Tuesday, December 25, 2007

Merry Christmas Dalton McGrinchy



On Christmas Eve, I received a package from the Freedom of Information and Protection of Privacy Office of the Ontario Government’s Ministry of Finance. The package contained the information I had requested concerning the allegation made in a letter dated January 2007 to Jim Flaherty from Greg Sorbara that claimed Ontario was losing tax revenue as a result of income trusts. and Greg Sorbara was voicing Ontario’s support for the Harper government’s income trust tax. Greg Sorbara was one of 10 provincial finance ministers who dutifully and compliantly sent in letters over a three day period immediately prior to the holding of Public Hearings by the Parliament’s Finance Committee

These 340 pages of documents only cost me $193 to retrieve. Evidently freedom of information in Ontario is anything but free.

Most of the 340 pages were simply copies of articles and studies by third parties. There was however one memo written by Brian Lewis, Director of Economic and Revenue Forecasting and Analysis Branch entitled: Net Revenue Impact of Income Trusts. This study has never seen the light of day and nor has it been subject to any outside verification or peer review. I have no intention of attacking any of the assumptions or methodology used in this review, but instead will take everything contained in this analysis as given.

There are several observations worth making. First, this analysis observes that 37.7% of trust investors reside in Ontario. It also assumes that none of the 15% withholding tax paid on distributions made by Ontario based trusts to foreigners is shared by Ottawa with Ontario. The analysis assumes that Corporations pay out 100% of their earnings in the form of dividends each year, in a manner consistent with income trusts. Please show me one corporation that does that. If such a scenario existed, there would be little need for trusts, since trusts primarily exist because investors are seeking the payout model, more so than the tax flow through model per se.

This analysis concludes that Ontario is losing $38 million a year in tax revenues. On this basis the Ontario Government explicitly supported the Harper government’s tax, notwithstanding that the public had never been consulted or the Ontario Government’s analysis vetted. Income trust investors lost $35 billion as result of this policy move supported by Ontario. The 37.7% of trust investors who were Ontario residents would have sustained $13.2 billion of this loss. And for what? So Ontario could recoup an alleged loss of $38 million a year in taxes. $38 million a year in taxes is what the Harper government roughly spends per year in polling. It would take a mere 347 years for this loss experienced by Ontario residents to be recouped by the Ontario Government’s alleged loss.

Thanks a lot Dalton McGuinty. Santa Claus you are not.

There was another document that I was sent that was a qualitative assessment of the income trust market as it relates to Ontario. A few observations made are worth sharing, since they were obviously completely overlooked by the McGuinty government in coming to their "income trusts are bad" policy. The following are direct quotes:

-Provincial actions over the past 20 years may be seen as tacitly/actively supportive of income trusts (e.g. Sale of Teranet, extending limited liability through provincial legislation)

-Ontario’s requests for proposals for new energy from the private sector may be filled by smaller energy income trusts

-The province as co-sponsor of a number of large Ontario public sector pension, could be subject to higher contributions if plan returns are lower due to a change in income trust policy

-Income trusts are a significant part of Canadian capital markets, which are largely centered in Ontario

-The TSX and other capital market participants have cited income trusts as an innovation and competitive advantage for Canada’s capital markets.

I will end by addressing these last two points.

Given that the loss that was sustained by Ontario residents will take 347 years to be recouped by the Ontario government, is the alleged $38 million annual loss not worth it if it means preserving a competitive advantage for the Canadian capital markets that are so beneficial to Ontario? Did the McGuinty government not realize that income trusts were generally responsible for some 50% of new issue activity on Bay Street over the past ten years? Is the McGuinty government not aware of the cause and effect relationship that has seen IPO activity fall by 80% since the trust tax was introduced. Is the McGuinty government unaware of the tax riches that have befallen it from the income trust innovation.

How long do you suppose it would take for Ontario to recoup this alleged $38 million annual loss of taxes from the following underwriting fees earned by Bay Street over the last 10 years. In case Dalton McGuinty doesn’t know it, Bay Street is about three blocks south of Queen’s Park and apparently about a world removed from the myopia of the McGuinty government’s incredibly narrow minded view.

