to “really make their case” by further falsifying matters.

Here is the enormous weight gain that the tax leakage numbers took on in the space of about one year, as between the Goodale consultative round and the Flaherty drive-by shooting round (source of all numbers: Globe and Mail, corroborated by testimony):

Goodale Round:

Size of trust market: $180 billion
Mark Carney’s annual tax leakage: $300 million

Harper/Flaherty/Dan Miles Round

Size of trust market: $200 billion
Mark Carney’s annual tax leakage: $600 million

Mark Carney’s Zealous Multipliers:

Size of trust market multiplier: 111%
Mark Carney’s leakage multiplier: 200%

Mark Carney’s inherent Pump Up the Volume Bold Face Lie: 80% (200/111)

Well, that’s very comforting to know that our Bank of Canada Governor-elect has no intellectual or ehical boundaries when it come to presenting his case to Canadians, in which he freely thinks he can manufacture numbers in support of his fraudulent case. And to think that there are those in the press (Jonathan Chevreau) who have written articles entitled: “Earth to Trust Investors, Ottawa is not responsible for your losses. Stop your Manufactured Rage”

Yeah right.

I wonder who helped write that nifty article?. Dan Miles or Mark Carney?

Maybe Dan Miles is more qualified to be the next Governor of the Bank of Canada. Or is he slated to head up the Access to Information as Disinformation Commissioner.

Confessions of a Carpetbagger

Dick Schmeelk of CAI a private equity fund was a real shooter in his day, You could even say he was the Dick Schmeelk of his day. I was introduced to him back in 1987 by Ed Clark shortly after Ed had joined Merrill Lynch from his failed foray in Ottawa as the architect of the NEP (National Energy Policy). Ed Clark was the Mark Carney of his day. NEP has since become the TFP.

Ed introduced Dick Schmeelk to me by joking about Dick having a virtual lock on all Ottawa’s big deals. Ed would know. Dick was with Salomon Brothers then. He has since moved on to the even more fertile pastures afforded him by Canada’s New Private Equity Government in the world of, you guessed it, Private Equity. He helped found CAI Private Equity in New York in 1989 and his private wealth probably rivals that of his best client: Canada.

Here are his gleeful comments on the enormity of the opportunity for private equity created by the Conservative government's slaughter of Income Trusts. This event-driven buying situation was created by Harper and Flaherty, either knowingly or unknowingly. They have handed Schmeelk and his peers in Private Equity the opportunity of a lifetime, as result of artificially devaluing and crippling Canadian income trusts for some yet unproven reason. Apart that is from displacing average Canadian investors in favour of the Schmeelk’s of the world and tranfering $35 billion of Canadians wealth in the process. Try to read between the lines when viewing his video confession.

Oh by the way, the government agrees with Dick’s bottom line assessment. If you were wondering whether our government knew this outcome would occur, just get a load of this internal Finance Department Memo of October 2006. The circle of guilt in tightening like a noose. Soon we hope to be well worn by these most deserving uncivil servants and their masters.

Limited evidence suggests

“Limited evidence suggests”. That was the not so famous enjoinder that accompanied everything that Bank of Canada Governor Dodgy David ever knew or said about income trusts. Not knowing seems to be a realm that Dodgy David prefers to occupy as he resisted at every opportunity to discuss with me the findings of the exhaustive study that was performed by PricewaterhouseCoopers in December 2006 about the impact of income trusts on the economy. Much like the concept of entropy, which argues that nature has an inherent tendency to devolve into the state of maximum randomness, David Dodge actually seeks out the state of least knowledge. Sort of like living your life as a series of interest rate forecasts.

Now we are entering a new realm at the Bank of Canada. Gone will be the days of “limited evidence suggests” as we now enter the world of Mark Carney’s “no evidence suggests”. This realm could just as easily be called the ‘fabricated evidence suggests” since it was Mark Carney and Mark Carney alone who thought it was okay to leave out the 38% of taxes collected by the government from income trust distributions, in his fraudulent and highly intellectually corrupt scheme to rip off 2.5 million Canadians from $35 billion of their life savings, for a whole host of reasons, none of them good. No evidence took the form of 18 pages of blacked out documents that constituted Mark’s idea of accountability and transparency. Central Polit Bureau style.

