Did Harper make undervalued Canadian Oil Sands a target of Exxon?

$5 billion Prime West Energy Trust was acquired by Abu Dhabi in 2007, because Harper's income trust tax left it undervalued and vulnerable. The net effect of which was a loss of significant tax revenue to Ottawa, and the further loss of sovereignty over Canada's energy sector.

Now Canada's largest income trust, Canadian Oil Sands, appears to be in the sights of Exxon (parent company of Imperial Oil), who are gushing with cash..

Way to go Harper, you economist know nothing, and Jack Layton, foreign takeover proponent. By the way, where is your proof of tax leakage from income trusts?


Canadian Oil Sands Trust a buy target?
Reuters  Published: Friday, January 30, 2009
Chris Schwarz/Canwest News Service

CALGARY, Alberta -- Shares of Canadian Oil Sands Trust. (T.COS.UN), the biggest shareholder in Syncrude Canada Ltd, rose as much as 5.7% on Friday, on rumors that the company could become an acquisition target.
Units of the trust, which holds a 37% stake in Syncrude, the world's biggest oil sands producer, rose 75 cents to $19.25 at 1 p.m. on the Toronto Stock Exchange. Earlier they touched $19.55.
The units have fallen 47% over the past 12 months.
Rumors have begun circulating that the company may be an acquisition target, with Imperial Oil Ltd, Syncrude's No. 2 shareholder, seen as a potential buyer for the trust, though analysts said the possibilities of such a deal for the $9.3-billion (US$7.5-billion) trust were remote.
"It would be stretch," said William Lacey, an analyst at FirstEnergy Capital. "Imperial is pushing ahead with Kearl, and they are pretty debt adverse."
Kearl is the company's $8-billion oil sands project
Gordon Wong, a spokesman for Imperial, Canada's biggest oil explorer and refiner, declined to comment on the speculation.
Analysts say investors may be looking for the next takeover target in Canada's oil sands following the unsolicited $617-million bid for UTS Energy Corp that French oil major Total SA launched earlier this week to grab a 20% stake in the Fort Hills oil sands project.
"UTS started the whole expectation of 'who's next?'," said Phil Skolnick, an analyst at Genuity Capital Markets.
The rise in Canadian Oil Sands units also came despite a big cut in the trust's quarterly payout to investors announced earlier this week. The trust cut its distribution to 15 cents from 75 cents because of falling oil prices.
© Thomson Reuters 2009

© 2008 The National Post Company. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.

In lieu of flowers, please send a cheque payable to the Conservative Party of Canada

Never one to let an opportunity pass, this will, no doubt, prompt yet another letter from Doug Finlay of CON headquarters for another donation to this fruitless cause, called Conservatism.

THE END OF CANADIAN CONSERVATISM
Jan 29, 2009 by Andrew Coyne
MacLeans

Say what you like about the Tories: they don’t do things by halves. When they spend, they spend. When they go into debt, they do it $100 billion at a time. And when they decide to finish off what remains of conservatism in Canada—as a movement, as a philosophy—they go out with a bang.

We can safely say that the strategy of “incrementalism,” at least, is a thing of the past. With this week’s historic budget, the Conservatives’ already headlong retreat from principle has become a rout—a great final leap into the void. Understand: there will be no going back from this, for the party or for the country. Whatever the budget’s soothing talk of “temporary” this and “extraordinary” that, and for all its well-mannered charts showing spending obediently returning to its pen, deficits meekly subsiding, multi-billion-dollar “investments” repaid in full, we are in fact headed somewhere we have never been before. We are on course toward a massive and permanent increase in the size and scope of government: record spending, sky-high borrowing, and—ultimately, inevitably—higher taxes. And all this before the first of the baby boomers have had a chance to retire.

Whether it will prove the country’s undoing, and not just conservatives’, will depend upon events. In its simplest terms, the budget is a “stimulus package” that spills money every which way: $12 billion over two years for infrastructure; almost $8 billion meant to kick-start housing and construction; billions more in forestry, auto and manufacturing aid. The much feared broad-based income tax cuts amounted to lifting the income threshold for the middle and lower brackets. If everything the budget foretells comes to pass, we might not come out of it too badly. A $34-billion deficit next year, after all, is barely two per cent of GDP, and even four years and $85 billion worth of deficits, if the budget’s projections hold, would barely budge our debt-to-GDP ratio. But if they do not—if the economy fails to recover on cue; if inflation spikes when it does, and interest rates soon after; if all those billions in new spending, once in place, do not prove so easy to trim back; if the assets the government acquires with all of its borrowed money do not turn out to be worth what they cost—then we will head into the approaching demographic storm loaded down to the gunwales. It’s a monumental, even reckless gamble.

And whatever its likely consequences for the debt, its effect has already been to ratchet up expectations, to tilt the political landscape toward greater and greater interventionism, to change the very language in which we discuss these things. Again, this is unlikely to be easily reversed. Among the consequences of the end of conservatism will be to make it difficult, if not impossible, to muster a constituency even for restraining the growth of government, let alone rolling it back. When the “right” is defined as $34-billion deficits, record spending, and bailouts for everything in sight—when every other party is to the left of that—people lose the ability to think in any other way. They forget there was ever a contrary view.
Conservatives, then, should think hard about whether they can afford to support this government any longer. Its sole contribution at this point is to limit debate, to rule out of bounds any serious discussion of alternatives, since “even” a Conservative government now believes in an all-pervasive, ever-expanding state. The Conservative experiment—the whole enterprise of “uniting the right” in which conservatives have invested much of the past decade—has reached a dead end. They have not succeeded in replacing the Liberals. They have only succeeded in becoming them. Perhaps, some conservatives will conclude, it would be better if this government were defeated—if the party were to lose power, that it might find itself.

Start with matters that require no prediction, with the fiscal facts on the ground. The coming fiscal year, according to the budget’s own numbers, will see the largest annual increase in spending (with one arguable exception) since at least the Second World War. The $22 billion the Harper government will pile on top of program spending this year, adjusted for inflation and population growth, amounts to an increase of more than 10.1 per cent. That’s a larger rise, in real dollars per citizen, than anything the Trudeau governments ever mustered, even in the heady days of the early 1970s, when they were putting in place the institutions of the modern welfare state. (Its only possible rival is 2005, when spending increased by a similar amount—though its abrupt decline the following year suggests this was as much an accounting achievement as anything else.) For the record, it’s more even than in the infamous first budget of Bob Rae’s Ontario government.

No government in our history has spent this much, this fast. Before this budget, no government had spent more than about $6,000 per citizen, in 2008 dollars—no, not even in the depths of the 1982 recession. This budget blasts through that ceiling, all the way to $6,500, and stays there: four years from now, after the recession is presumably a memory, the government will still be spending nearly $6,400 per capita. At the start of this decade, it was spending just $4,800. Somehow the federal government is now finding ways to spend a third more inflation-adjusted dollars on each of its citizens.
Two points are worth noting about this latest explosion in what was already a supernova of spending. One is the sheer aimlessness of it. Supposedly the government’s dilemma was how to balance short-term “stimulus” with the need to improve the economy’s productive capacity in the long run—a contradiction to begin with, since the kind of spending that can be shovelled out the door in time to claim credit for the recovery is unlikely to be subject to especially searching scrutiny, such as would ensure these funds were put to their highest and best use. But the laundry list of spending in this budget shows scant evidence of any thinking at all.

Absolutely everything, it appears, now counts as “stimulus” (as earlier “public works,” a phrase that had acquired a certain odour in this country, was rechristened “infrastructure”). On and on it goes, for dozens and dozens of pages: an extra five weeks of EI benefits for everybody (try taking that away in a couple of years), a 100 per cent tax writeoff on business purchases of computers (apparently, Canadian business has yet to hear of these miraculous devices, or at least must be led by the hand to buy them), $12 million a year “to promote international cruise ship tourism along the St. Lawrence and Saguenay Rivers.”

In pursuit of its declared aim of ensuring “all regions prosper,” the budget adds new regional development agencies for those few remaining parts of the country not already blanketed in federal cash, including—yes, it’s come to this—southern Ontario. Another section commits the government to provide “short-term” support for “key” sectors. These temporary hardship cases turn out to include such perennial wards of the state as farming, forestry, mining, and . . . shipbuilding. “In recent years,” the budget notes laconically, “the industry has experienced declining demand,” the remedy for which is apparently to increase supply (“Budget 2009 provides a catalyst to increase activity in the sector”). Then it’s off to automotive bailouts, support for the cultural industries, permanent increases in equalization (inequality among the provinces may go down, but equalization always goes up), tax credits for home renovations (you thought it was hard to get a contractor on the phone now?), “an improved rail system,” slaughterhouses, hockey rinks, broadband, the Manege Militaire drill hall in Quebec City . . . The government will be everywhere, and everything.
And why not? When there is no longer any budget constraint, when deficits are not evidence of incontinence, but “stimulus,” why should any project, any sector, any region be denied? More to the point, when there is no political constraint—when no party is pulling to the right, while four pull left—spending can only go in one direction. And for the foreseeable future, that’s where the action is going to be: sucking money from the gushing spigot of the state. Starting a business? Only a chump would spend his time worrying about pleasing the consumer. It’s the politicians you want to keep happy, mate.

The other point to make about all this is that the budgeted numbers are only the start. The $34-billion official deficit is barely a third of the more than $100 billion in new debt issues the government will bring to market, this year and next. Billions more will be borrowed and lent out off-budget, through a flotilla of Crown corporations—the Export Development Corporation, the Business Development Bank, and so on—while the existing program to airlift mortgages off the balance sheets of the nation’s banks will be bumped up from $75 billion to $125 billion. The need for this is not in dispute—this is at its roots a problem in the credit markets, remember, and should be addressed there—and it is true that much if not most of these funds will be recovered, or never drawn upon. But at a time when the government is already taking on tens of billions in new debt to stabilize the financial sector, it hardly seems wise to be piling $34-billion deficits on top.

Is it all bad? Of course not. The cuts in tariffs on imported machinery are a real boost to the competitiveness of Canadian industry, the very opposite of a subsidy. The bumped-up Working Income Tax Benefit will help lower the “welfare wall” that prevents the long-term unemployed from taking work (for fear of being cut off welfare). Freezing EI premiums, likewise, at a time of rising unemployment, seems only sensible, rather than allow them to rise and price more people out of work. Raising income-tax thresholds can’t hurt, and might help—if it weren’t paid for with borrowed funds. It can hardly serve as a pretext for the Liberals to defeat the budget, however: tax cuts account for just one dollar in 10 of the alleged “stimulus”—one in five, if you count the foregone increase in EI premiums.

More broadly, how in good conscience could the Liberals, or the NDP for that matter, vote against a budget they might have written? Every line of it seems to have been composed in a kind of haze of Keynesian nostalgia. We are back to the bad old days of the 1960s and ’70s, when savings were a dirty word and consumption was thought to “drive” the economy, when economies were “pumps” to be “primed” by wise and far-seeing policy-makers pulling levers on the wall. And in another 20 years or so, when we are drowning in debt and the new-old wisdom has been discredited again, perhaps a new political philosophy will arise, and a new party to give voice to it. We might call it conservatism.

Eureka, I found the solution!

Newfoundland Liberal MP vows to vote against budget

Hmmm? That gives me an idea!

Maybe the answer to our dilemma of utter non-representation in Ottawa would be for the 2.5 million income trust investors to all move to one province and then get the premier of that province to champion our cause in Ottawa and get the MPs in Ottawa for that province to get off their butts and do something for their new found constituents. Failure to do so would result in prompt removal from office.

The Premier of our chosen province would also be faced with an enormous potential loss of tax revenue, if these new found citizens of his province were about to lose their retirement income, owing to Flaherty's pending rapacious tax on trusts.

With $6 billion in tax revenue associated with this collective of income trust holders, half of which would go to the province of our choice, we could start negotiating with Provincial Premiers, before making our final selection, as to which province to bestow upon, our vast tax revenue stream. We have the power to return Ontario to a “have” province again. But what did Dalton McGuinty ever do for us, or seniors for that matter?

While we’re at it, maybe we can get a break on property taxes, in the same way that foreign automakers are able to extract such concessions from salivating Premiers.

How about PEI? We could overwhelm that province with a new influx of trust investors. It would be sweet justice to get that Provincial Treasurer from PEI who gave testimony against trusts at the Finance Committee hearings to recant his nonsense BS.

Meanwhile, we could get newly minted PEI Senator Mike Duffy to actually perform a useful task, for the first time in his life? Harper will come to loathe the day that he appointed that clown to the Senate.

We'll make Duffy beg for his next meal, like the trained seal that he is. Harper too, now that he's learned to beg from Liberals.

One final thought: Do you suppose we should put a fence around PEI? After all, trust investors living there will own 20% of Alberta’s energy sector and 80% of its energy infrastructure. In PEI, we’ll also start taxing Life Insurance companies at an additional 31.5%, just for revenge. Only newspapers that report the truth will be allowed, which will preclude the distribution of most national papers.

What a shame that there isn't one MP who feels as passionately about seniors losing their life savings to Harper's fraud.

I guess MPs only champion the cause of those seeking money from government, as opposed to those who wish to pay billions in income taxes to their government via income trusts. Who said Parliament is no longer dysfunctional? Any wonder that we're about to generate $85 billion in deficits?

Two N.L. Liberals say they'll break party ranks, oppose budget if necessary

2 hours ago

ST. JOHN'S, N.L. — A Newfoundland Liberal MP says he will break party ranks and vote against the federal budget if necessary, the second party member to do so.

Scott Andrews, who represents the riding of Avalon, told a radio station today he is prepared to go against his party and oppose the budget if it doesn't protect $1.5 billion that the province is entitled to. Andrews says his colleagues in the rest of the country don't understand how important the issue is to Newfoundland and Labrador.

Premier Danny Williams has called on the six Liberal MPs from his province to vote against the budget, saying it will sap $1.5 billion away from the province in funds from the 1985 Atlantic Accord.

While the province no longer receives equalization, it continues to receive money in that offshore energy agreement with Ottawa.

Judy Foote, member for Random-Burin-St. George's, has also said she will vote against the budget if it doesn't protect the Atlantic Accord money.

A budget amendment that even Monte Solberg would vote for

Even duty bound Monte Solberg is critical of Harper's budget.

Mind you, one can never be certain where Monte Solberg stands on any position, or from one minute to the next. It all depends on which way the lobbyist winds are blowing. and just how desperate the Neo-Conservatives are for seniors’ votes, at any given moment in time.


In any event, here’s my amendment that will further stimulate the economy, protect the vulnerable AND cut the budget deficit in half. Surely that would appeal to all Canadians, across the entire political spectrum. From Solberg, on through to Layton.



Harper’s budget is being panned by Canadians across the political spectrum, and for good reason. It is a hodge-podge of superficial measures that will lead our country recklessly in debt. Canadians need this budget like they need a hole in the head. Here is the amendment that I would make to this budget that would serve to further stimulate the economy, protect the vulnerable and reduce Harper’s reckless deficiy in half:

(1) Stimulate consumer activity over the next two year period by implementing a phased increase the GST, to 6% effective the start of 2010 and 7% effective the start of 2011. This will reduces Harper’s $85 billion budget deficit by $47 billion (or 44%) to $45 billion. Out children and grandchildren will thank us profusely, as we will be living within our means, in the same manner as we expect of them.

