Monday, May 11, 2009

Canada’s press and politicians: Form over substance


Not surprisingly we learned over the weekend that Harper wants to run a national wide ad campaign using tax payers dollars to tout his plan to boost the Canadian economy, while at the same time he is cutting back on the budget for Canada’s Parliamentary Budget Officer. Why have substance, when form works better for you?

The same can be said of Canada’s press, who lap up form and ignore substance. To achieve the nefarious ends of government, politicians have learned that the facile and vapid press, such as that practised by the business reporters at the Globe and Mail, simply requires a slogan, to set the “tone”. Just as the Patriot Act in the US,. ushered in one of the greatest diminutions of civil liberties that the United Stated has ever witnessed and measures that many hundreds of thousands of Americans lost their lives to defend against, so too Harper’s Tax Fairness Plan ushered in one of the most egregious, unfair and self destructive tax regimes this country, or any country in the Western industrialized world, has ever seen.

If Canadians business journalists were anything more that the wusses they have proven themselves to be (with only one or two exceptions) they would be writing articles like this, and not spoon feeding Canadians with the same regurgitated pablum that politicians are feeding them:


Why the income trust issue REFUSES to go away...

Canadians refuse to accept a policy whose premises are all false, whose passage is inherently undemocratic.
Hill Times
April 20, 2009

WHITBY, ONT.—Ironically, Stephen Harper’s Halloween betrayal has also come to haunt him and his own government. Harper’s “trust” issue, refuses to go away, for the simple fact that Canadians refuse to accept a policy whose premises are all false, whose passage is inherently undemocratic, whose outcome is the polar opposite of its stated goals, whose measures are grossly unfair and whose consequences are negative.

False premises


On Halloween 2006, Jim Flaherty acted precipitously and without public consultation, seemingly oblivious to the fact that his assumption of “income trusts cause “tax leakage,” was disproved a year earlier. During Ralph Goodale’s public consultations, HLB Decision Economics (HLB) was tasked to work with the Department of Finance, whereupon HLB published: “The tax revenue implications of income trusts.” This report, available to Flaherty prior to his Halloween haunt, reveals that tax leakage can only be construed, if the taxes from the 38 per cent of trusts held within RRSPs are arbitrarily excluded, which defies rational thinking. Proper inclusion of these taxes, results in the inescapable conclusion that income trusts do not cause tax leakage.

Jack Mintz confirmed Flaherty’s gross error, by stating: “There is a serious flaw on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero.” PwC, BMO, RBC, have backed up HLB’s conclusion of no tax leakage. Meanwhile, Jim Flaherty has provided zero proof of his tax leakage claim. Let’s cut to the chase. “Tax leakage” is a canard. A known falsehood, whose purpose is to provide faux justification for Harper’s policy reversal, made at the behest of Canada’s life companies and corporate managers who sought to destroy an outcome (income trusts) that was adverse to their narrow personal self-interests.

Flaherty’s messaging of “levelling the playing field,” actually meant removing the opposing team from the field, in order that the status quo (corporations) could be coddled/perpetuated and competing investment choices eliminated. However, that outcome is detrimental to Canada’s competitiveness, our capital markets, investors/seniors seeking business investment income, and all Canadian taxpayers.

Undemocratic


Without proof, this tax is undemocratic. The report of the Public Hearings on Income Trusts, implored: “It is imperative that a democratic government be as transparent as possible when levying a new tax so that it can be held to account by its citizens. The Finance Committee, therefore, recommends that the federal government release the data and methodology it used to estimate the amount of federal tax revenue loss caused by the income trust sector.”

The Auditor General professes that Parliamentarians need objective fact-based information on how well the government raises its funds (taxes).” So where is the “information” for Parliamentarians that substantiates “tax leakage” and fulfills accountability? Does Jack Layton know?

Achieved opposite goals


As we predicted, the trust tax triggered a wave of trust takeovers, via structures which eliminate tax collection on these businesses’ earnings, which under the trust structure, are fully taxed. Accounting firm Deloitte, published a study of these takeovers, the title of which reveals their findings: “Lots of takeovers, little tax revenue.”

As we also predicted, many takeovers were by pension funds, like Public Sector Pension (PSP) acquiring Thunder Energy Trust at a significantly reduced price due to Flaherty’s punitive tax. Jim Flaherty’s policy is such that upon taking this trust private, PSP is magially exempted from the 31.5 per cent tax, whereas RRSPs are not. How can such a tax scheme be considered either fair or effective? Flaherty’s policy-borne-of-panic, has induced some $100-billion in related takeovers, causing all taxpayers to lose over $1-billion in annual tax revenue. Entities like Abu Dhabi Energy acquired Prime West Energy Trust via an LBO and pay zero taxes, displacing Canadians paying taxes at average rates of 38 per cent. and foreign investors, paying the full 15 per cent withholding tax.

