I am of the view that income trusts should have no right to exist if they caused material tax leakage of the magnitude that Mark Carney claims. Such would also have to hold true for private income trusts and private limited partnerships, since tax fairness requires a universal approach.
Too bad the analysis that supports the allegation of tax leakage was deliberately manufactured by Mark Carney to achieve ulterior ends, none of which serve the interests of Canadians. This fabricated claim of tax leakage permitted Mr Carney to introduce a sweeping tax measure, namely the puntive 31.5% tax on Income Trusts, that Parliament approved believing they were addressing a legitimate problem.
The alleged tax leakage is only as legitimate as the analysis that underlies it. And the true intent of Parliament is only achieved if the underlying premise of tax leakage is true. Sadly, it is not. Thus, Mark Carney has essentially hijacked our parliamentary democracy to serve outside and extremely narrow interests. The $35 billion in losses sustained by average Canadians pales when compared to this end-run around democracy.
As for Mark Carney’s manufacturing capabilities and handiwork:
Insofar as tax leakage is a measure of the difference in taxes collected by a business structured as a corporation versus the same business structured as an income trust, how credible do you think it is for Mark Carney to have approached his analysis on the following approach;
(1) Making the steady state assumption throughout his forward looking analysis that corporations are taxed at today’s statutory tax rate of 22%, which ignores that corporate tax rates are to be reduced to 15% by the year 2012, including legislated reductions already passed into law. As such he is not modeling the real world, and is profoundly and misleadingly biasing his results in favour of corporations
(2) Assigning zero value to the taxes that are collected by Ottawa from the income trusts held in RRSPs, even though the trust policy permits/encourages pension funds to acquire income trusts and not be subject to the new 31.5% tax and even though these future taxes paid by RRSPs are very easily and accurately determined. Their value is of immense value to the Government. Any Goldman Sachs employee would tell you so. For example, the total assets presently held in RRSPs roughly equals Canada’s national debt. The deferred taxes collected on annual withdrawals from RRSP’s services about 25% of the annual interest servicing costs on Canada’s outstanding debt, allowing more of today’s taxes to be devoted to funding today’s social programs (in answer to Flaherty’s stated concern). The act of Mark Carney ignoring these vast amount of taxes paid by income trusts is without any credible financial or economic rationale.
Just ask Jack Mintz who stated “Finance was wrong to treat the impact as zero.” Better yet, speak to Dennis Bruce, since unlike Jack Mintz, Dennis Bruce is independent, but was working with the same Dept. of Finance figures.
(3) Overestimating the value of income trusts that are held by RRSPs. Industry numbers indicate 31% of trust are held in RRSPs. Mark Carney assumes 38%. Since Mark Carney assigns zero value to the taxes paid by income trusts in RRSP, this pumping up to 38%, only results in further skewing the manufactured results, by ignoring more of the taxes paid by income trusts.
To date $1,368 million in real tax losses have occurred because of Mark Carney’s income trust policy........in the effort to stem an alleged $500 million tax leakage problem. How much more wrong could a policy be than to achieve the direct opposite of its stated purpose?
No wonder Mark Carney was downsized from Goldman Sachs and wound up in Ottawa. All of which reminds me of the comment of senior finance official Brian Ernwein at the public hearings: “I guess, if we were incompetent we wouldn’t admit to it:”
It’s time to admit to it folks. Failing that it’s time to heed the Green Party’s and Liberal Party’s call for a public inquiry on alleged tax leakage. Who gains from hiding the facts? Certainly not Canadian taxpayers who will be left to pick up Mark Carney’s tab as he flits off to the Bank of Canada.
President and CEO
Canadian Association of Income Trust Investors
Tuesday, December 18, 2007
Posted by Fillibluster at 3:37 PM