(2) Protect Canadian seniors by eliminating Harper’s income trust tax that has resulted in $108 billion of trust tax related takeover activity over the last two years, resulting in over 2500 job losses and the loss of $1.2 billion in ANNUAL tax revenue. This measure would restore $35 billion in lost retirement savings by 2.5 million Canadians (including losses by CPP, Caisse, OMERs, Teachers’ and others), and would serve to protect the remaining tax stream paid to Ottawa of $6 billion a year, that along with jobs, is very much at risk. Restoring this income stream to Canadian taxpayers and Canadian seniors would provide an immediate fiscal stimulus to the economy, as these people would resume their former consumption patterns and standard of living. Cat food sales would experience a significant decline, however sales of Canadian made automobiles and Alberta beef would improve by a significantly greater amount. Meanwhile pressures on Canada’s social security system by otherwise impoverished pensioners and seniors would abate.

The only downside to this budget is that it would be free from criticism from anyone across the entire political spectrum, except for those who deny empirical evidence (as it pertains to income trusts or the stimulate effects of consumption taxes) and those who deny that Canadians should ever be asked to live within their means.

Harper’s jobs of tomorrow: Home Depot cashiers. Not genome scientists

Do you suppose Harper’s cutting off funding to Genome Canada in this budget has anything to do with his creationist religious views? Or is it that the jobs of tomorrow in the mind of Stephen Harper are the Cashiers at Home Depot whose ongoing employment has been assure by the CEO of Home Depot’s involvement as an advisor to Jim Flaherty and his implementation of that Home Depot friendly 15% Home renovation tax credit?

Did it not occur to Mindless Hapless Harper that cutting off funding to Genome Canada and the leading edge scientific work that is being conducted there, might lead to a brain drain. Canada is curtailing funding to Genome Canada at just the time that Barack Obama has lifted George Bush’s ban on stem cell research in the US, a policy that was clearly borne from the bible belt.

Suppose you were a world class geneticist working in Canada as part of the ground breaking genome research program, and like all Canadian, were concerned about your job security and professional career. Would you stick around in Canada in the hopes that this dysfunctional Parliament would see its way to providing ongoing funding to Genome Canada, or would you take one of those myriad of job offers from Stanford or MIT, as the US races to reassert itself in this scientific field, now that the dark days of George Bush have been replaced by the dark days of Stephen Harper, albeit in a completely different country.


Nation's credibility on the line, scientists warn
Projects uncertain after budget snub
Globe and Mail
January 30, 2009

The uncertainty over research funding in Canada left scientists across the country fretting over the future of crucial projects yesterday, and a few wondering if they would relocate their work.

Government Approves Study Using Human Embryonic Stem Cells
Washington Post Staff Writer
January 24, 2009

A California biotechnology company plans to launch the first government-approved clinical trial testing human embryonic stem cells on people by next summer after receiving federal approval yesterday.
"This is obviously an extraordinarily exciting event," Geron chief executive Thomas B. Okarma said. "It marks the dawn of a new era in medical therapeutics. This approach is one that reaches beyond pills and scalpels to achieve a new level of healing."

President Obama is expected to lift restrictions on federal funding for such research imposed by his predecessor.

Okay. Here’s my amendment that will further stimulate the economy, protect the vulnerable AND cut the budget deficit in half

Photo: Harper implementing budget amendment to increase GST to 7% over two years.

Harper’s budget is being panned by Canadians across the political spectrum, and for good reason. It's a hodge-podge of superficial measures that will lead our country recklessly into debt. Canadians need this budget like they need a hole in the head.

Here is the amendment that I would make to this budget that would serve to further stimulate the economy, protect the vulnerable and reduce Harper’s reckless deficit by HALF:

(1) Stimulate consumer activity over the next two year period by implementing a phased increase the GST, to 6% effective the start of 2010 and 7% effective the start of 2011. This will reduces Harper’s $85 billion budget deficit by $47 billion (or 44%) to $45 billion. Out children and grandchildren will thank us profusely, as we will be living within our means, in the same manner as we expect of them.

(2) Protect Canadian seniors by eliminating Harper’s income trust tax that has resulted in $108 billion of trust tax related takeover activity over the last two years, resulting in over 2,500 job losses and the loss of $1.2 billion in ANNUAL tax revenue.

This measure would restore $35 billion in lost retirement savings by 2.5 million Canadians (including losses by CPP, Caisse, OMERs, Teachers’ and others), and would serve to protect the remaining tax stream paid to Ottawa of $6 billion a year, that along with jobs is, otherwise, very much at risk. Restoring this income stream to Canadian taxpayers and Canadian seniors would provide an immediate fiscal stimulus to the economy, as these people would resume their former consumption patterns and standard of living. Cat food sales would experience a significant decline, however sales of Canadian made automobiles and Alberta beef would improve by a significantly greater amount. Meanwhile pressures on Canada’s social security system by otherwise impoverished pensioners and seniors would abate.

The only downside to this budget is that it would be free of criticism from anyone across the entire political spectrum, except for those who deny empirical evidence (as it pertains to income trusts or the stimulate effects of consumption taxes) and those who deny that Canadians should ever be asked to live within their means.

Bottom line: This amendment would reduce the budget deficit by half, stimulate the economy, and protect the vulnerable. Meanwhile all the other superficial measures of Harper's hole in the head budget, would remain in place, pending his removal from office.

Facebook invitation: “Barack Obama needs to address Canada's Parliament”

Please join the Facebook group “Barack Obama needs to address Canada's Parliament” during his upcoming visit on February 19th, at which point Parliament is not otherwise in session, by Clicking Here

Prove the case or drop the tax

Prove the case or drop the tax
Finance Minister Flaherty hasn't done his research on income trusts

Diane Francis,
Financial Post
January 24, 2007

The only fair resolution to the Tory income-trust mess is to compensate every investor who held onto, or bought, income trusts after Stephen Harper uncategorically promised they would remain untouched eight months ago.

That, or they must abandon their proposed tax on existing trusts.

The stupidity of this trust tax is why the issue hasn't and won't go away. It's why Opposition parties have correctly forced a hearing for next month at the finance committee in the House of Commons.

Personally, I am offended by the actions and attitude of rookie Finance Minister Jim Flaherty.

He was twice a rookie for: (a) not crafting an income-trust reform that would respect his Prime Minister's promise to leave existing income trusts alone; and (b) for not doing his homework in an area that he obviously doesn't understand - - thus the fact that he has parroted a number of obvious inaccuracies.

On the first gaffe, Mr. Flaherty should have known there were dozens of alternatives that would have stopped the proliferation of income trusts and, at the same time, surgically reformed existing ones without damaging investors. This is what the Americans and Australians did when they embarked on reforms.

But Mr. Flaherty did not do his research. He could not have because he said publicly that the Americans and Australians had shut down all their trusts except for real-estate ones. That's totally wrong.

The U.S. energy/infrastructure trust sector is now equivalent in size to 20% of the entire Toronto Stock Exchange, or more than US$480-billion. Whoops.

Then there's the tax leakage myth.

Department of Finance officials convinced, and gave Mr. Flaherty, the false information that registered retirement savings plans (RRSPs) and pension payments were tax-exempt. Too bad they aren't.

So the question that begs an answer is, why didn't this Finance Minister know this was untrue? Is it because he is not an investor and won't rely on his RRSP like 70% of Canadians must? Instead, he and his spouse are professional politicians with defined-benefit pension plans.

Another piece of "work" cited by government officials that tax leakage was an issue was done by Toronto academic Jack Mintz, who has been going around ever since distancing himself to paying customers on Bay Street from this research.

So there you have it: an academic allegedly unwilling to publicly come out defending or recanting as well as civil servants and a minister who apparently don't even understand how RRSPs or the tax system operates.

It's little wonder we have this mess -- which comes to my last, and possibly most important, point for the House of Commons committee members to consider and pursue.

About the only excuse I can think of to account for this $30- billion mistake is that securities laws prevented Flaherty from talking with knowledgeable industry sources ahead of time. There were leaks when the Liberals looked at income trusts and the Tories made an unholy fuss about that.

But that doesn't matter. Mr. Flaherty had plenty of experts to consult outside the Department of Finance, which has been gunning for this tax for ages.

If he wanted to understand the nature of RRSP and pension tax treatments, he could have called former finance minister Michael Wilson, who invented RRSPs in the 1980s

He is now on the government payroll as U.S. Ambassador and, therefore, securities law safe.

More important, Flaherty could have, and should have, picked up the phone and called the most knowledgeable man in the country -- Bank of Canada governor David Dodge.

If he did not do that, it's recklessness. If he did, and didn't listen, he was irresponsible. If he listened and rejected, then he had better tell the committee why the man who really runs the economy was wrong last summer when he defended income trusts after a bank study.

Here is what Dodge said in 2006:

"The work we have done in terms of capital markets, per se, is that probably, on balance, income trusts make capital markets somewhat more complete and somewhat more efficient," Dodge told a news conference held as part of the bank's quarterly economic outlook. The bank studied trusts.

"Limited evidence suggests that income trusts may enhance market completeness by providing diversification benefits to investors and a source of financing to firms that might not otherwise have had access to markets," the bank's study said.

That's why it is no wonder people who understand capital markets are furious.

Now, firms like PriceWaterhouseCoopers and various prestigious money-management firms are joined in the Canadian Association of Income Trust Investors.

And their bottom line is the same as mine. This Finance Minister must prove his case or drop the tax.

"If the government's actions cannot be fully substantiated by independent experts with proven expertise in the workings of the Canadian capital markets, then our Association will be calling for the repudiation of the Tax Fairness Plan in the name of fairness and good governance."

It all proves that being Finance Minister of Canada requires a lot more sophistication and a lot more experience than just paying bills, cutting costs and tinkering with local taxes as a provincial treasurer.

dfrancis@nationalpost.com

© 2008 The National Post Company. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.

Stimulus or fiscal madness? $85 billion only buys 189,000 jobs?.....plus Harper's

“Tucked away on page 242 of Jim Flaherty's Tuesday budget is a description of how Ottawa's $51.5-billion "stimulus" action plan will multiply through the economy and create 189,000 jobs by 2010. That works out to $273,000 per job.” Terence Corcoran

Taking the entire budget deficit of $85 billion, this translates into $449,000 per job, assuming this job target number is ever reached?

Question for Liberals from concerned, and increasingly disillusioned, Senior Citizen

Dear Gentlemen & info@liberal.ca,

Please reply to me regarding the most disturbing information below. I'm really serious about receiving a reply please!

$7.5 Billion in lost annual tax revenue ($1.2 billion already lost), and we see nothing being done about this?

Just when do you suppose the Liberal Government is going to do something meaningful on this?

Do you remember the $13 Billion extra revenues that suddenly appeared in the Conservative Government's coffers, and that Flaherty/Finance Dept.
in his/its own words. "had no idea where it came from"

I suggest it came from Tax paid by income Trust owners.

Simply put, Owners of Income trusts earned income from disciplined companies that was then either spent or saved!
either way, Taxes had to be paid and the economy was stimulated.
i.e. If spent: GST, Provincial tax and Income tax had to be paid, not only by the Income Trust owner, but also by the companies or individuals
from whom the goods/services were purchased, and who profited from these purchases. Income taxes would also have to be paid by the "employees"
who were employed by these benefiting companies. This is a lot of tax revenue and a huge stimulus for the Economy as a whole!
If saved: a.) other than in an RRSP: Tax would still have to be paid by the recipient, and The Institutions with whom the income (now after-tax savings), was deposited, would have to pay tax on profits earned from the loan or use of these funds; Plus the loans would then also stimulate the economy by being in circulation.
If saved: b.) in an RRSP: The savings institution would pay taxes on the profits made by either holding/investing or deploying the "saved/invested monies" and
eventually the Saver would have to pay taxes once the funds were withdrawn anyway.
any event, the saved money would be in circulation in some form as it simply does not sit unused in an RRSP account. Even in a worst- case scenario,
the Saved funds act as a Pension fund for the Saver, further relieving the Canadian Government of having to pay a pension.

In Conclusion: Income Trusts were a massive boon to all Canadians, whether they owned them or not.

In addition, whether the tax revenue is paid by the individuals or the Corporations, who on earth in their right mind cares, as long as all of Canada prospers ? (Of course I realize there were individuals that cared, like the Head of Power Corp., who as an unregistered lobbyist, urged Harper to kill those Income trusts, because his own financial interests were being harmed by his low paying competing products. Then there was Manulife who's executives also benefitted from the Income trust Massacre, by launching a mere 6 days later, an "Income Plus" product "Guaranteed never to lose your money", and recently, had to be bailed out by their crony Flaherty with taxpayer money... or the other objectors, the directors of Bell/BCE who stood to lose millions in compensation, because if they were to allow their companies to become Income Trusts, the discipline imposed by the structure would severely inhibit their profligate lifestyle.)

Please be kind enough to explain to my why the Liberal Party and it's elected officials like yourselves, refuse to expose Harper/Flaherty's lies regarding the reasons for
imposing a devastating & punitive tax on income trusts, and why you especially Mr Ignatief, have missed this great opportunity to demand that the Income Trust fraud
be reversed as part of Harper's (and now your), new budget?

PM
Concerned, and increasingly disillusioned, Senior Citizen
Oakville, Ontario.

A budget fit for a King....Byng

On line poll:

The Liberals decided to support the Conservative budget with 'accountability' amendments. I think:

1. The 'accountability amendment' is not an adequate way to measure the effectiveness of the Conservative budget. The Liberals should not have supported this budget.

2. The 'accountability amendment' is an adequate way of measuring the effectiveness of the Conservative budget. The Liberals were correct to support this budget.

To register your opinion, Click here

All of Ottawa: Short of capital ideas

Short of capital ideas
Calgary Herald
Published: Thursday, January 29, 2009
Re: "Ottawa opens tap," Jan. 28.

The budget proves Stephen Harper and Jim Flaherty are out of touch with Main Street Canada. A 15 per cent renovation tax credit will do nothing to clean out the inventory of unsold and foreclosed homes in Canada.

These homes are dragging our economy down. Does Flaherty think I can't already negotiate a 15 per cent discount from a home renovator in this market? The Canadian economy is driven by its natural resources. Dropping the elimination of the income trusts would have driven exploration, it would have helped retirees' RRSPs and would have made money flow in the capital markets. Extending employment insurance does nothing to create jobs.


Job retraining is great, but if nobody is hiring, it does not accomplish anything meaningful. Building community recreational centres does not provide long-term economic benefit, and it will take a year or two to start these projects. Tax savings of an average $300 per year that we won't get until we file our 2009 tax return in 2010 will not encourage Canadians to spend.

Last, there is nothing to encourage corporations to invest in capital goods. Purchases of capital goods drive job creation.

Get capital flowing, let businesses create jobs, assist Canadians in buying homes, give the natural resource sector a reason to drill and invest in capital. It's just common sense.

Darrin Hopkins,

Calgary

Flaherty's income trust tax was for Power Corp and Manulife, what this renovation tax credit is for Home Depot

Budget measures raise conflict questions over Flaherty's expert panel
By Joanne Chianello, Ottawa CitizenJanuary 28, 2009 8:01 PM

See also: Stephen Harper leveled the playing field......in Paul Desmarais Jr's/Power Financial's favour

OTTAWA — One of the most popular spending initiatives in this week's federal budget could benefit the company run by one of the members of Finance Minister Jim Flaherty's 11-member advisory panel.

The Home Renovation Tax Credit will provide a 15-per-cent tax credit to homeowners who undertake home improvement projects by Feb. 1, 2010. The government expects the program to cost $3 billion over the next two years, and 4.6 million families to take advantage of the measure.