The McGuinty government is actually impairing the competitiveness of one of its key engines of economic success and economic power and leaving Ontario more vulnerable to the Goldman Sachs of the world.

Time for Dalton McGrinchy to reconsider who is being naughty and who is being nice.

CIBC $1,332,250,000
RBC $948,200,000
Scotia $749,900,000
BMO $526,900,000
TD $349,500,000
National $200,600,000

Total $4,107,350,000

15 comments:

Anonymous said...

I know you have a cause and are on a mission, but can't you leave it for a couple of days so people can enjoy Christmas without politics, etc.?

Shame on you.

Anonymous said...
This comment has been removed by a blog administrator.
CAITI said...

This is a reposting of the deleted comment to correct an error


Anonymous said:

"I know you have a cause and are on a mission, but can't you leave it for a couple of days so people can enjoy Christmas without politics, etc.?

Shame on you."

Sorry your point is invalid. Don't need your words of discouragement. If you feel so strongly about it, then why are you surfing the web on Christmas and visiting "political" blogs?

Not my fault that the info from the Freedom of Info was delivered yesterday and read by me today.

Come to think of it....Feedom and Joy to you and to all who celebrate Christmas.

PS: What other religious holidays and religious faiths do you recommend we shut dowm in observance for, or is your concern only centered on Christmas?

Brent Fullard

Robbed said...

Truth can never take a holliday!

geoffreylaxton said...

Shame on the Ontario government for not doing their homework on an income trust policy that has caused so much damage to Canada and Canadians. CAITI just tells it like it is as they receive facts. If you don't like facts on Christmas, turn off your computer! Or do you just not like the truth anytime?

geoffreylaxton said...

Shame on the Ontario government for not doing their homework on an income trust policy that has caused so much damage to Canada and Canadians. CAITI just tells it like it is as they receive facts. If you don't like facts on Christmas, turn off your computer! Or do you just not like the truth anytime?

Anonymous said...

Shame on the Ontario government for not doing their homework on an income trust policy that has caused so much damage to Canada and Canadians. CAITI just tells it like it is as they receive facts. If you don't like facts on Christmas, turn off your computer! Or do you just not like the truth anytime?

Shirley Oberg said...

Brent,
What a tremendous Christmas gift! For those of us who believe in truth, democracy and fact-based tax policy, your FOIP is a great gift.

I hope you post those documents here. As you well know, there are questions.

Brian Lewis has 'documented' an alleged tax leakage. Did Brian Lewis document the facts of Ontario's tax gains from energy trusts and foreign investors? Does Brian Lewis know how to spell "what goes around comes around"?

Flaherty estimated energy trust distributions at $6 billion. Queen's Park share is about $300 million. Did Brian Lewis say anything about these tax gains from the energy trusts in Alberta?

Ontario does lose, so to speak, some tax revenue because provincial governments do not have mechanisms for imposing tax on foreign investors. Surely your heart bleeds for poor Ontario, no?

Save your blood for the Canadian Red Cross. In 2004, Ontario citizens earned $2.5 billion in foreign source income, which was worth $375 million to the ON government.

What’s Ontario trying to do? Shoot a gift horse in the mouth? By slapping a 31.5% tax on income trusts held by U.S. investors, Canada and Ontario risk retaliation from the U.S.

I sure hope the Ontario provincial Green Party calls for an investigation into Greg Sorbara’s approval of the Flaherty tax. Ontario has put $600 million in tax revenue from Alberta and the U.S. at immanent or retaliation risk.

Let Freedom of Information ring out! Let truth prevail!

Dr Mike said...

What a bunch of boneheads!!!!

Even if the tax leakage figures were absolute , the amount of lost personal savings & the amount of lost future tax revenue makes this figure a freaking drop in the bucket.

This can lead to only two conclusions : either the Ontario government is completely inept or there is more to this story( a promise to transfer some other tax benefit maybe).

Any reasonable person can see that the benefits to Ontario of imposing this tax do not add up--so then why????

If these guys are that inept , then they are the wrong guys for the job.