BCE’s announced conversion to a trust would have seen Ottawa collect $790-million more per year in taxes, than the LBO junk bond basket case that it nearly became, and $550-million more than the corporation that BCE remains today. Ditto, for Telus.

Therefore, in the misguided belief that his policy would remedy tax leakage, a condition that never existed in the first place, Jim Flaherty has now created tax leakage. Can an outcome be further from its intended goal than that? It’s like Jim Flaherty scored the winning goal, but against his own team?

Meanwhile, all the remaining trusts are vulnerable to the same outcome, which would multiply by seven-fold Flaherty’s incompetence and his already $1-billion loss of annual taxes. He shoots, he scores.

Unfair measures

If this tax can be avoided by the mere act of taking a trust private, then what purpose does it serve? Given this giant loophole, what will have been achieved? How do these measures profess to deal with any of Flaherty’s alleged problems concerning trusts? Such inherent contradictions defy rational logic.

These contradictions are further compounded, since only pension plans can exploit Flaherty’s loophole, whereas the average Canadian via their RRSP can not, thereby placing RRSPs at a disadvantage to pension plans, being completely counter to why RRSPs exist.

Combine this inequitable treatment of RRSPs vis-à-vis pensions, with the fact that 75 per cent of Canadians do not have pensions, and one readily concludes that Flaherty’s trust policy represents the ushering in of a two tiered pension system in Canada, that confers benefits on those with pensions, to the exclusion of those without.

This is patently unfair and discriminatory, and again, serves to invalidate the entire policy, especially one masquerading as a “Tax Fairness Plan.”

This inequity is compounded yet further, upon realizing that pension plans are using this “tax arbitrage” to acquire, on a predatory basis, trusts like Thunder Energy that have been significantly devalued within RRSPs and elsewhere, as a sole result of Flaherty’s tax. Is this Flaherty’s underhanded way of dealing with “under-funded” pensions, by expropriating wealth from RRSPs into pension plans, including the very pension, whose plan members concocted this scheme, like Mark Carney, at the time a plan member of the PSP? This is an unconscionable act [of self dealing] for Finance Department bureaucrats to derive financial gain, that is not only being denied of others, but which is derived from others?

Adding further insult to injury, Flaherty also introduced pension income splitting for seniors alongside his 31.5 per cent tax, to assist in “selling” the trust policy. Again, this measure only benefits the 25 per cent subset of Canadians with pensions, adding a further dimension to Flaherty’s stealth introduction of a two-tiered Canadian pension system.

Negative consequences

This policy’s negative consequences could fill a book. Instead I refer you to the Liberals’ website, onProbation.ca and the “Ask the PM a question” section, where the No. 1 question that Canadians have for Harper, is for him to justify this policy or repeal it. [There you can also read the many insightful comments from voters who, over 2.5 years, have grown in their understanding of the fraud and injustice this policy represents.]

Meanwhile Jim Flaherty’s responsibilities as minister of Finance remain as fundamentally unfulfilled today as from the outset, given his failure to either “prove the case or drop the tax.”

Continued failure to do so will simply prolong the agony for its enablers, the Conservative and NDP parties, since this issue will only go away once Flaherty’s falsehoods have been extinguished by the truth, or the election of a Liberal government, whose stated policy is to repeal this tax and replace it with a 10 per cent tax, refundable to all Canadians. This position was confirmed to me by Liberal Leader Michael Ignatieff, in response to an email I sent him, asking: “What is the Liberal policy position in response to the March 29, 2009 Maclean’s article entitled, ‘Retiring into the unknown’?”

And to think, there are still members of the Conservatives and NDP caucuses asking, plaintively: “Why does this trust issue refuse to go away?”

By: Brent Fullard

Brent Fullard is President of the Canadian Association of Income Trust Investors/Taxpayers
news@hilltimes.com
The Hill Times

5 comments:

Dr Mike said...

We are screwed!!

A "wuss-ified" press combined with 'wuss-ified" politicians can only lead to a massive centralization of power in the PMO just where it does not need to be.

Centralizing power makes MPs redundant & of no use.