But one of the members of Flaherty's 11-member panel is Annette Verschuren, the president of Home Depot Canada and Asia.

Under the HRTC, costs associated with a renovation are eligible for up to $1,350 in tax credits, including new carpeting or hardwood floors, paint, kitchen cabinets, cedar decking — even new sod for the lawn.

The plan is expected to accelerate spending on home renovation goods and services.

The budget also provides $50 million to build a new research facility for the Institute for Quantum Computing, a research centre based at the University of Waterloo. Mike Lazaridis, the president and co-CEO of Research in Motion, helped found the institute, sits on its board of directors and has donated his own money to it. Lazaridis is also on Flaherty's economic panel.

When asked about the appearance of a possible conflict of interest between these two panel members and measures in this week's budget, a spokesman for Flaherty said that "everything's above board."

Chisholm Pothier said that the finance minister consulted the ethics commissioner about the advisory panel and "there were no problems identified.

"The key thing is the minister asked them, they did not ask the minister. They did not lobby the minister."

The ethics commissioner, Verschuren, and Lazaridis could not be reached Wednesday for comment.

Last month, Flaherty announced the creation of an 11-member advisory panel — mostly prominent business leaders — who were to advise him on the federal budget and the economy on an ongoing basis. He said the members would be paid $1 a year each for their insight.

The panel is chaired by Carole Taylor, former finance minister for British Columbia, and members include Paul Desmarais Jr., the co-CEO of Power Corp., James Irving of J.D. Irving Ltd. and Jack Mintz, former CEO of the C.D. Howe Institute.

The panel met four times — three times in person and once by conference call.

Mintz said Wednesday that although some panel members had very specific ideas for the minister, "the actual discussion around the table was much more on broad strategies."

He also acknowledged that some members of the panel may have talked to the finance minister "by themselves on specific ideas." Mintz said he himself had a one-on-one chat with Flaherty at the minister's request.

Of the short-term stimulus announced in this week's budget, the HRTC is "one of the bigger tax cuts."

The February 2010 deadline for the program is intended to prod those who might have been putting off home improvements to act quickly, in order to take advantage of the tax credits.

Projects totalling between $1,000 to a maximum of $10,000 qualify for the credits.

On Monday, Home Depot — which bills itself as the world's largest home renovation retailer — announced it is eliminating 7,000 jobs and closing specialty stores.

While acknowledging that Canadian retailers face serious challenges this year, Verschuren told reporters earlier this week that the cuts would not affect operations in Canada, where the retailer employs 35,000 people in 176 stores.
© Copyright (c) Canwest News Service

Harper promotes tax credits....and unsafe work conditions

Here we have a photo of Harper issued under the title of "Prime Minister Stephen Harper uses a nail gun while touring a home undergoing renovations in Ottawa yesterday".

Presumably this photo was intended to promote Harper's 15% tax credit for up to $10,000 worth of home renovations. Too bad, the people who were undertaking these renos won't benefit from this tax credit, since it only applies to expenditure incurred after Jan. 28, 2009. Or perhaps Harper was charging the homeowner for this work?

A more appropriate photo op would have been for Harper to go shopping at Home Depot, since those purchases would be sure to qualify.

Furthermore, Harper is probably a better shopper than he is a carpenter. This photo demonstrates that Harper has never held a nail gun in his life. A nail gun is not designed to be held by both hands. A nail gun in held by one hand, while the other hand is used to hold the work piece in place. Furthermore, why is Harper promoting the use of a nail gum without using protective eye wear. The Canadians Standards Association and Canadian work rules governing constriuction job sites require that protective eye wear be worn at all time when using a nail gun

No, it's the Liberals who are now on probation

I, for one, am completely bewildered by the actions of the Liberal party on this budget matter. What became of the the three bases upon which the Liberals said they were going to evaluate this budget? I guess they got replaced by what the Liberals believe are three opportunities to bring down the Harper government at a time more to the Liberal’s liking. If that’s the case, then the Liberal’s actions of yesterday were more about them, than it was about us?

Meanwhile, the Liberals are claiming that the events of the last two months demonstrate that Parliament works. Huh? If that’s the conclusion that the Liberals have come to, then they have a very low standard of what constitutes “Parliament working”.

No one can tell me that “Parliament works” when we have tax legislation enacted based on complete and utter falsehoods. Tax legislation that see 75% of Canadians saving for retirement taxed at 31.5% and the other 25% taxed at zero. Tax legislation that allows the 25% who are taxed at zero to split their retirement income with their spouses to dramatically reduce their tax burden, while the 75% who are taxed at 31.5% are denied this income splitting benefit. Tax legislation that, in effect, provides a tax subsidy to foreign investors to takeover Canadian companies and load them up with excessive amounts of debt, in order to not pay taxes. Taxes that were otherwise collected by Ottawa from the former Canadian owners.

The income trust tax is the biggest fraud perpetrated by the Canadian Government on the taxpayers of Canada. It has destroyed peoples lives and grossly diminished their standard of living after years of working in this country. It has seen $35 billion of their wealth destroyed at the behest of some of the most powerful (and totally self-serving) business people in this country.

The actions of the Liberals on the income trust file are deserving of a C for effort and an E for accomplishment. One has to wonder whether the income trust issue is only trotted out by the Liberals when they are seeking an opportunity to describe how much of a bold faced liar that Stephen Harper is, or when the Liberals want to pander to a certain constituency of oil and gas executives in Calgary? The Liberals have been given two great occasions upon which to bring about real changes to this egregious policy. One was when the 2007 Budget was before the Senate and the other was yesterday. In both occasions the Liberals failed to act and extracted nothing of tangible significance. Therefore, to borrow a concept from them, I am placing the Liberal Party on probation. So too should all Canadians who believe in the type of government that Barack Obama is bringing to the US, namely one whose policies are based on facts and not fiction. The income trust tax is based on complete fiction. Fiction that the Liberals seem willing to perpetuate, and to the detriment of all Canadians, especially the 75% who, unlike the politicians in Ottawa, do not have pensions.

I will share with you the following email that is typical of the reaction I am receiving from people who prior to yesterday were willing to consider the Liberals as an alternative to the Conservatives:

Brent,

Whereas I am completely on-side (as you know) with you on this issue, I am surprised that you’re surprised that your Liberal friends are not responding any more or better than the Tories. For some reason, you seemed to have thought (throughout) that they were in some way ‘better’ than the Tories or, the Non-Democrats or, the Bloc-heads but, they’re not.

You met with John McCallum and other senior Liberals if I recall correctly and they listened to you politely – after all you ran for the party – and we see now (when the rubber hits the road) that they don’t give a shit about honesty, integrity, transparency or accountability either! You handed them the PERFECT chance to bludgeon the Tories over an issue that is incredibly real and they just sleep-walked through it or, perhaps they too are looking for ‘contributions’ from Dominic D’Alassandro and the likes of Bell Canada in order to rebuild their battered party finances.

No one has done more than you to endeavour to seek something as simple as the TRUTH on a material matter that was so poorly handled and all that we have to show for it is that ‘they are all the same’ – no one in politics gives a shit about the truth or what’s right. It’s all about power and the obtaining thereof. The Liberals are no better than the Tories or Layton’s Non – Democrats or Gilles Deceipt’s Bloc….they’re all the same. It took me a long time to realize this but I’m finally there.

Hugh

Harper's Home Depot Budget

Budget measures raise conflict questions over Flaherty's expert panel

By Joanne Chianello, Ottawa CitizenJanuary 28, 2009 8:01 PM

OTTAWA — One of the most popular spending initiatives in this week's federal budget could benefit the company run by one of the members of Finance Minister Jim Flaherty's 11-member advisory panel.

The Home Renovation Tax Credit will provide a 15-per-cent tax credit to homeowners who undertake home improvement projects by Feb. 1, 2010. The government expects the program to cost $3 billion over the next two years, and 4.6 million families to take advantage of the measure.

But one of the members of Flaherty's 11-member panel is Annette Verschuren, the president of Home Depot Canada and Asia.

Under the HRTC, costs associated with a renovation are eligible for up to $1,350 in tax credits, including new carpeting or hardwood floors, paint, kitchen cabinets, cedar decking — even new sod for the lawn.

The plan is expected to accelerate spending on home renovation goods and services.

The budget also provides $50 million to build a new research facility for the Institute for Quantum Computing, a research centre based at the University of Waterloo. Mike Lazaridis, the president and co-CEO of Research in Motion, helped found the institute, sits on its board of directors and has donated his own money to it. Lazaridis is also on Flaherty's economic panel.

When asked about the appearance of a possible conflict of interest between these two panel members and measures in this week's budget, a spokesman for Flaherty said that "everything's above board."

Chisholm Pothier said that the finance minister consulted the ethics commissioner about the advisory panel and "there were no problems identified.

"The key thing is the minister asked them, they did not ask the minister. They did not lobby the minister."

The ethics commissioner, Verschuren, and Lazaridis could not be reached Wednesday for comment.

Last month, Flaherty announced the creation of an 11-member advisory panel — mostly prominent business leaders — who were to advise him on the federal budget and the economy on an ongoing basis. He said the members would be paid $1 a year each for their insight.

The panel is chaired by Carole Taylor, former finance minister for British Columbia, and members include Paul Desmarais Jr., the co-CEO of Power Corp., James Irving of J.D. Irving Ltd. and Jack Mintz, former CEO of the C.D. Howe Institute.

The panel met four times — three times in person and once by conference call.

Mintz said Wednesday that although some panel members had very specific ideas for the minister, "the actual discussion around the table was much more on broad strategies."

He also acknowledged that some members of the panel may have talked to the finance minister "by themselves on specific ideas." Mintz said he himself had a one-on-one chat with Flaherty at the minister's request.

Of the short-term stimulus announced in this week's budget, the HRTC is "one of the bigger tax cuts."

The February 2010 deadline for the program is intended to prod those who might have been putting off home improvements to act quickly, in order to take advantage of the tax credits.

Projects totalling between $1,000 to a maximum of $10,000 qualify for the credits.

On Monday, Home Depot — which bills itself as the world's largest home renovation retailer — announced it is eliminating 7,000 jobs and closing specialty stores.

While acknowledging that Canadian retailers face serious challenges this year, Verschuren told reporters earlier this week that the cuts would not affect operations in Canada, where the retailer employs 35,000 people in 176 stores.
© Copyright (c) Canwest News Service

When, if ever, will the Liberals hold Harper to account for his income trust fraud?

The Liberals are claiming victory today over Harper by introducing a budget amendment that will make Harper accountable for his budget measures. Some victory? Meanwhile the budget proceeds otherwise, as is, warts and all.

Meanwhile, what are the Liberals doing to make Harper accountable for his major budget transgressions of the past? Why the selective application of the standards of accountability? Are we to surmise from today’s Liberal actions that there is a statute of limitations that applies to Harper’s complete unaccountability for his income trust fraud?

We have been calling for true accountability on this matter for over two years, and have received none. Not from Harper. Not from the Auditor General. Not from the media. Not from the opposition parties. Notice that we haven’t been arguing for policy changes like an oil and gas carve out or a ten year extension, but rather the proof of Harper’s central policy rationale. i.e. alleged tax leakage.

The issue of income trusts is foremost, an issue about accountability, and tax fairness. When will the Liberals do something tangible about this policy that has seen Canadians lose $35 billion of their lifetime savings and seem many Canadians retirements’ destroyed by having to live on 50% of their former income? Rhetoric without action, is meaningless, and does nothing to comfort those who have been deeply adversely affected.

Meanwhile, all taxpayers are bearing the cost of this most self-destructive policy, since over $1.2 billion in annual tax revenue is being lost from the takeover of income trusts via non taxable entities and through non taxable acquisition structures. Real tax leakage has become the substitute for phantom tax leakage. That number will soon rise to $7.5 billion. If the Liberals do not act when the opportunity presents itself, then they become complicit in the outcome.

A plausible update required from Mark (Pollyanna) Carney

Mark Carney made statements in advance of Harper’s budget that Canada’s recovery would be quick. This was before the budget details were known. As such, we need an update from Bank of Canada Governor Mark Carney that:

(1) Outlines the incremental effect of Harper’s stimulus measures on Carney’s forecast, if any, in light of Harper’s $83 billion deficit budget

(2) Takes into account the contrary view taken today by the IMF:

IMF darkens outlook for Canadian economy

Updated Wed. Jan. 28 2009 12:13 PM ET

The Canadian Press

OTTAWA -- The International Monetary Fund is darkening its outlook for the Canadian and world economies, throwing into question some of the projections made by the Harper government in its budget Tuesday.

The new global outlook, released Wednesday, sees the world falling much deeper into recession than previous forecasts, but also projects a more feeble recovery than either the Bank of Canada or the budget assumes.

Budget plays to unenthusiastic reception in Whitby-Oshawa

CBC just played a news segment on the Budget based on the opinions of the residents of Whitby-Oshawa. All four of the people interviewed were either negative or decidedly unenthusiastic about Flaherty’s budget. No surprise there.

Which still leaves open one question. Why did the residents of Whitby-Oshawa vote for Flaherty in the last election?

Like the man himself, Flaherty’s deficit projections are not credible

Flaherty’s fiscal projections are completely lacking in any credibility. How can we expect Flaherty to estimate the deficit forecast for the next four years, if he has proven himself unable to accurately project the surplus/deficit for 2008? Flaherty was projecting a budget surplus for 2008 during the election of some $800 million. The real number is a DEFICIT of $1.1 billion, representing a swing factor of 2.4 times. How are we to place any faith in Flaherty’s ability to project our budget four years out, if he is unable to accurately project our fiscal situation a mere four months out?

The other concern that I have with Flaherty’s deficit budget is there is nothing in this budget that will reverse the tide of deficits apart form a whole lot of wishful thinking and finger crossing. Flaherty promised his budget would have provisions specifically designed to get us out of a deficit situation. Where are they? Meanwhile how long will it take to recover the $86 billion in deficits to be incurred over the next four years? 10 years? 12 years? Ten years would mean the year 2019. Tweleve years would mean the year 2021? If so, what became of Flaherty’s promise that Canada would have a net debt position of zero by the year 2021? What has that promise now morphed into? 2031? 2035? Never?
------ End of Forwarded Message

The Budget should play itself out in Parliament, and not in the press

The Liberals should have learned their lesson, when they pre-announced the formation of the Coalition, thereby giving Harper a chance to strategize and ultimately prorogue. Why play this thing out in the press? This whole thing should play itself out in Parliament. That might result in more people paying attention to Parliament and less attention to the press. It would also bring more power and meaning to Parliament.



Budget fundamentals 'will not change,' says Finance Minister Flaherty
2 hours ago
WHITBY, Ont. — As the federal Liberals consider whether to support the federal budget, Finance Minister Jim Flaherty says the basics will not be changed.
Speaking today from a Tim Horton's in his riding in Whitby, Ont., Flaherty said his spending plan reflects what Canadians want and need now. Liberal Leader Michael Ignatieff is to announce his decision late this morning on whether or not he supports the spending plan.
A senior party member says the party leader is unlikely to support the budget without requesting some changes.
Asked if there was wiggle room to address Liberal concerns, Flaherty said he would look at whatever the Liberals might propose, but added that the budget "fundamentals will not change."
Following Tuesday's budget speech, Ignatieff said the budget contains some positives, but also includes what he called "negative aspects."
Flaherty will also discuss his budget later today in a speech to the local chamber of commerce in Whitby.