Speaking of Russia, Mark Carney honed this skill of ripping off large numbers of people from their rightful financial entitlements when he worked in the Moscow office of Goldman Sachs assisting a handful of today’s billionaire Russian oligarchs to rip off Russian citizens of their state’s assets in a process known as privatization. Having served his time in Moscow, Mark then made his way back to Canada to work for Goldman in Toronto to assist Canadian and US clients in cross border M&A and financing activity. It was quite unfortunate for Mark that he arrived at a time when it seemed that every other financing being done was an income trust new issue underwriting that required the services of no US dealer , since it was Canadians buying Canadian through Canadians. This must have been a terrible event in Mark’s young life and he obviously vowed to do something about it. He then trecked off to Ottawa to work for 10 cents on the dollar and execute his grand plan to reassert Goldman Sach’s dominion over Canadian investors and issuers. If not, why would he have been the person behind eliminating the 15% withholding tax on leveraged buyout loans, or the interest deductibility on foreign acquisition debt or the 10% withholding tax on bank loans. It certainly wasn’t to improve Canada’s lot in life.

Mark’s magnum opus however was the Tax Fairness Plan that was designed to raid seniors’ nest eggs. The rest is history. Welcome to the era of no evidence suggests. I’m sure Mark has more work to do in the days ahead under his 7 year mandate. Are BoC Governors subject to Parliamentary reviews as Fed Chairmen are in the US? Can lowly citizens participate? Seven years is along time. Look what Mark has accomplished in less that half that time.

Before I go I would like to offer Canadians an alternative era to live under. That era would be known perhaps as the “subsequent events are irrefutable” era. Here’s a summary of the havoc wrecked to date on Canadians by Mark’s handiwork. Almost makes you feel like its Moscow in the spring. Or Abu Dhabi in the fall. Either way, entropy will soon have its way on Canadians meagre lives if something isn’t done to halt this out of control train wreck in progress.

Income Trust Takeover activity to date, excluding BCE for $32 billion
The income trust takeovers below are categorized into “It’s not my fault” domestic pension fund takeovers, and “it’s not my fault” foreign private equity takeovers. The results are however the same. Tax leakage and the crowding out of the 70% of Canadians without pensions in favour of those civil servants, MPs , Senators and others with pensions and those who reside in foreign tax jurisdictions, like BCE”s new owner Madison Dearborn’s Madison Dearborn Capital Partners IV, L.P incorporated in Luxembourg (or the like).

That's
$22.51 Billion in takeovers so far.

And $9.78 Billion in deals pending.

Treating the symptoms. Two Jims in a Jam!

This is almost too choice for words. If Abu Dhabi is the nation of Islam, then Canada is the nation of the misled. Here we have Jim the Apprentice about to impose restrictions on a situation created by Jim the Major Screw-up. That is to prevent Abu Dhabi Energy from acquiring Prime West Energy on the basis that Abu Dhabi is a state owned entity.

That's odd. Wasn't Abu Dhabi also a state owned entity back in May of this very year when it acquired Canadian resource company Northrock Resources from Pogo for $2 billion?

This recent policy proposal is the policy equivalent of a battlefield promotion. Let’s treat the symptoms as best we can in a rudimentary fashion and deal with the real problem once we get the wounded soldier back to the field hospital. I have news for Jim the Apprentice and Jim the Major Screw-up, forget about band-aid solutions to deal with the symptoms, it’s time to acknowledge your self inflicted gunshot wound and treat the disease rather than merely its symptoms.

The disease is ill-named Tax Fairness Plan.

It's not like you weren't warned -- repeatedly. The Tax Fairness Plan is anything but fair, in fact it only serves to tilt the playing field in favour of foreign corporations, foreign private equity and large pension plans. The TFP only served to create an event-driven risk arbitrage that others whom you have exclusively favoured are more than happy to exploit. It’s like $35 billion of unclaimed money sitting on the roadside.

