Thursday, November 6, 2008

Flaherty's Fiscal Fumbles


By: Mike Watkins http://mikewatkins.ca/2008/11/06/flahertys-fiscal-fumbles/


FFF - Flaherty's Fiscal Fumbles
- destined to become a regular feature. Today's instalment: Flaherty's moves have only enabled more corporate tax avoidance.


Recently a $13 billion dollar deal concluded, allowing Teck to buy the remaining shares of Fording Canadian Coal Trust. Despite all the talk of the on-going credit crunch, the overly generous moves by the Bank of Canada and Flaherty's Ministry of Finance have made it possible for banks to work with Teck to obtain the necessary financing and conclude the deal.

No new jobs will be created through this transaction. There is no net benefit to Canada.

Yet Canadian taxpayers are footing a big chunk of the bill, by providing a taxpayer-backed credit backstop, and through being shafted as Teck avoids paying a $4 billion dollar tax bill as a result of this transaction.

While this exercise in tax avoidance plays out under our very noses, lets think back to the last time tax avoidance was a subject in vogue in Conservative politics in Canada.

On October 31st, 2006 Jim Flaherty, then and now the Conservative Minister of Finance, announced that Income Trusts would in the future be subjected to new taxation. The move was particularly controversial as the Conservatives had campaigned only months earlier in part on a promise to leave the income trust sector alone.

The aftermath, dubbed the Halloween Massacre, saw the income trust market plummeting on the news, erasing billions in market value in the weeks to follow. Small and large investors alike, including many of Canada's pension plans, were significantly impacted by the on-going turmoil. Now more than two years later, many still feel betrayed.

Stephen Harper and Jim Flaherty's volte-face on trusts was defended as a sign their government was serious about fairness in taxation. Flaherty said trust conversion was "a growing trend to corporate tax avoidance". From a CBC News article:

By some estimates, the federal and provincial governments stand to lose as much as $1 billion annually in tax revenue to trusts. There are now more than 250 income trusts in Canada.

Trust conversions are increasing in popularity because trusts do not pay corporate tax. Instead, they pay out most of their income in distributions to unitholders, who then pay tax on those distributions.

Flaherty said that situation could not be allowed to continue. "This trend has caused me growing concern," he said. "It's not right and it's not fair."

Bringing both pieces of the puzzle together:

* In October 2006 Conservative Finance Minister Jim Flaherty closed what he called a "loophole" that companies could exploit to avoid paying their fair share of taxes, a loss to taxpayers controversially estimated at the time at $1 billion a year.
* In fall 2008 that same finance minister, backed by Stephen Harper appointed Mark Carney, governor of the Bank of Canada, enabled Teck Cominco to avoid paying $4 billion in corporate taxes.

Flaherty's Fiscal Fumble has cost Canadian taxpayers at least $4 billion in avoided corporate taxes plus we are even footing part of the bill which makes this deal possible in the first place.

The deal smells so bad that even those in financial circles are fuming about it.

3 comments:

Dr Mike said...

Wow---this guy Flaherty is one of a kind.

There is no end to his mismanagement of the finances of this country.

He was sent into the cabinet posting with a huge surplus which he managed to piss away within a couple of years.

He killed the revenue golden goose when he wiped-out the IPO market on the TSX with his poorly thought out Tax Fairness Plan--this is rapidly sending the TSX into the dustbin & the Canadian tax coffers right in there behind it.

If this guy had a clue it would be lonely.

It is time for his replacement & why can`t I get this vision of a bag of hammers out of my head.

Dr mike Popovich.

randy said...

No clue, no clue. He has an excuse. He's a divorce lawyer. He only knows how to screw people.

What's worse? The media. They are supposed to know better and investigate ... well we know how good they are at that! (As in - NOT!)

Richard said...

HARPER THE WHORE STRIKES AGAIN!