Conclusion: Harper’s Budget fails to meet the three criteria laid down by Ignatieff

This budget should be approved or disapproved based on its own merit (or lack thereof), and not based on its secondary effects on the political fortunes of those in Ottawa. This budget is completely lacking in a vision for Canada, and represents nothing more than a hodge-podge of measures that meet certain political aims as opposed to any clear economic aims.

This budget should be rejected by the Liberals since it fails to robustly meet any one of the three criteria laid down by Michael Ignatieff, as follows;

(1) Protecting the most vulnerable in our society: A permanent tax break for those earning less than $80,000 is not protecting the most vulnerable in our society. Since when is $80,000 the threshold upon which to define “vulnerable”? Furthermore, it is deceitful of Flaherty to portray this as a tax cut for those earning less than $80,000, since those earning more than $80,000 will fully partake in this tax cut as well. The most vulnerable in our society are seniors and the unemployed. Giving seniors another $155 per year is a meaningless measure and the benefits extended to the unemployed in this budget are parsimonious in the extreme. Relaxing the rules on RRIFs will not cost the government $200 million as Flaherty claims. This calculation of this $200 million “cost”, is based on the same grossly flawed methodology used to create Flaherty’s bogus argument that income trusts cause tax leakage. Forced conversion of RRSPs into RRIFs serves no senior’s purpose except the life insurance companies as a captive market for their life annuity product.

(2) Protecting the jobs of today. I fail to see where the jobs of today are being protected in this budget, unless perhaps you work at Home Depot, and your job has been extended by another 13 months under the 15% tax credit for home renovations and building products. I guess it pays to be the CEO of Home Depot Canada and to be appointed to Flaherty’s Economic Advisory Council just in time for the budget. How much of the $85 billion of deficit that this budget will create is being dedicated to protecting the jobs of today? Harper fails to put a number of how many jobs of today are being protected by this budget? Canadians must take it on faith, how many jobs of today are being protected. Faith is not something that should be extended to Stephen Harper, given his past record of faith breaking.

(3) Creating the jobs of tomorrow. To the extent that this budget fails to meet Ignatieff’s criteria of protecting the jobs of today, this budget fails even more miserably at creating the jobs of tomorrow. This is the portion of the budget that requires a vision of where Canada should be headed and in what sectors Canada is best able to compete in creating well paying sustainable jobs for the future. Having such a vision requires leadership, that Harper has again failed to demonstrate. This is the part of the budget where government could begin charting the course for Canada’s involvement in new areas of economic activity. I see nothing in this $85 billion budget that is devoted to creating the jobs of tomorrow. As with (2) above, Harper fails to put a number in how many jobs of tomorrow are being created by this budget?

Based on Michael Ignatieff’s own criteria for evaluating the budget, this budget should be rejected by the Liberals. Approval of this budget by the Liberals will, on the other hand, require that the Liberals answer the question that Harper has failed to do, which is am explanation to Canadians of how the Liberals feel this budget will meet their self imposed criteria?

Even though Harper has failed to set targets for what his budget will achieve, that does not absolve the Liberals from the same exercise. If the Liberals approve this budget, it must be with some expectation about what the budget will achieve. What expectations are either implicit or explicit in the Liberal’s approval of this budget, since Harper has failed to disclose his expectations, apart from the cost side of what properly should be a cost-benefit analysis. What are the benefits as defined by Harper, or by the Liberals if they approve this budget?

After all, when was the last time you spent $85 billion on a budget, without any expectation or assurances by its architects of what those expenditures would achieve?

A budget without targets, is no budget at all

This budget will see Canada with at least $85 billion of increased indebtedness in four years’ time. That much is clear. Meanwhile this budget is completely lacking in setting out any of the objectives that it hopes to accomplish. Measurable objectives. Precisely how many jobs is this budget promising to create? Without stated targets, this budget is simply an exercise in throwing money at a wall, and hoping it sticks. Without stated targets, it is impossible to hold the government to account. Without stated targets, how do Canadians know what they are investing in? $85 billion in increased indebtedness, with no tangible targets concerning employment etc. is nothing more than a very expensive “shot in the dark”.

Obama's stimulus package that's making its way through Congress has stated employment targets, why doesn't ours? Oh yeah. Obama is a leader. Stephen Harper is not.

The Liberals should not support a budget that is lacking in measurable targets. Doing so would be to leave Harper unaccountable for his actions.....and OUR money.

Reminder: Carolyn Bennett is looking for budget input

My response to my MP, Carolyn Bennett:

Required Liberal Action: The Budget MUST contain a reversal of the income trust tax. Michael Ignatieff is telling us that “Canadians deserve the truth”. I totally agree, but these are merely words without action, if the Liberal party does not ACT NOW to reverse this income trust tax that was based on ZERO PROOF of alleged tax leakage. We know that argument is false. Time for the Liberals to call Harper’s bluff. Canadians’ retirement savings have been stolen, and their retirement income is being destroyed. Meanwhile all taxpayers are paying the price, because the $108 billion of trust tax related takeovers, is causing the loss of REAL taxes, of $1.2 billion PER YEAR. Left unaddressed, this number will rise to $7.5 billion PER YEAR!

Brent Fullard
St. Paul's

Ignatieff equates income trust tax to Harper's version of the National Energy Program

Click on advertisement to enlarge

Ignatieff appeared in Peter Mansbridge’s One on One this weekend. The topic came up about the income trust tax, which Ignatieff said the energy companies in Alberta are still very much reeling from. Igantieff went on to say that the income trust vehicle is/was a CRUCIAL investment vehicle in Canada’s energy sector. He made the comparison to the NEP.

You can view the show here, where the comment appears at the mid point of the interview:

http://www.cbc.ca/mansbridge/archives.html

Well, at least the Throne Speech proved itself "shovel ready"

Stephen Harper sure knows how to shovel it, don't you think? How disingenuous can one's present words and past actions be?

Honourable Senators,
Members of the House of Commons,
Ladies and gentlemen,

In these uncertain times, when the world is threatened by a struggling economy, it is imperative that we work together, that we stand beside one another and that we strive for greater solidarity.

Today, in our democratic tradition, Canadians expect that their elected representatives will dedicate their efforts to ensure that Canada emerges stronger from this serious economic crisis.

Once again, the people's representatives have gathered to consider the priorities of another parliamentary session.

Each Throne Speech is a milestone on the remarkable 142-year Canadian journey. Your predecessors, too, were summoned to this chamber at times of great crisis: as Canada struggled to claim her independence, in the shadow of war, during the depth of the Great Depression and at moments when great policy division tugged the very bonds of this union.

Today we meet at a time of unprecedented economic uncertainty. The global credit crunch has dragged the world economy into a crisis whose pull we cannot escape. The nations of the world are grappling with challenges that Canada can address but not avoid.

Flaherty recants on " I cannot and will not fund today's programs from tomorrow's revenues"

In an attempt to justify his income trust tax, Flaherty argued he was losing taxes by saying that the taxes paid by the 38% of trusts held in RRSPs were of no value to him, because he “couldn’t fund today’s social programs with tomorrow’s tax dollars”. Now this same person is about to engage in $64 billion of deficit spending!!!!.....which is simply a case of funding today’s social programs with tomorrow’s tax dollars.....creating a debt burden for our children to bear.

Did it not occur to Flaherty (at the very least?), that not all of Canada’s budgetary expenditures are incurred today, and that things like government borrowing create streams of interest payment obligations that could be funded by these stream of ongoing tax payments from income trusts held in RRSPs?.......had Flaherty not been so foolish as to kill the golden goose? The golden goose for government tax revenues and the golden goose for people, unlike him, faced with the huge task of providing income for retirement.

This week's Hill Times article: Harper and the taxation of income trusts

For the record: Harper and the taxation of income trust
A look at PM Stephen Harper’s defence of his reversal on income trusts.
THE HILL TIMES, MONDAY, JANUARY 26, 2009 15

By W.T. STANBURY

Politics is conducted in a dynamic world.Memories are imperfect—even for policy actions that resulted in a massive “train wreck,”( see The Hill Times, Sept. 22, 2008, p.12). My purpose is to provide a documented record of the Conservative Party’s promises concerning the taxation of income trusts prior to the Jan. 23, 2006 election, the reversal of its promises less than nine months after coming to power, and Stephen Harper’s defence of his reversal in Question Period.

The Conservatives’ promises:

Sept. 29, 2005: “Why does he [Liberal finance minister Ralph Goodale ] not stand in his place right now and say without equivocation that income trusts are here to stay and he will not implement taxes on them?” (Monte Solberg, Hansard, Sept. 29, 2005).

Oct. 3, 2005: “The feds are bent on raiding the nest eggs of seniors …. Changing the tax rules late in the game is mean, mean, mean. Our plans propose leaving seniors’ savings alone and helping thoseon fixed incomes.” (Stockwell Day, Penticton
Herald, Oct. 3, 2005).

Oct. 26, 2005: Opposition and Conservative Party leader Stephen Harper had an op-ed in the National Post, (p.A20). The key passages were as follows:

“Income trusts are popular with seniors because they provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine. They also provide tax relief from a government that is addicted to taking too much money from their pockets and spending it without care, and very often without meaningful results….So one must ask, why is the [Liberal] government clamping down on the retirement savings of seniors and investors?... But it gets worse. Instead of immediately moving to assure markets that income trusts are here to stay, the Liberals are justifying their actions in the coldest political terms. As one government member was quoted in the media as saying about income trust investors, ‘They have no constituency. They don’t count politically.’...It’s time to stand up to Paul Martin and stop his attack on seniors and investors.”

Dec. 2, 2005: Less than a week into the general election campaign, and after the minister of finance had announced on Nov. 23, 2005, that he was suspending the public consultation process regarding income trusts, and had proposed an enriched tax credit for
dividends (as opposed to a tax on income trusts), Stephen Harper said the following on Global TV: “They [the Liberals] showed us about their attitudes towards raiding seniors’ hard-earned assets, and a Conservative government will never allow either of these parties [referring to the NDP which wanted to tax income trusts] to get away with that.”

Dec. 9, 2005: “Only the Conservatives will give seniors security by pledging to levy no new taxes on income trusts.” (Conservative Party of Canada, Issue Backgrounder, “Security for Seniors,” Dec. 9, 2005).

Jan.12, 2006: “A Conservative government will ... preserve income trusts by not imposing any new taxes on them,” (Conservative Party of Canada 2006 Platform: “Stand Up for Canada,” Jan 12. 2006, p. 32).Jan. 13, 2006: “… we will … help them [seniors] benefit from their own savingsand not monkey around with their income trusts,” (Stephen Harper, Campaign Speech in Oakville, Jan. 13, 2006).

The Actions:

On the evening of October 31, 2006—without any public consultation—Finance Minister Jim Flaherty announced a 31.5 per cent tax on the distributions of income trusts, effective in 2011 for existing trusts. Within a week, the market value of the income
trust index for the TSX fell by $35-billion. Harper’s justification: Prime Minister Stephen Harper’s personal defence or justification of his reversal of his promise on the taxation of income trusts in less than nine months—a promise that was said to have
contributed to his election as a minority government—had the following characteristics.

First, the PM responded to questions in the Commons on only two days, Nov. 1 and 2, 2006. Details are provided below. Thereafter, Harper left the task of responding to the opposition in Question Period to his Parliamentary secretary and the minister of finance.

Second, Harper’s defence of the new tax never mentioned the government’s assertion (later debunked) of “tax leakage” of $600-million in 2006—yet this was central in the justifications by Finance Minister Flaherty then and during the following year.

Third, Harper’s written public communications on the trust tax issue appear to have been limited to a generic email reply to persons who had emailed him criticizing his actions, and an email to all MPs in response to an email to all MPs by Brent Fullard, who later created and led the Canadian Association of Income Trust Investors. Mr. Fullard also ran unsuccessfully against Mr. Flaherty in the last election.

For the record, I quote the (edited) exchanges in Question Period involving the PM. Here are those on Nov. 1, 2006.

Liberal MP Bill Graham: “...in his election platform, the Prime Minister stated, ‘A Conservative government will preserve income trusts by not imposing any new taxes.’ Canadians who voted for the Prime Minister did so based on a deception... Why did he engage in a deception of such monumental and costly proportions to all Canadians?”

Prime Minister Harper: “… let us be absolutely clear. The commitment of this party was not that we would have no taxes for Telus. It was not that we would have no taxes for BCE. [Recall that the announcement by Telus Corp. on Sept. 11, 2006 that it planned to convert to an income trust, and a similar announcement by BCE Inc. on Oct. 11, 2006 were repeatedly said by the finance minister to be important events precipitating the trust tax.] It was not that we would have no taxes for foreign investors, or no taxes for major corporations. It was a commitment to protect the income of seniors. The minister of finance has brought in an age credit [part of the so-called “tax fairness plan” of Oct. 31, 2006, but worth only $155 per year]. He has brought in pension-splitting [benefiting only 15 per cent of seniors—also announced on Oct. 31]. He is imposing fair taxes on the corporate community. I challenge the Liberal Party to support those things.”

Mr. Graham: “Mr. Speaker, that is not what he said in the election…..He gave his word, Canadians acted on his word. He then broke his word.”

Mr. Harper: “Contrary to what the leader of the opposition says, lots has changed with income trusts in the past year, including tax holidays for major corporations. [It is not clear to what the PM was referring], which this government does not and will not support.

Mr. Graham: “…The Prime Minister said…over and over again that he would preserve income trusts and that he would never impose new taxes on them... How can he justify the losses caused by his false promises?”

Mr. Harper: “... the Leader of the Opposition and his party have a choice. They should support income splitting for pensioners, they should support higher income for seniors and they should support fair taxes for large corporations. It is up to them.”

On Nov. 2, 2006, the PM was involved in the following exchanges:

Mr. Graham:…“Will the Prime Minister apologize to Canadians for the false promises he made during the election campaign?”

Mr. Harper: “The Government of Canada has responded to market changes that would have resulted in big corporations in this country paying no tax, while individuals paid more. ... I should add that I fail to understand why the Liberal Party of Canada supports a zero taxation rate for big corporations [this is not true] and is opposed to tax cuts for seniors.

Mr. Graham: “... This is not about corporations. It is about Canadians from all walks of life who have lost their savings....It is about Canadians on main street who feel cheated... Will the Prime Minister at least admit that he misled Canadians and
offer them an apology?”

Mr. Harper: “…everyone in this country knows that in the last few months what we have seen is the beginning of the conversion of major corporations to income trusts, which would have resulted in them paying no taxes whatsoever [this is simply not true] and which would have shifted the tax burden to ordinary Canadians. [This is also not true]. That is not fair. That is not what this government promised.”

Mr. Graham: “…We hear a lot from that party about accountability, but who over there is accountable to average Canadians who lost their money because of this Conservative double-cross? ...How does the Prime Minister explain his duplicity to those Canadians
who believed in him and have seen their money go up in smoke because he is now not willing to be accountable to them?”

Mr. Harper: “…if the Liberal Party had its way and corporate Canada paid no tax whatsoever, all of the tax burden would shift to ordinary people and senior citizens. That is why this government has acted... This government has given a four year window before these changes take effect so that people can make adjustment...”

Liberal MP Lucienne Robillard: “… the current circumstances are not any different from those of a year ago. The only thing that has changed is the minority Conservative government’s promises. The Prime Minister promised free rein to income trusts, and now
he acts surprised to see that so many companies availed themselves of it. Why does the Prime Minister not have the courage to say to Canadians that he made a promise, he broke it and he is sorry? It would be so easy to say.”