Centralizing power means that if the media wants "the" political story or needs a bail-out , then it`s kow-tow city as they pucker-up looking for the right behind on which to plant their compliant lips.

The only advantage of this power point is that decision making is made easy---it has become "my way or the highway" in both the government offices or in the media boardroom.

The problem is that this leaves the rest of us poor boobs wandering in the wilderness without a say.

Dr Mike

PS---I wonder what Elizabeth May is doing for next 4 years---hmmmmm.

Anonymous said...

Photo caption:

"He talks Tubby Talk .... he can make a man a ruin"

Oh CRAP, there's Fullard again - somebody get rid of this guy, he makes me look like a moron.

You are a Moron Steve !

An Amoral Moron at that !

Enjoy yer romp while you still can,

because where you are going it's gonna be mighty mighty warm,

for a very Long Long Time

Sunstone

kirbycairo said...

I read this Blog all the time and I am still not sure I understand the issue. Ok so the Government said that they wouldn't tax income trusts but then they did because, they said, they were losing revenue. But you say, and I believe you, that the net result of their policies was actually a greater loss of revenue and hurting a lot of average canadians. But I don't understand what the motivation behind all of this was. Is it just a corporate agenda which lets corporations pay less tax while shifting this burden to the average tax payers? I don't mean any disrespect .. I am just trying to understand an issue that seems very complicated.

CAITI said...

kirbycairo:

Thanks for asking. In a nutshell, the reasons are solely related to how managers of corporations are compensated, and as you know, they are VERY well compensated. Killing trusts did different things for different corporate managers. As the CEO of Manulife, killing trusts meant Dominic D’Alessandro was killing the competition for Manulife’s alternative investment products like life annuities or Manulife’s Income Plus (launched the week after Halloween 2006). If you are Michael Sabia of BCE, killing trusts means not having to be beholding to unitholders and making a personal fortune from the LBO alternative that was waiting in the wings. If you are Paul Desmarais Jr., killing income trusts meant being free to acquire companies like Putnam Investments that are “non-accretive” to shareholders and not having to get shareholder approval. If you are the CEO of Suncor, then as Rick George told a crowd of investment managers in New York, you can go back to acquiring natural gas reserves in Alberta for a song, as opposed to paying full value, and we all know how much natural gas that Suncor burns to extract oil from the tar sands. If you are Murray Edwards you love killing trusts, because it allows you to buy junior oil companies on the cheap. Gwyn Morgan was opposed to income trusts for the simple reason that Encan converting part of itself (mature oil fileds) would have meant triggering capital gains in hsi hands, so rather than being against income trusts for the spirrious arguments he advaced about phony "tax leakage", he was simply motivated by a desire to avoid capital gains and avoid paying his fair share.

Now he writes for the facile and vapid Globe and Mail ROB.

These are the reasons and motivations behind why these people with privileged access to Harper and his CONs in office wanted to kill income trusts. Their agenda was advanced by the highly unscrupulous and immoral Mark Carney who was the mastermind behind the conspiracy theory known as “tax leakage”. As a good Goldman Sachs foot soldier, he knew that income trusts represented a democratization of the capital markets that ill serves Goldman Sachs as the bespoke investment dealer to corporations and institutional investors. A retail product that was sweeping Canada was the last thing that Goldman wanted to see or was well positioned to compete in. The foray of Canadian dealers with the advent of IDS’s (Income Depository Receipts) was something that Mark Carney had an active hand in killing while at Goldman Sachs working out of the Toronto office. Goldman succeeded in killing that nascent development in the capital markets through the US accounting profession and the development of a set of impossible standards to meet, called euphemistically, the Ten Commandments.

In Canada,. It was easier to kill income trusts, as it just required a deaf and dumb and totally gullible set of lame on the take politicians, who have no regard for the facts or what the consequences of their actions will be. Just like virtually everyone on Canada’s freakin’ press.

BTW: The main driver for these corporate managers is their compensation by way of stock options, which are taxes at HALF THE RATE of income from employment that they represent and is an insult to the people who receive such tax treatment and actually have CAPITAL AT RISK. I guess it will take something larger than a global financial meltdown to topple these lame corporate managers rule of the roost and to get rid of abusive tax measures that just fuel these corporate managers' greed and avarice. We are paying for it, on a at least two levels, if not three.

Brent Fullard

Kephalos said...

Why is Canadian democracy like syphilis?

Answer: it takes many years for the symptoms to occur.

Why is professional journalism in Canada not like syphilis?

Answer: there are no symptoms of professional journalism in Canada.