So the mindless Apprentice solution will be to treat the symptoms but not the cause. Brilliant.

If state-owned entities have now become the basis for concern, then how do you or anyone know that Madison Dearborn or Providence Capital are not fronting for state owned entities in their purchase of BCE? Did it even occur to you to ask?

Private equity firms are black boxes. Nothing about whose capital they manage is known or reported on. Nor is anything reported as to what they presently own or whom they are affiliated with. Lest anyone think this is a far-fetched concern, let me point out that China made a $3 billion investment in Blackstone (the firm on whose board Brian Mulroney sits). You can be quite certain some of that money will find its way into Canada. Perhaps all of it will.

But let’s get back to Abu Dhabi and its May 2007 purchase of Northrock and recently announced purchase of Prime West. One was allowed, the other apparently won’t be. A U.S. firm (Pogo) can sell its Canadian Energy firm (Northrock) to Abu Dhabi Energy without a peep from Canada’s New Government, but now Canadian pubic unit holders of Prime West will be denied this value-maximizing option.

Canada's New Government must truly hate Canadian trust investors with a passion. It could hardly be more obvious. This government has no concern for Canada’s economic sovereignty. They care only about the egg on their face from their horrific income trust policy. That’s the disease, everything else in symptomatic.

Flaherty was warned by numerous financial experts and some in the press about the symptoms that would be unleashed in the few short days after his surprise Halloween drive by. He didn’t listen. He didn’t acknowledge. It appears he didn’t even care.

We subsequently learned from the "honorable" Finance Minister that it wasn’t even his fault. Truly pathetic on all fronts. Take a bow. Had he consulted with the public and affected parties beforehand as the Liberals wisely did, he would have known the damage he was about to wreck on investors, our tax base, our economy and our capital markets. Unfortunately, he was too self important to consult or even heed our subsequent warnings. The Finance Minister actually thought he knew what he was doing, after all it was the very captains of Canadian industry who put him up to it. That must have been a real heady experience for Harper and Flaherty, Never before had they experienced such attention. How could they say no? Impressionable losers!

Meanwhile as we said at the time of the Northrock sale by Pogo, this is an asset that would have normally fetched maximum disposition dollar through an income trust IPO which would have seen taxes maximized to our government and would have been the continuation of a long trend over the least ten years to repatriate Canadian energy assets from foreigners, courtesy of income trusts and investors appeal. Western Oil Sands was another such wasted opportunity brought about by our government which saw this asset go into the hands of foreign big oil rather than Canadian retail investors.  

And now this government of ours is trying to parse the issue as being between buyers who are state-owned and buyers who are, on the surface of it, not. That only defines the issue on the periphery. It is an intellectually weak way of parsing the issue and avoids confronting the true causal reality.

This government is only concerned about saving face, not in saving our country’s economic sovereignty. To wit: the SPP. They realize the political embarrassment that this $5 billion Prime West sale represents in terms of revealing the horrific Tax Fairness Plan and all its consequences for what they truly are. That’s their only concern. Hence the band aid solution.

This problem is festering, Our predictions are being realized, sooner than even we imagined. BCE and Prime West are the two book ends of a grossly flawed policy. Loss of sovereignty and the loss of $7.5 billion in annual taxes are only two of its inevitable consequences. The other consequences are the effects on people lives which seem to be of no concern to this government, The open wound has gone gangrenous. Time for surgery. Amputate the Tax Fairness Plan in all its festering totality, and let’s get on with life. Life is tough enough as it is without the need for  government imposed self inflicted gun shot wounds that go by the fraudulent name of tax fairness. If that’s fairness, we need less of it, or give me a new government (lower case). Ditto the NDP, and Jack in the box, without whom we wouldn’t be having this conversation or loss of economic sovereignty and tax revenue. He’s got his mind on bigger matters of economic significance in the global economy. ATM fees.

Medic!