Mr. Harper: “… once again, this government will not apologize for trying to protect the interests of individuals and a tax system that makes big business pay its fair share.”

Conclusions:

One, Harper and other leaders of the Conservative Party very clearly and repeatedly, orally and in writing, promised Canadians that they would not tax income trusts.

Two, Harper’s defence of the huge trust tax involved a lie when he denied that that his party had promised not to tax income trusts.

Three, the PM made no substantive response to any of the questions posed to him. Instead, he attacked the Liberal Party and made false statements about its position on the taxation of corporations.

Four, Harper’s reversal of his promise and his defence of it are exactly this type of behaviour that leads citizens have such a poor opinion of politicians and accord them such a low level of trust (below that of car salespersons).

The Hill Times

A self-funded budget proposal, creating immediate stimulus to Canada's economy

I would institute the following four broad measures to provide immediate stimulus to Canada’s economy:

(1) Reverse the income trust tax, to restore the collection of taxes on corporate earnings, in amounts greater than is otherwise collected from these companies, while at the same time providing a means of retirement income for seniors and those saving for retirement. Such a measure would stimulate direct investment in the Canadian economy and provide Canadian companies with immediate access to much needed investment capital, and a low cost of capital competitive advantage.

(2) Institute personal tax reductions of $15 billion a year, targeted at low income and middle income Canadians

(3) Institute an increase in the GST rate from 5% to 7% effective, January 1, 2011, which represents $15 billion in additional annual tax revenue for the government, sufficient to fully fund the tax cut in (2) above. The effect of (2) will also be to put more money into the hands of consumers, and the effect of the two year holiday on the GST increase will mean that more of that increase in after tax income will be devoted to consumer expenditures, than would otherwise be the case, since the “ GST tax window” would accelerate large ticket purchases by consumers on items like cars, home renovation, appliances etc. The other obvious effect of these two measures is they would, in combination, avoid creating any ongoing structural deficit whatsoever.

(4) The remaining portion of any budget initiative that I would institute would be devoted to expenditures in infrastructure, with an emphasis on green infrastructure, such as investment in wind and solar and creating high speed rail links in places like the Windsor-Quebec City corridor. These projects would be done on a basis that allows for investment participation by Canadians through their personal savings and RRSPs, to the extent possible, rather than the type of Private-Public-Partnerships that Flaherty is contemplating, that (no doubt) will favour offshore investors like MacQuarrie Infrastructure Group (part owner of Flaherty’s 407 give-away). To the extent to which these infrastructure projects can be funded with investment by average Canadians, they will not create deficit spending by the government and again provide a means for average Canadians to invest in Canada, rather than simply offshore investors and those 25% of Canadians who belong to pensions.

Flaherty's about face

Flaherty's about face

How the finance minister went from $100-million surplus to $34-billion deficit in less than 60 days

By James Bagnall, The Ottawa CitizenJanuary 24, 2009

Finance Minister Jim Flaherty's sudden conversion to deficit financing is pure pragmatism. If the Conservatives spend too little, they could very well lose the next vote in Parliament -- and with it, the government. The change in tack has been made easier by the country's enviable financial strengths.

Jim Flaherty's epiphany came within days, perhaps hours, of his Nov. 27 economic statement. The finance minister had predicted five years of budgetary surpluses on the strength of continuing economic growth.

"The days of chronic deficits are behind us," he told Parliament. He was dead wrong, and by early December, he knew it.

Even as Mr. Flaherty was speaking, Canada's job and housing markets had slipped into reverse, energy exports were plummeting and the auto sector was a wreck.

More than 250,000 Canadians -- 1.5 per cent of the workforce -- are now expected to lose their jobs in 2009, according to economists at the TD Bank.

Which is why, on Tuesday, Mr. Flaherty will publish a budget that just two months ago he could not have imagined writing.

He is expected to show a spending shortfall of $34 billion for the fiscal year ending March 31, 2010, and another $30-billion gap the year after that -- the federal government's biggest deficits since the mid-1990s.

How did Mr. Flaherty and his fellow Conservatives not see the writing on the wall sooner? Hubris, optimism, disbelief? Maybe a little of each. There was also the influence of economists, the majority of whom did not begin forecasting economic recession until December.

Nevertheless, there were plenty of portents that something was profoundly amiss. The stock markets had collapsed in September, and the Bank of Canada had been intervening to support Canada's financial system since Aug. 9, 2007 -- when the closure of three subprime mortgage investment funds managed by BNP Paribas, a French bank, signalled the onset of the credit crunch.

Within hours of BNP's action, Canada had its own credit crisis as $32 billion worth of corporate notes, many of them created by Coventree, failed to find buyers. These and other asset-backed securities were converted to bonds only last week.

In 2007 and much of 2008, the consensus view among central bankers and politicians was that the credit contagion had been confined to the financial sector. But last fall the infection spread to the real economy.

Had the Conservatives moved to stimulate earlier, there's little question they could have helped to soften the downturn that began in the last months of 2008.

Mr. Flaherty is trying to make up for lost time. Up to $15 billion of the projected spending deficit for the current fiscal year reflects lower-than-expected tax revenues, according to calculations by Dale Orr, an economist with IHS Global Insight Inc. The rest represents the costs of Mr. Flaherty's stimulus programs.

The amount earmarked by Mr. Flaherty for extra spending will depend on its use. A massive program to refurbish bridges, highways and other infrastructure will take time to organize and implement, and will likely have to be spread over several years.

If the Tories decide the emphasis should be tax cuts or capital infusions to shore up the country's banks and federal lending institutions --such as the Export Development Corp. and Canada Mortgage and Housing Corp. -- then huge amounts can be allocated almost immediately.

Mr. Flaherty's sudden conversion to deficit financing is pure pragmatism. If the Conservatives spend too little, they could very well lose the next vote in Parliament -- and with it, the government.

The Tories' change in tack has also been made easier by the country's enviable financial strengths.

Until this year, Canada was the only major industrialized country with a government that spent less money than it took in. Not only that, government debt last year was slightly less than 30 per cent of the country's annual economic output -- down from nearly 70 per cent in the mid-1990s. This makes Canada the least indebted of the G-7 nations by a fair margin.

Even if Mr. Flaherty racks up more than $100 billion worth of cumulative deficits over the next five years, as he conceded this week is likely, Canada should readily be able to manage the extra debt load.

Of course, all of this pre-supposes that Canada's economy will grow again in the second half of 2009, as predicted Thursday by the Bank of Canada.

Is this realistic? One of the most unsettling parts of the global credit crisis has been its violent and unpredictable swings. Even now, more than two years after the United States' subprime mortgage lenders began filing for bankruptcy protection, no one

can say with any certainty whether we are most of the way through this mess, or just beginning to sort things through.

Independent economists have been frantically revising their forecasts as new pieces of intelligence emerge, each more depressing than the last.

A Bloomberg survey of 10 economists last October suggested Canada's economy would grow at an annual rate of 0.3 per cent during the fourth quarter of 2008.

Earlier this month, the consensus forecast had shifted dramatically. The same group predicted the economy had contracted 2.1 per cent in the fourth quarter, a performance that would now be followed by at least two more quarters of reduced economic output.

While mainstream economists often miss the turn into a recession, this one has been particularly difficult to chart accurately.

That's because the credit crisis is different. The recessions in the early 1980s and early 1990s were induced by central bankers keen to keep the economy from overheating. The Bank of Canada pushed interest rates so high that eventually consumers and corporations reined in their borrowing, and the economy slipped into reverse for several quarters.

In earlier recessions, re-igniting growth was relatively simple. The central banks cut interest rates, prompting a new round of borrowing by consumers and homeowners.

The Bank of Canada and its counterparts are applying the same fix, but to far lesser effect. That's because, in this case, the financial system itself is broken, and this is much more difficult to fix than the economy.

The root of the problem is that the financial industry created immensely complicated investment products -- securities based on mortgages and other assets -- that no one really understood, and which could not be properly priced.

When the housing markets weakened in 2007, there were few takers for these exotic investments. Since many of the latter were funded with short-term money (notes that matured in months, rather than years), the financial system very quickly froze.

That wasn't the only problem. Many of the finance industry's assets were on the books of a new class of quasi-banks, also known as the shadow banking system. Its members included hedge funds, investment banks, private-equity providers and non-bank mortgage lenders shared two common features. They were aggressive, and they aren't covered by deposit insurance.

At its peak, in 2007, New York investment bank Bear Stearns had $33 in loans for every $1 in bank capital -- three times the ratio maintained by the more conservative Canadian banks.

Once Bear Stearns acknowledged the weakness of its loan portfolio, investors began to doubt the firm's staying power. Bear Stearns was acquired for a pittance last March by Bank of America -- a regular, deposit-taking institution.

The unwinding of the shadow banking system has occurred with astonishing speed in the U.S. But investors, businesses and employees alike are still bracing for ugly surprises in the quarters to come -- all of it related to the ability of corporations to keep solvent.

When employers and lenders are busy preserving capital, they are not creating jobs or stimulating economic growth.

Mr. Flaherty and his advisers have no clear idea how long this dangerous phase of the economic cycle will last.

Should they have acted sooner to head it off?

Certainly there were many who warned that financial calamity was on the way. Robert Shiller, an economics professor at Yale University, warned in 2004 that a housing bubble was forming.

Raghuram Rajan, a professor at the University of Chicago's Booth Graduate School of Business, presented a paper in 2005 that concluded the world's financial systems were developing in a manner that exaggerated risk.

And Nouriel Roubini, an economics professor at New York University's Stern School of Business, has published a well-read blog for more than a decade, warning about the implosion of the financial services industry.

But their analyses failed to offer insight into how or when it might unfold, and indeed, their misgivings continued against the backdrop of ever-rising home prices, which peaked in 2006.

Mr. Roubini and Mr. Shiller were dumbfounded at the equanimity of investors in 2007, when the illiquidity of the shadow banking system first became apparent.

Perhaps it was central bankers' quickness in pumping liquidity into the system, or maybe it had to do with the fact no one really understood the makeup of the complicated securities that lie at the heart of the new financial universe.

"The financial system is so complex, non-linear and chaotic," wrote Niall Ferguson in The Ascent of Money, "it's hugely difficult to forecast the timing of financial crises."

Alan Greenspan, the former chairman of the U.S. Federal Reserve Bank, noted in his recently published biography that great improvements in technology, financial software and banking infrastructure had made it possible for the industry to tolerate significantly more leverage (debt).

"A surge above what newer technology can support, invites crises," he noted, "I am not sure where the tipping point lies."

What shocked Mr. Greenspan in the end was the puzzling refusal of the financial heavyweights to protect themselves against a worst-case outcome. Why didn't they keep enough liquidity on hand to safeguard the institution?

This is where Mr. Rajan could have helped Mr. Greenspan -- who happened to be in the room when the Chicago academic delivered his paper. Mr. Rajan warned the new world of finance was incorporating pay incentives that offered huge benefits to financial services executives in a rising market, but imposed a small penalty for making bad calls. Risks were being discounted, greed celebrated.

The stewards of national economies -- Canada's included -- were also infected by hubris.

The Western World's central bankers had steered the economy through a massive tech bubble, and had avoided a serious recession for nearly a generation. There was a widespread belief -- supported by blind hope -- that everyone would muddle through.

Canada's Conservatives, starting with their Finance Minister Jim Flaherty, now understand that's not the way it's going to be.

E-mail jbagnall@thecitizen.

canwest.com

This guy Mintz is extremely bizarre!

Yves Fortin comments on the recent bizarre article by Jack Mintz, he of forked tongue amd hypocritical logic:

Mintz now laments the low return on pension fund investment and fears this will threaten their ability to pay adequate pension to retirees. But this is the same guy who pushed Harper and Flaherty to destroy the sole high yield investment vehicle in Canada under the still unproven pretense of tax leakage, namely the income trusts. The destruction of income trusts has dealt a very severe blow to retirees and pension funds. The economic crisis is amplifying the destructive effect.

Moreover while Mintz often decries (correctly) the gross unfairness of double taxation of dividends, the Harper tax on income trusts that he encouraged, is making the problem even worse as it extends double taxation to trust distributions received by pension funds and RRSP/RRIF. In a similar manner, Harper and Flaherty often say (correctly) that we are paying too much tax. But their tax on income trust distributions constitutes a net tax increase and is making the problem of excessive taxation and unfair double taxation worse. Pensions funds and retirees are getting a double whammy.

The attack on income trusts is a total disaster for retirees and people nearing the age of retirement. Moreover , it could not have been introduced at a worse time for the Alberta oil patch where the oil and gas trusts are playing a very significant economic and financial role And then you have a hord of "analysts", "experts", "journalists", "professors" and politicians who regularly express deep concern about the rapid aging of the population and the financing of retirement, and in the same breath applaud Harper's destruction of income trusts. Are we hellbent on self destruction in this country?

Yves Fortin


Jack Mintz: The unbearable heaviness of pensions
Posted: January 23, 2009,

The average return on investments in bonds and equity is not sufficient to fund overly generous defined pension plan benefits paid to retirees By Jack M. Mintz

An issue quietly making it to the front burner as this global recession takes its toll on the Canadian economy is the viability of company defined benefit plans. These plans, providing workers with an annual pension — typically 2% of the average salary in their last five years times years of service — are becoming an albatross for many cash-constrained companies that are now facing a large funding shortfall.Some businesses might be pushed towards bankruptcy since financial institutions would be hard pressed to lend money to cover pension deficits. Federal and provincial governments are clearly worried since jobs could be lost, aggravating an already bad economy.

Recent financial distress is the current source of the problem. As one test, a defined benefit plan is in deficit on a solvency basis when its liabilities — the discounted (time) value of pension benefits paid to workers — are more than the market value of its assets.

This year’s market has blown up deficits to new highs. Not only have asset values declined sharply but the government bond rate used to discount future pension liabilities to today’s values has dramatically fallen as the Bank of Canada makes every effort to bolster the economy.

To soften the impact of pension plan deficits on contribution requirements, Jim Flaherty, federal finance minister, announced in his beleaguered December economic statement the extension of solvency funding payments from five to 10 years as well as some other proposals.

And just this month, a new federal study of pension plan solvency has been announced. Several provincial governments are expecting to take action. Quebec has been first with its promise to take over the management of insolvent private pension plans with a five-year guarantee of payments to pensioners.

An underlying question is whether defined benefit plans are needed. After all, a company’s promise to provide a pension at the end of a person’s life seems a bit odd these days with employees frequently quitting one firm to go elsewhere for new opportunities. Pension plans may be transferable to other plans or rolled over into a locked-in RRSP but the terms for withdrawals are less flexible compared to an ordinary RRSP.

Where defined benefit plans become important to workers is with respect to risk. Fully funded defined-benefit pensions paid to employees generally do not depend on the investment experience of the fund. Instead, employers, who are in better position, absorb investment risks inherent with pension funding. Risks could be avoided substantially if all retirement assets are invested in safe bonds but contributions to retirement savings would then need to be much bigger. The fact that employers are willing to take on risks through defined benefit plans is the main benefit to workers.

However, in recent years, legal and regulatory decisions have resulted in extra risk costs imposed on employers who became responsible for the deficits but not the surpluses that could be given to employees upon partial windups. These surpluses could arguably be used to fund future pension benefits, given the uncertainty inherent with actuarial valuation. Many defined benefit plans have therefore operated with small deficits for this reason.

Thus, with the recent economic shock to the Canadian economy, defined benefits typically running at small deficits are now in the tank. To solve the problem, only three actions can be taken – increase contributions, raise the interest rate to discount future pension liabilities or reduce benefits.