If they did this because of some supposed benefit promised by the federal government & then hide the real reason under the tax leakage scenario , then they should be gone for breach of trust.

Why is it no one from the public sector has had any input into either the federal or provincial decision making on income trust policy??

We have lost total control of our governments--they seem to think they know best--that we are just a bunch idiots who cannot think on our own--that we have nothing of value to offer.

Seems that we are only good enough when it comes time to vote for them.

We will never have any answers unless we can call both levels of government into account--the only way we will have access to them is by way of a public inquiry or by some sort of legal challenge.

These will be two of our goals in the new year.

Maybe by enlightening the people in this country by such pubic exposure some control of the situation may be regained by those in this country who really count--you & me.

To anonymous who said "shame on you" , all I can say is democracy can never take a holiday--we have seen what can happen if we give these guys carte blanche--this cannot be left to continue unchecked.

If I have to take time out from my holiday dusting , then that is a small price to pay.

Anonymous--get a life!!!!

Dr mike from Rodney

Anonymous said...

The Cons blatantly lied during the election campaign and every government in this country supported them. What are they teaching our children???

To my knowledge only Ralph Klein is on record scolding them for breaching public trust.

Anonymous said...

Hey Dalton McGrinchy:

Did you take math in High School?

Okay then, answer this.

If 37.7% of income trusts are held by Ontario taxpayers, and the income trust market has sustained an ongoing loss of $35 billion. What is the loss sustained by Ontario residents?

Correct $13,195,000,000

How much capital gain tax will the Ontario Government forego on these revenues?

Correct $1,055,600,000

Which is derived by taking the foregone gain and multiplying it by the capital gain tax rate of 24% to determine the lost capital gains taxes by Ottawa and Ontario, of which Ontario's share is roughly one third.

Now for our final skill testing question. Brian Lewis alleges that income trusts are costing Ontario the loss of $38 million per year. meanwhile Ontario tax payers have lost $13.2 billion. What rate of interest does that represent, if Ontario's lost taxes are expressed as a percent of Ontario taxpayers losses:

Correct: One quarter of one percent

Well done Ontario!! You have killed the golden goose for a return of one quarter od one percent. Sure sounds to me like a rounding error. If you tale into account the foregone capital gains, the number becomes a negative return.

Meanwhile you bozos at Queens Park are crating financial hardship for seniors and teh 70% of Ontario residents who are not members of OMERS and Teachers ans the Public Sector Pension Plan, who by teh way get a special carve out to own income trusts free of any taxes.

Is that how yiou dealt with your observation #3:

"The province as co-sponsor of a number of large Ontario public sector pension, could be subject to higher contributions if plan returns are lower due to a change in income trust policy "

You double dealt the people of Ontario by agreeing with Flaherty's brain dead tax on income trusts by virtue of the fact that you placed your funding obligations to fund these provincial pension funds AHEAD of the interests of average Ontarians.

Very pathetic indeed on your part.

Go back and redo your math, and take a lesson in ethics while you're at it,

Transcanada said...

Brent thanks so much for giving Income Trust taxation the visibility it deserves.

All the best in the Christmas season and in 2008!

Steve is toast said...

Hey .. we are getting over a dozen comments on a posting .. this is good news!

Mary the golfer said...

It`s time for us to get on the ball & stay united in our fight to rid this country of the so-called Conservative government.

The longer they stay in power , the less control all Canadians will have in determining their futures.

The income trust disaster was just the tip of the iceberg--things will get worse.

I for one do not want to become the US of the north.

So everyone stay focused--our goal is in sight.

Mary the golfer.

Robert Gibbs said...

Hocus-Pocus Harper and his corrupt, conniving CON party campaign in January, 2006 with a promise to leave income trusts alone and only months after getting elected devastate Canadians' savings with a fraudulent new income trust tax.

Two-Faced McGuinty and his obtuse, obsequious Ontario government participate in the IPO of Teranet Income Fund in June, 2006 and only months later send an income trust tax supporting letter to Flim-Flam Jim Flaherty.

Look up in the dictionary the word:
Hypocrite

And you'll find the definition and synonym:
Politician