Employers and employees are pushing to relax regulations, such as by extending periods taken to fund the pension plan, reducing the solvency ratio (assets to liabilities) to a level such as 85%, or using a higher interest rate to discount future liabilities to avoid triggering payments to make up pension plan shortfalls.

These measures to relieve businesses from making larger contributions simply shift risks to the future without really solving the funding problem. The real message in all this: The average long-run return on investments in bonds and equity, net of transaction costs, is not sufficient to fund overly-generous defined pension plan benefits paid to retirees.

Other approaches have been considered. In the past decade or so, businesses have shifted from providing defined benefit pensions to other forms of retirement savings such as defined contribution pension plans and RRSPs held by workers. In both cases, the pension received by workers is based on the risky investment performance of the plan. Unless the assets are held in relatively safe bonds — thereby making them more expensive to fund retirement income — employees face significant risk depending on investment performance.

Unfortunately, new retirees are discovering how important risk is with current market conditions. It is not fun to find accumulated wealth being hammered by today’s stock and bond markets.

Some are also calling for government pension fund guarantees, government sponsorship of new funds or hikes in Canada/Quebec pension fund payments and payroll taxes.

These solutions only offload risk onto someone else. Of course, this has been the problem in financial markets in the past 15 years, with people thinking that risk could be avoided by spreading it through global financial markets. Instead, today we look at measures to pass risk to governments and taxpayers.

The one solution that could help defined benefit plans has escaped debate — lower pie-in-sky benefits. There is no free lunch.

Jack M. Mintz is the Palmer Chair of Public Policy, School of Policy Studies, University of Calgary.

Experts on CBC’s The National call for reinstatement of income trusts to solve our economic woes

Last night there was a segment on CBC’s The National where the experts who appear on the CBC show, Dragons Den, where asked to provide advice on how the government can best go about stimulating the economy. Jim Treliving founder of Boston Pizza, was the first to make the point that the Government’s killing of the income trust investment vehicle served to destroy and important form of capital investment. The other participants in the show all agreed and concluded that income trusts should be reinstated to revitalize and grow our economy at NO COST whatsoever to the government.

This person said it even better, here

Scrap the tax.....or scrap the government

Scrap the tax
Published: January 23, 2009 4:00 PM
Vernon Morning Star
BC Local News

With increasing job and stock market losses and decreasing home values, Canada needs positive and sustainable economic changes. I’ll gladly accept the interest rate cut you’re going to hand out next week but can’t help but think of other measures that could be taken that would provide Canadians with economic benefits that are more sustainable.

It seems almost all ideas about how to best stimulate our economy have been focused around the creation of new monies.

We all know that it was artificially low interest rates, and therefore excess new money creation (read: inflation), were one of the main reasons we are in the economic mess in the first place.

Creating even more new money to solve the problem of excess money creation will only be a band aid fix at best. The cocaine addict feels better moving to heroin but still has to pay the ultimate price sometime, ie: it’s not a sustainable fix.

I feel very strongly that eliminating the proposed new tax on income trusts would go a long way towards sustainable and positive economic growth.

Aside from putting more money in the pockets of Canada’s largest demographic, allowing income trusts to operate as they did would allow the small to mid-sized companies that make up the majority of the income trust space to grow and create new jobs.

It is very tempting at this point to go over all the sketchy details surrounding the proposed income trust tax that don't make sense.

I won’t go into detail here but, these are just a few of the concerns:

BMO Capital Markets study showing income trusts create more than twice the tax revenues compared to corporations

Lost capital gains, increased capital losses and lost distributed income taxes not reported

Most of the 18 pages of the government document showing apparent tax leakage being blacked out even though the document was requested under the Freedom of Information Act

The misrepresentation that Stephen Harper gave in his campaign to not tax income trusts

Regardless of those facts and many others, the question becomes: what can we do here and now to stimulate our economy, while preferably not creating even more inflation?

Providing Canadian retirees and pre-retirees with a sustainable source of monthly income that is generated from Canadian companies, that in turn would create more jobs and therefore an economic circle that would allow Canadians to take care of Canadians makes nothing but sense.

On behalf of all our clients and all investors across Canada I implore you to eliminate the proposed ‘Tax Fairness Plan’.

Canada is still one of the best countries in the world but I’m sure many around the world have joined Canadians recently in scratching their heads over decisions made over the last few years with our income trust debacle, Alberta royalty taxes and proposed coalition government etc.

Dramatic changes can only happen under dramatic circumstances.

These are dramatic times and I therefore propose a challenge to all Canadians: Write your local MLA’s, write your party leaders as well as the Finance Minister and Prime Minister.

Income trusts should never have been taxed in the first place but, unless we the people do something about it by taking action, nothing will change.

Trevor J. Perepolkin

TD Bank's CEO proffers up government backstop to investors, that doesn't actually exist?

Toronto-Dominion CEO ‘Wrong’ to Suggest Aid Guarantee

By Theophilos Argitis and Sean B. Pasternak

Jan. 23 (Bloomberg) -- Toronto-Dominion Bank Chief Executive Officer Ed Clark was “absolutely wrong” to suggest the bank had the implicit promise of a bailout under any circumstances, a senior Canadian government official said.

There are “no guarantees” for companies that make “stupid decisions,” said the official yesterday in Ottawa, who spoke on condition he not be identified.

Clark said Jan. 8 that preferred shares the bank was planning to sell were attractive because investors considered them effectively backed by a government guarantee. “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” Clark told investors at a conference in Toronto sponsored by RBC Capital Markets.

The government official’s response to Clark’s comments came just five days before Finance Minister Jim Flaherty releases his budget, which will include stimulus spending and measures to bolster the availability of credit to jolt the economy out of recession. The plan will include new powers for the government to inject capital into banks if necessary, Flaherty has said.

Flaherty has said access to credit is the No. 1 concern of business owners and last month blamed banks for not doing enough to increase lending.

New measures might include efforts to revive Canada’s market for short-term corporate debt and bolster credit for car purchases, Flaherty told reporters this month.

Already, the government is providing guarantees on more than C$200 billion ($162 billion) of bank debt and has pledged to buy as much as C$75 billion in mortgages from banks to free up cash for loans to consumers and businesses.

Clark told the conference this month that Canadian banks may stand alone among global lenders in not requiring government help.

“The base point Ed was making is that Canadian banks are in a position of strength, and he clearly credits the role the government has played in how the banks have fared on a global basis,” bank spokesman Simon Townsend in Toronto said in an e- mailed comment.

The government official said the financial support is aimed at industries “facing challenges,” and not intended as an “insurance policy” for badly managed companies.

Canadian banks have raised about C$9 billion in capital since the end of October through stock sales to bolster balance sheets amid the recession. The average profit at Canada’s six main lenders declined 37 percent for the year ended Oct. 31, driven lower by about C$14 billion in combined debt writedowns.

Toronto-Dominion has raised C$2.93 billion selling preferred shares, common shares and capital trust notes since October. The bank said it will raise as much as C$375 million from a preferred share sale announced yesterday.

Toronto-Dominion, Canada’s second-largest bank, fell 84 cents, or 2.1 percent, to C$38.83 at 4:16 p.m. in Toronto Stock Exchange trading. The stock has fallen 43 percent in the last 12 months.

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Sean B. Pasternak in Toronto at spasternak@bloomberg.net.
Last Updated: January 23, 2009 16:19 EST

Today's Ignatieff Speech: Moving Forward from Hardship to Hope

January 23, 2009
Check against delivery

Moving Forward from Hardship to Hope
The Canadian Club of Toronto and the Empire Club of Canada

Thank you Helen (Burstyn) for that warm introduction.

And thank you to Ucal Powell, Tony Iannuzzi and the members of the Carpenters’ Union for sponsoring this event.

The Carpenters’ Union was instrumental in proposing the country’s first national infrastructure program 15 years ago.

Of course, in those days, it was run by a Liberal government, so the funds were not just announced, they were actually spent – and they put people to work right away, not in a few years’ time.

I appreciate this opportunity to meet with both the Canadian Club and the Empire Club.

And it is always great to be in the riding of my friend of 40 years – Bob Rae.

I am pleased to be here, even if the President-elect of the Canadian Club, John Capobianco, ran against me in Etobicoke-Lakeshore. He was a worthy opponent, and I salute him as a man and as a citizen.

As I look around the room today, I believe that the audience is split fifty-fifty in terms of political support.

Half of you are big fans of Prime Minister Harper.

And the other half are huge supporters of … President Obama.

The Empire Club and the Canadian Club are institutions that have always mattered to my family.

My great-grandfather—a proud New Brunswicker named George Parkin—spoke to the club.

My grandfather—a Russian émigré named Paul Ignatieff—spoke to this club.
My Dad spoke to this club in 1969.

He said then: “Those to whom this opportunity is offered, I realize, have to be brilliant, or original, or both. Since there is difficulty in being brilliant when you are trying to be original, and being original when you are trying to be brilliant, I shall merely try to be informative.”

I’ve been travelling coast to coast with the leaders of my economic team—John McCallum and Scott Brison—holding town halls with business and union leaders, students, legislators, seniors, representatives of a wide range of communities, and Canadian citizens from all walks of life.

You can’t lead if you don’t listen. We’ve listened.

I have listened to heartfelt stories about lost jobs, small businesses on the edge, fears about paying for drugs for sick children, worries about having to go to the local food bank.

I have heard troubling questions.

How will I ever get my first job?

Have I seen my last job?

How do I tell loyal employees that we are closing down?

How will we help our kids with their college funds?

A large number of Canadians tell me: “Well, I’ll get by but I am worried about my neighbor … or my co-worker.

We’re a people who look out for each other.

We must not lose this.

Recessions can divide a country, make us mean, turn us selfish. We must not let that happen.

We need to take inspiration from each other. That inspiration is all around.
One day, I was standing on the platform at the Union Station subway stop when a woman came up and wished me luck.

I asked where she was from and she said Oshawa.

She was on her way to the YMCA for some job counselling. I asked why and she said: she was a tool and die maker and GM had let her go.

I said, “You must be worried” and she said, “You bet. I’m a single mom and I’ve got one kid in university and another finishing high school, and it all comes down to me.”

“But we’ll get there”, she said.

And with spirit like that, we will get there.

We will get there together.

I’m in politics to help that woman get there: get the job training she needs, get the next job, get her kids through university and make sure she has a secure and happy retirement with her grandchildren.

She needs a government as strong and resourceful as she is.

Those of us in elected office cannot fail her.

We need to stand together as a country.

We went into this time of turmoil together and we must come out together: more united, more competitive, more confident than ever.

I know we can.

We Liberals understand about leadership in tough times.

Canadians turn to us when times are tough.

Canadians remember.

Sound fiscal management, repeated surpluses, debt reduction, and tax cuts on profits, revenue and income. Strong financial performance and forward-looking social policies.

Canadians remember -- we cleaned up the $42-billion deficit left behind by the Mulroney years.

We slayed that deficit, but at a steep cost.

Today, Mr. Harper is taking us back to those tough Tory times.

Just yesterday, he signalled that we should be prepared for a $64-billion deficit in the next two years alone. He wants to get the bad news out of the way before the budget.

I asked Mr. Harper not to play games like that. I wanted him to put the facts and figures on the table, not let them slip out at his convenience. I think he just can’t help himself. He thinks it is all just some kind of game.

The release of this budget information is irresponsible and potentially costly to the economy.

And who knows how many years Harper is planning to be in deficit? He hasn’t shared that information.

What we do know is that it was a long, hard road to dig us out of a huge deficit after the last Tory government.

As we face the budget choices next week, I’ve been clear.

Targeted help to those Canadians who need help most is absolutely essential.

Broad-based tax cuts that dig us deeper into deficit are not.

This is not about gimmicks or politically popular moves.

It is about listening to the real needs of Canadians.

It is about trust.

It is about competence.

And this is an issue of political morality.

My generation should pay its own freight. We shouldn’t burden the next generation with debts we didn’t pay off.

If the government proposes a deficit, I want to see the plan that digs us out of it quickly. And I don’t want that plan based upon some unrealistic projections made up inside the Prime Minister’s Office. Trust Canadians with the truth.

Then show them competence.

When a Liberal government returned the country to surplus we set aside a contingency reserve – savings for a rainy day.

A $3-billion dollar cushion.

But this government had other ideas. They scrapped that reserve. They spent rashly. They cut taxes rashly. They brought Canada to the red line when times were good.

Now the cupboard is bare. We face hard times, headed towards a deficit which may top $100 billion before we see the other side of this.

Barely eight weeks ago, the government claimed there would be only a short recession and certainly no need to run a deficit.

How did Stephen Harper so completely misjudge the crisis before us?

In September, on the campaign trail, Mr. Harper said if we were going to have a recession, we probably would have had it by now.

In October, he told us there was still no recession, but there sure were “a lot of great buying opportunities emerging… as a consequence of all the panic.”

In all seriousness, that was Mr. Harper’s strategy.

Let the chips fall where they may, and if you can make a few bucks off the misfortune of others, good luck to you.

Then, on November 27th, in front of Parliament and all Canadians, the Conservative government put forward its economic update.

According to Mr. Harper, there would be a surplus.

He said that the right way to address Canada’s difficulties was to take away civil servants’ right to strike, attack pay equity for women, and stop public funding for political parties.

That was not a program. It was a provocation.

And we said: No you don’t. Back down. Think again. This isn’t a game. It is a recession with painful human consequences.

On Tuesday, we’ll all see whether the Prime Minister has learned to listen.
If he hasn’t learned to listen, he’s not going to lead for long.

But let’s not forget that that the real test of leadership is listening when it counts. Not waiting until the shop’s closed down to raise the alarm.

It also means getting your story straight, telling Canadians the truth and acting on economic reality and not political chicanery.

Mr. Harper has failed to tell Canadians the truth.

The truth is, we’ve lost more than 100,000 jobs in the last 60 days.

Yesterday morning, StatsCan reported that retail sales are falling further and sales for new cars are in sharp decline.

The unemployment rate for young Canadians is pushing 13 percent.

We don’t want a country where young people begin their working lives in the unemployment line.

And it’s not just those who can’t find work or who lose their jobs altogether.

At Canada’s largest steel company, Dofasco, thousands of employees were put on a two-week layoff over Christmas.

And as of January 1st, salaried employees are now working only four days a week.

How would any of us like to have started the New Year with a 20 percent pay cut?

It’s not just the workers in the blast furnace and the coke ovens, the recession is hurting every family in Hamilton.

It is hurting every family in Sudbury, The Soo, Windsor and Thunder Bay.
And the Canadians who work in the big bank towers here in downtown Toronto are just as uneasy.

That’s the truth.

This isn’t a central Canada recession. This is a Canadian recession.

The city in Canada that lost the most jobs last month was Calgary. Alberta is hurting, and when Alberta hurts, the whole country suffers.

The forestry towns of the B.C. interior are facing the collapse of the housing market.

In Saguenay, Lac St. Jean, Alcan is cutting jobs.

In Esterhazy, Saskatchewan, the potash mines are cutting back. Right across the country, millions of Canadians feel their futures hanging by a thread.
They know that unemployment is not just a statistic.

They know that unemployment is fear in your guts, worry that you are not going to be able to feed your family, fear that what’s happened to your neighbour is going to happen to you.

That’s the truth.

In hard times, Canadians expect compassion, understanding, and non-partisan action from their government.

That’s the truth.

Canadians expect their leaders to have a plan—a plan that responds to the challenges at hand, while laying the foundation for a better future.

A competent plan. A plan to manage the problems. A plan to lead the country.
This Conservative government has failed them.

By mismanagement or by design, Mr. Harper has weakened the capacity of the federal government to act in the face of turbulence and uncertainty.

Reckless spending and irresponsible tax policies have left Canadians’ jobs, savings, and pensions—and our nation’s future prosperity—hanging in the balance.

Canadians expect more. We deserve better.

We deserve better than a government that turned an economic crisis into a political crisis, and then into a national unity crisis.

We deserve better than a government that is the last in the G8 to come up with a plan for dealing with a crisis that the entire world saw coming.

And that’s the truth.

A key test of leadership is anticipating the future.

A train used to run through the centre of the little town in Quebec where I spent some summers, and my father once told me that if you put your ear to the rails, you could hear a train before you could see it.

And we did.

And you could.

And Mr. Harper didn’t.

Mr. Harper wasn’t listening. He didn’t have his ear to the rail, and he didn’t act.

Rather than get infrastructure money out the door and get Canadians working, this government let $2 billion of allocated infrastructure funding go to waste—unspent.

We don’t need funds that are never invested.

We need money flowing now.

We need to put people to work now.

The projects are approved and ready to roll.

The jobs are set to go.

Everyone has been primed for action for a long time – except for the federal government.

Instead, 44,000 construction jobs were lost in December.

The members of the Carpenters’ Union know that all too well. It’s tough during the holidays hiding the fact from your kids that you don’t know when you’ll see your next pay cheque.

On Tuesday, Mr. Harper and his ministers are going to promise the same infrastructure they’ve failed to deliver for the last three years.

The time for splashy re-announcements, simplistic promises and inappropriate spending—the hallmarks of Mr. Harper’s government—has passed.

This crisis demands that we use the power of our government to the fullest. It demands that we understand what our government can be—and what it should be.

Because it’s not just about infrastructure, it’s about infrastructure that builds the country, so that when we are through this recession we’ll be prouder, more united and more competitive than ever. Conservatives don’t understand that.
Liberals do. I do.

Conservative governments don’t build national institutions like medicare, a constitution, a flag, childcare, or the Kelowna Accord. Liberal governments do. And that’s what we need to do now.

We need to build a budget that looks forward, that binds our country together and makes us stronger today and much stronger tomorrow.

Canadians know that their standard of living has always depended on prudent investment in public goods. They are the ties that bind us together as an economy and as a people.

We need affordable housing, public transit, energy grids, high speed rail and programs to help lift many Canadians – and their kids – out of poverty.

We need to help protect the pensions and savings of senior citizens, so that retirement is a time of happiness and accomplishment not a time of anxiety and fear.

Mr. Harper has allowed this country to slip, to become less than the sum of its parts. Now’s the time to pull together, to invest wisely in the projects that bring us together and make this country more than the sum of its parts.

This crisis is testing our political system and those like me who have entered public life.

Canadians everywhere are asking politicians: raise your game, be equal to the hour.

The inauguration of President Obama shows us how one man putting himself at the head of millions can restore trust and restore faith in the political process.

We in Canada must do the same.

We do not need to drift with the tide.

We can act.

We can choose.

We can work to avoid the worst and search for the best.

We can rebuild the trust that has been broken and restore faith in our own country.

Canadians want a government that puts the country first.

Enough with the games. Enough with the attack ads.

Let’s try to do what’s right. I shall try to do what’s right for my country next week.

I will ask some tough questions of Mr. Harper when he presents his budget:

Will it help the needy?

Will it save jobs?

Will it create the jobs of tomorrow?

Will it be fair to all of Canada’s regions?

Will it burden our children with debt?

This is what a responsible Opposition does. And if the government fails, I am ready to lead. I do not seek office at any price. But I am ready.

My deepest instinct about this country is that we are strong, not weak.

We are united, not divided.

Determined, courageous, uncomplaining and resolute.

We have been, we are, and we will be an example to the world. We have been, we are and we will be a light among nations.

Now, in crisis, our light must shine.

We must seize the moment, as Canadians have done before.

The Royal York opened its doors in 1929. It was the tallest building in the Commonwealth and the only one in Canada with elevators.

When the stock market crashed a few months later, many thought the Royal York would close its doors. Many thought we would never again see tall buildings with elevators in Toronto.

Look at this city now. Look at this country now.

And imagine what can be.

We can jump-start job creation. Spur innovation.

We can lay the foundation for the economy of the future.

Protect the vulnerable, protect the jobs of today and create jobs for tomorrow.
That’s the essence of our national interest and the test that this budget must meet.

My job is not to let Mr. Harper skate by with a passing grade. That’s not acceptable. Not in these times. Not ever.

Now is the time to do better – so much better.

I want to appeal to the best in Canadians.

To their compassion, decency, respect for others, civility, hardiness, generosity of spirit, patience, persistence and idealism.

My party and I want to bring people together with common purpose and common enterprise.

To show courage and boldness, and revive the faith that people have in themselves and in their country.

To draw upon the resourcefulness of Canadians and ask them to be equal to the greatness of their land.

To forge long-term prosperity.

Strengthen our citizenship.

Strengthen our unity.

Rediscover our place in the world.

Canadians understand that the days ahead will be difficult.

But together, we can fill them with optimism and hope.

And our light will shine brighter.

Thank you.

Harper’s crude attempt to pre-empt public debate on the budget

Since when do governments in office run radio ads that implore members of the public to call their MPs to support an upcoming budget? A budget whose content has yet to even be released? Harper must think that Canadians at large are as impulsive and pre-judgmental as Jack Layton, who apparently can divine a bad budget before he even lays eyes on it.

Meanwhile there is no coincidence to that fact that Harper has paid radio ads running at the very same time that he engages in the unprecedented release of certain selected details of the budget, namely the disclosure yesterday by a senior government official that Harper will be running a $64 billion deficit over the next two years.

Was this information released to the public because “focus groups” found that Canadians were unwilling to heed Harper’s advice to call their MPs to support the budget without any insight whatsoever into what the budget might contain? Or was the headline number of $64 billion released selectively to the public, in the hopes that Canadians would assume that $64 billion of deficit somehow translates into $64 billion of stimulus? And thereby hoping Canadians would tune out from the budget debate, upon assuming such a favourable outcome was in the works?

Once again Harper is parsimonious with the facts and selective in his disclosure. What Canadians need to know, amongst of host of other things, is how much of that $64 billion in projected deficit is stimulus and how much is the “do nothing” deficit that arises from the extension of Harper’s fiscal mismanagement of the past?

A dream fulfilled

Who among us could not be inspired and moved by the speech that Martin Luther King Jr. delivered on August 28th on the steps of the Lincoln Memorial during the 1963 March on Washington for Jobs and Freedom? What became known as the “I have a dream” speech. The essence of which was:

“I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.”

Notice that Dr. King’s dream was not for himself or those of his generation, but rather for his children and those of their generation. Children like Barack Obama who was but two years old at the time of this historic speech. Barack Obama’s election as America’s 44th President truly represents a dream fulfilled for Dr Martin Luther King, since Obama’s election success was unequivocally based on the content of his character and not the color of his skin. A character incidentally, that has the potential to benefit all mankind.

Serendipity had a role to play in the speech that Martin Luther King Jr. delivered that day. According to Clarence B. Jones, Martin Luther King’s fellow speechwriter, the portion of the speech that dealt with King’s dream was not part of the original prepared text, but rather was prompted by Mahalia Jackson's cry, as King neared the end of his prepared text when she called out, "Tell them about the dream, Martin!"

At that point, a speech that had been about economic justice and about jobs, became a speech about social justice, as framed by the soaring rhetoric of Dr. King’s larger dream. Dr. King began his extemporaneous comments by ad-libbing portions of a speech that he had delivered to a much smaller crowd in Detroit in June of that same year, punctuating his points with the famous "I have a dream.", by which the speech went on to become famously known.

Dr. King's speech also went on to be named in a 1999 poll of scholars of public addresses, as the top American public address of the 20th century. Even more significant than that, is the fact that Dr. King’s dream was a dream that was ultimately fulfilled, by the events of 2008.... and the content of Barack Obama's character

Flaherty’s advisory council includes someone about to be fined $100 million, in Canada’s largest ever securities fine

Given the choice between inventing the Blackberry and being involved in back dating stock options and never inventing the Blackberry in the first place, I would choose the latter. Obviously Canada’s Finance Minister and latter day advocate for a Single National Securities Regulator thinks otherwise and has a laissez-faire attitude to landmark securities violations. Evidently Jim Flaherty thinks that the good associated with Mike Lazaridis’ invention of the Blackberry outweighs Mike Lazaridis’ involvement in the back dating of employee stock options in Lazaridis’ capacity as Co-CEO of RIM. That’s speaks volumes about Jim Flaherty and the direction of his moral compass.

The backdating of stock options is nothing more than a form of shareholder and taxpayer theft. Backdating stock options is a scheme designed to falsely convey economic value from shareholders to employees who are granted stock options with exercise prices that are below share trading prices in effect on the day the stock options are granted. Think of it as "instant money", stolen from shareholders. Backdating stock options to a prior point in time when the stock price was at a lower level, achieves this nefarious end. Taxpayers are being ripped off as well, since employee stock options are taxed at half the rate of income from employment that they truly represent. The artificial gains that are achieved from back dating stock options is a blatant and manipulative means to manufacture employment income that is taxed at half the rate that would otherwise be paid. As such, both shareholders and taxpayers are being ripped off.

Think of back dating of stock options by RIM executives as a similar exercise to Mark Carney falsifying his analysis of tax leakage of income trusts, by leaving out the taxes paid by the 38% of income trusts held in RRSPs. Once scheme of appropriating wealth is as nefarious and dishonest as the other, in which the ends seem to justify the means, in the mind of the perpetrator.

Meanwhile Jim Flaherty appointed Mike Lazaridis to his economic advisory council on December 19, 2008.

Mile Lazaridis’ involvement in this stock option backdating exercise would have been known to Jim Flaherty at the time Flaherty made this appointment. I don’t think US Treasury Secretaries who knowingly did not remit their full payment of taxes should be appointed to office and nor do I think CEO’s who were involved in stock option backdating exercises that attract landmark penalties (that are still pending and which, strangely, are being “negotiated” with government agencies) should be advising the Finance Minister on economic issues. This is an unhealthy alignment/misalignment of interests. But we are talking about Jim Flaherty, after all, the magnet for all lobbyists with a scheme to pitch.


Securities watchdog pursues record fine for RIM execs
Regulator seeks up to $100-million in stock option controversy
JACQUIE MCNISH and JANET MCFARLAND AND PAUL WALDIE
Globe and Mail
January 22, 2009

The Ontario Securities Commission is seeking a record penalty — one that could be as high as $100-million — from the top two executives of Research In Motion Ltd. [RIM-T] to pay for their role in a stock option accounting controversy dating back to 1996.

According to people familiar with settlement discussions, the OSC's staff is in advanced discussions with lawyers representing RIM's co-chief executive officers, Jim Balsillie and Mike Lazaridis. The OSC's investigation began in 2006 and sources said the regulator began negotiating a potential settlement last fall.

It is understood that the OSC has pushed for Mr. Balsillie to pay the bulk of any penalty and relinquish his seat on RIM's board of directors for a period of time. Although one person familiar with the talks said the parties are nearing a potential agreement, nothing has been finalized, including how much each executive may have to pay.

Reached last night at his home, Mr. Balsillie declined to comment on what he described as "rumours." Neither Mr. Lazaridis nor his lawyer could be reached. A spokeswoman for the OSC said: "We can't comment on enforcement cases."
A source said last night that the OSC is pushing Research in Motion co-CEO Jim Balsillie to step down from the board, at least temporarily.

In 2007, a special committee of RIM's board investigated the back-dating issue, and determined the company had backdated more than 40 per cent of stock options granted to employees since 1996. It also concluded that 12 of the 16 option grants made to Mr. Balsillie and Mr. Lazaridis between 1996 and 2006, to acquire a total of two million shares, were priced using an incorrect date.

The committee estimated the value of benefit to the two men was about $1.6-million (U.S.) each, gains that they have already repaid, along with full legal costs, to the company.

Before the release of the report, RIM notified the U.S. Securities and Exchange Commission and the OSC that it had uncovered evidence of backdating.

If a full $100-million penalty were approved, it would rank as the largest penalty paid by individuals to the OSC. The largest individual payment ever made to the OSC came from former Laidlaw Inc. chief executive officer Michael DeGroote, who agreed to pay $23-million in 1993 to settle allegations of illegal insider trading.

Mr. Balsillie and Mr. Lazaridis have been hailed as technology and business visionaries for revolutionizing wireless communications with the introduction of RIM's BlackBerry in 1999. The popular BlackBerry transformed the company into one of Canada's biggest global success stories.

The RIM board review occurred at a time when U.S. regulators were unveiling a flurry of investigations of major U.S. companies for stock option backdating. Many companies announced voluntary reviews of their past option practices as the SEC signalled it would treat companies more favourably if they came forward voluntarily.

The U.S. Securities and Exchange Commission investigated more than 100 companies over allegations of stock options backdating, including Apple Inc. It reached several backdating settlements, the largest coming in 2007 with a $468-million payment from former executives of United Health Group Inc.

Stock options give company employees the right to buy shares at a set price — typically the price at the end of the trading session on the date a grant is made. Backdating happens when companies set the grant date retroactively to align with a stock's low point, creating an instant paper gain.

According to the RIM special committee report, all option grants, except those to the company's co-CEOs, were made by or under the authority of Mr. Balsillie "including grants that have been found to have been accounted for incorrectly."

The company subsequently restated its financial statements back to 1999, recording a $248-million (U.S.) after-tax expense related to improper accounting over a variety of option granting issues.

The initial report, issued in March, 2007, also included a statement that the special committee "did not find intentional misconduct on the part of any director, officer or employee responsible for the administration of the company's stock option grant program."

At the time the special committee report was released, RIM said all employees and executives agreed to repay any benefit they received from options that were incorrectly priced. Mr. Balsillie and Mr. Lazaridis additionally agreed to pay $5-million (Canadian) each to defray the company's costs of its investigation and financial restatement.

The two men later agreed to pay an additional $2.5-million (Canadian) each to the company to compensate it for its investigation costs as part of a settlement RIM reached in a class-action lawsuit brought by Canadian shareholders over the option backdating. The settlement included no admission of wrongdoing.

RIM also announced in March, 2007, that Mr. Balsillie would step down as RIM's chairman, but remain co-CEO and a director on the board. Two long-serving directors also agreed to resign and two new directors were appointed: Royal Bank of Canada chief operating officer Barbara Stymiest and IBM Canada chief executive officer John Wetmore.

Today marks Harper’s 100th day in office

The first 100 days in office is the yardstick by which new Presidents, Prime Ministers and new CEOs are commonly measured. The first 100 days in office affords insights into what trajectory a new administration is headed on. Soaring to new heights of accomplishment or a low altitude flight path. By that measure, Stephen Harper hasn’t even left the ground. Apart from his two self serving and opportunistic moves of proroguing Parliament and appointing 18 new Senators, Harper has achieved absolutely nothing during the 100 days that have now elapsed since October 14th. Both of those acts were regressive in nature and Harper has paid a price in the polls for doing so. Nothing that Harper has done or failed to do over the course of the last 100 days qualifies him as a leader.

The October 14th election was an election of Harper’s convenience, and upon scratching out some form of minority victory, what is his first act of governing during one of the most economically challenging times that our country has faced? He takes a paid vacation at a time when a huge premium is placed on the urgency to act. Stephen Harper is Canada’s first truly delinquent PM.

Contrast Stephen Harper first 100 days in office with Barack Obama’s first 24 hours in office. Harper pales by comparison. In a mere 24 hours in office, Barack Obama, has:

(1) ushered in a new era of open and transparent government by signing executive orders with specific directives on transparency/accountability and tightened restrictions on lobbying
(2) called a halt to the trials in Gitmo, which had the effect of bringing justice to Canadian citizen, Omar Khadr, a person whose rights Stephen Harper has not lifted a finger to protect
(3) engaged himself with his military staff to implement the withdrawal of troops from Iraq, and engaged himself in the middle east controversy by calling the leaders of Palestine and Israel
(4) launched a new content rich interactive website, Whitehouse.gov, that invites public involvement in government

Stephen Harper has squandered the last 100 days in an attempt to buy time, at a critical point in time where the premium is placed on those who are swift. Harper has accomplished nothing over the course of his first 100 days in office. Harper is clearly not up to the challenges of the day. He is a divisive force at a time when the country needs to be brought together, with all Canadians working towards a common purpose. Squandering Stephen Harper is not a leader. The last 100 days of Harper’s utter inaction have brought that reality into sharp focus. Harper lacks a sense of direction, a sense of urgency, and a sense of leadership. Time for him to step aside.

Follow Obama's lead on transparency, PM told

Saying ‘the fog is thickening' in Canada, Information Commissioner pounces on U.S. President's decision to have more official documents released to the public

DANIEL LEBLANC
Globe and Mail Update
January 21, 2009

OTTAWA — The Harper government should follow U.S. President Barack Obama's lead in shunning secrecy and releasing more official documents to the public, Canada's Information Commissioner says.

In his first full day in office, Mr. Obama ordered the American government to release more documents under its Freedom of Information Act.

"Starting today, every agency and department should know that this administration stands on the side not of those who seek to withhold information, but those who seek to make it known," Mr. Obama said Wednesday.

The announcement did not go unnoticed in Ottawa, where the Canadian government has moved in the opposite direction. In an interview, Information Commissioner Robert Marleau said he hopes Canadian officials — including Prime Minister Stephen Harper — will exert the same level of leadership.

"I am thrilled to see that Mr. Obama is taking such a forceful position in the context of transparency," Mr. Marleau said. "I'm jealous, yes. Given that the President will meet Mr. Harper in the near future, I hope that they will talk about it and that the President of the United States can be an example for our own political leader."

Mr. Marleau said that unreleased figures show more and more users of the Access to Information Act are hitting a wall in Canada. He added that his ATI report cards, to be released next month, will show a number of departments and agencies are failing in their legal duties.

"The fog is thickening," Mr. Marleau said. "Things are clearly going backwards in the amount of information that is being released, and there is a clear increase in the use of time extensions and exemptions. The numbers should be of concern to Canadian citizens."

In its current form, the act calls on the government to release requested documents within 30 days.

But a number of officials who administer the Access to Information Act regularly complain that the Privy Council Office is playing an increasing role in vetting documents before they are released, causing delays that commonly reach six months and sometimes drag on for more than a year.

In addition, the government relies increasingly on exemptions to censor information on contentious matters, such as the treatment of detainees in Afghanistan.

In the United States, Mr. Obama said he still wants his government to protect national security and personal information, but that the rules should favour those who are seeking information. "The mere fact that you have the legal power to keep something secret does mean you should always use it," he said.

"The Freedom of Information Act is perhaps the most powerful instrument we have for making our government honest and transparent, and of holding it accountable. And I expect members of my administration not simply to live up to the letter but also the spirit of this law."

Mr. Obama said "transparency and the rule of law will be the touchstones of this presidency."

That message is similar to the Conservative Party's promise in the 2006 election. However, the Harper government has failed to live up to its promise to "implement the Information Commissioner's recommendations for reform of the Access to Information Act."

Obama pledges 'era of openness', in contrast to Harper's blacked out regime

Obama pledges 'era of openness'
BBC News
Wednesday, 21 January 2009

Obama: 'Transparency and the rule of law will be the touchstones of this presidency'

US President Barack Obama has issued executive orders on government ethics and transparency as part of a packed first full day in office.

The measures include curbs on lobbying and a pay freeze for senior White House staff. Federal employees will have to sign up to new ethics procedures.

The new president said he was beginning "a new era of openness" in government.

Obama Inaugural Parade as viewed from Canadian Embassy

Click on pictures to enlarge

I received these pictures from a friend who attended Obama’s inauguration from the vantage point of the Canadian Embassy, which is on Pennsylvania Avenue immediately adjacent to the Capital Building

Global Banking sector experiences massive "deflation"

Who better to suffer than these jokers who brought us this global financial meltdown:



Click on image to enlarge

Job approval ratings for different political leaders

Recent Ekos poll doesn't bode well for Sinking Stephen Harper:



Click on graph to enlarge

Obama brings justice, where Harper pathetically failed to act

Judge grants Obama request to adjourn war-crimes case against Omar Khadr
Published: Wednesday, January 21, 2009 | 10:10 AM ET
Canadian Press

GUANTANAMO BAY, Cuba - The military judge presiding over Omar Khadr's war-crimes case granted an adjournment of 120 days on Wednesday at the request of U.S. President Barack Obama and the defence immediately called on the government of Prime Minister Stephen Harper to seek to repatriate the young Canadian.

The freshly minted president said he needed the hiatus while he reviews the case of Khadr and 244 other detainees held at this infamous prison, according to prosecution documents.

The defence, which had earlier pushed hard for the charges to be stayed, did not oppose the motion.

"The practical effect of this ruling is to pronounce this military process dead," Lt.-Cmdr. Bill Kuebler, Khadr's lawyer, said minutes after the judge, Col. Patrick Parrish, granted the continuance in a single-line ruling.

The options now open to Obama, who during his election campaign promised to shut down Guantanamo Bay, is to attempt to try the detainees in a U.S. federal or military court.

He could also establish a special terrorist court, although most observers consider that unlikely, in part because Democrats in Congress oppose such a move.

Detainees not considered dangerous could be sent back home, or to third countries, including Canada.

The Toronto-born Khadr, 22, is charged under an internationally condemned military commissions process with killing an American soldier in violation of the rules of war.

He is alleged to have thrown a hand grenade following a four-hour firefight near Khost, Afghanistan, in July 2002, when he was just 15.

Khadr is the lone westerner still held at Guantanamo, but Prime Minister Stephen Harper has refused to get involved, saying the proceedings here had to run their course.

Kuebler said Harper can no longer "hide behind" that argument.

"There is now no excuse, no reason whatsoever, for the prime minister not to do what really in our view has always been the right thing and intervene and get Omar Khadr, this Canadian citizen, back to Canada for the help and support that he needs."

The defence had originally wanted all charges stayed against Khadr and the other detainees, who include the accused conspirators in the horrendous 9-11 terrorist attacks on the U.S.

Kuebler said the suspension decision until May 20, 2009, is good enough, saying he hoped serious negotiations would now start with the Harper government about getting Khadr home.

"He is anxious, he is nervous, he doesn't quite know what is going to happen - none of us does," Kuebler said of his client.

"He's hopeful, as we are, that this is finally going to create the conditions under which the Canadian government can do the responsible thing."

Any chance that Obama would rip off American seniors for $35 billion, based on a lie?

Stephen Harper had no misgivings about ripping off Canadian seniors for $35 billion, based on his lie that income trusts cause tax leakage. Do you think there is any chance of Obama pulling off a stunt like this?

Three things prevent that from happening:

(1) Obama is an honest politician who is looking out for the welfare of the middle class and is not sympathetic to lobbyists. Lobbyists for Canada’s Large Lifeco’s brought about Harper’s income trust policy, in the face of zero public consultation. Meanwhile the policy’s main rationale, namely alleged tax leakage, is a patent falsehood.

(2) The US media would never permit Harper’s lie of tax leakage, to go unchallenged. At the very least FactCheck.org would reveal Harper’s lie about tax leakage in short order.

(3) The US political system doesn’t have lap dogs like Jack Layton who regurgitate the government’s lies about things like tax leakage and write to constituents: “I have spoken with Judy Wasylycia-Leis, our party’s Finance Critic, she is confident that the government’s estimates of future tax leakage are accurate.”?

Where does the NDP derive their “confidence” from? After all the only “proof” of tax leakage offered up by Harper to justify his income trust tax rip off of seniors was 18 pages of blacked out documents. That is transparency deserving of the Russian gulags. Is that what the NDP stand for? Gulag democracy?

In yesterday’s Inaugural address, Obama proclaimed that “What is required of us now is a new era if responsibility”. This also applies to our politicians like Jack Layton, who has proven himself to be anything but responsible. Jack Layton is prepared to vote down budgets that haven’t yet been tabled with the same ease that he will condemn an essential means of income for seniors without even seeing the evidence he invokes to justify his actions.

Do you suppose that with $1 million more in public financing that the NDP party can actually spend a few short minutes researching the veracity of Harper’s tax leakage argument, and bring some modicum of responsibility to bear on the Harper government on the matter of ripping off Canadian seniors for $35 billion of their life savings? An act that the NDP have, to date, been wholly complicit in bringing about?

Note to Jack Layton: “You sir, are no Barack Obama.”

Harper redefines meaning of his “Triple E Senate”: Expedient. Elastic. Egregious.

Senate posting fails smell test
EDITORIAL
Kingston Whig Standard


Prime Minister Stephen harper may have inadvertently supported his own case for an elected Senate in appointing Patrick Brazeau to the upper chamber last month.

Brazeau appears to have received the lucrative appointment for two reasons: his close political ties to Harper and the fact that he would boost aboriginal representation in the Senate. Brazeau is national chief of the Congress of Aboriginal Peoples.

But revelations since the announcement make Brazeau's appointment impossible at this time.

This week, it was revealed that Brazeau is the subject of a sexual harassment complaint before the Human Rights Tribunal of Ontario.

He was also investigated last year following an internal complaint by a female staff member at the aboriginal peoples congress.

Brazeau says the internal investigation at the congress cleared him of any wrongdoing. That may be so, though at least one member of the organization's board of directors disagrees with that assessment.

The case before the rights tribunal is a matter of even greater concern. Until it is resolved, too thick a haze of uncertainty hangs over Brazeau's appointment. His suitability for the Senate must be established before he enters the chamber, and that means waiting for the tribunal results.

The appointment is causing other concerns to which Harper must pay attention.

Brazeau is looking into whether he will be able to stay in his position with the congress as well as join the Senate.

This would be a blatant case of double-dipping. Both positions are federally funded, with the money coming out of taxpayers' pockets. The congress chief 's job pays $100,170 a year plus $5,422 expenses, while the Senate post is good for $130,400.

What Brazeau is saying, in effect, is that the Senate job isn't a full-time position. That's certainly news to Canadians, who expect, and reasonably so, that anyone paid a six-figure federal salary should be prepared to work full-time for it.

And there's another important matter concerning Brazeau's young age. Senate appointments are good until age 75. At 34, Brazeau could be hanging around the Red Chamber for another 41 years, though he and Harper apparently have an agreement that he won't stay that long.

"The thought of 41 years is comical at this point," Brazeau told reporters this week.

Message to the senator-to-be: The thought of paying you more than $130,000 a year for 41 years is frightening to us taxpayers. This is no laughing matter.

The prime minister took a lot of heat for his pre-Christmas flurry of Senate appointments, hurriedly made when it looked as though his minority government would be toppled by the Liberal/NDP/Bloc Quebecois coalition. The Senate is currently stacked with a Liberal majority and Harper desperately wanted to bolster the Conservative ranks.

More importantly, the appointments flew in the face of Harper's longstanding pledge to make Senate seats elected positions, thus ensuring greater accountability and ending the practice of dispensing the lucrative positions to party cronies.

Brazeau's appointment fails these tests and several others.

Harper must suspend Brazeau's Senate posting at least until Brazeau is found not guilty of the serious allegations against him.

Letters? Send them to whiged@thewhig.com.

The Imperial Stephen Harper versus the Empirical Barack Obama

Over the weekend I listened to an interview with Barack Obama where the President-Elect stated that he wanted to be known as the Empirical President. This was Obama’s way of saying that he wanted to be honest with the American people and to base his policies on known facts and observable outcomes. This is in stark contrast to either George Bush or our own Stephen Harper who seem to prefer ideological dogma and supposition versus the empirical world we live in.

Even Jeffrey Simpson in today’s Globe has made a virtue of Barack Obama’s frank, open and honest approach to policy making in a piece entitled: “The new president's first duty: Tell Americans the 'whole truth'”. As if Barack Obama needs to be told. Evidently things need to get really bad before “telling the truth” becomes vogue or that “telling the whole truth” becomes something of political advantage in the minds of people like Jeffrey Simpson.

Stephen Harper has been doing anything but telling Canadians the truth. Meanwhile Canada’s media had been doing very little to extract the truth from Stephen Harper. The Globe and Mail actually endorsed this inveterate liar for Prime Minister in the last election. An election that was based on a lie and that was precipitated by the breaking by Harper’s of his own fixed election date promise. No, we do not have an empirical government in office, but rather an imperial government in office where the Prime Minister and the Governor General act as some kind of two handed tag team, interpreting our constitution in a way that favours Harper’s ongoing grasp on power.

Canada's media are no better at ushering in a brave new world of empirical government, than Harper himself. A good example was the income trust policy that was ushered in without any public consultation or transparency whatsoever. With the exception of Diane Francis, Canada’s media bought into the falsehoods of that policy without an iota of due diligence or vetting. That policy was perpetrated on the notion that income trusts cause tax leakage. An empirical government would offer proof of such an allegation. The imperial Harper regime did not. An empirical government would examine what their policy has actually wrought in its aftermath, namely $108 billion in trust tax related takeovers that actually cause tax leakage where none had existed before. The imperial Harper regime has not.

Rather than making a political virtue of the truth, south of the border, as Jeffery Simpson is doing today, perhaps his time would be better spent implementing such a culture of truth here in Canada. A good place for him to start would be taking an empirical approach to one of Stephen Harper’s first and most infamous broken promises in office, namely the income trust fraud. I suggest Jeffrey Simpson acquaint himself with the study published in November 2005 entitled the “Tax revenue implications of income trusts” by HLB Decision Economics and then turn his attention to the Deloitte study of December 2007 entitled “Income trust buyouts: “Lots of activity, little tax revenue”. Let’s see whether Jeffrey Simpson actually believes his own advice, and whether he subscribes to the notion that “The Prime Minister’s first duty: Tell Canadians the whole truth”

Harper's voracious deficit spending will crowd out corporate borrowers

Today we learn in the Financial Post that “Senior bankers are warning Ottawa that financial markets may not be able to meet the long-term funding needs of large companies in the coming year, and are arguing for pre-emptive action.”

Yes and if so, then things will only get worse as the government starts crowding out these corporate borrowers in order to fund the government's voracious appetite for debt to fund its $40 billion in annual deficit spending.

Maybe someone should invent an alternative asset class that doesn’t get crowded out by government borrowing?

I know, we can call it “income trusts”. Such an asset class would be a win-win-win. Maximize government tax collection. Afford investors seeking income with a means of direct investment in the economy. Offer issuers a low cost form of financing that isn’t crowded out by governments voracious borrowing needs. If only the NDP could figure this out. They must not like win-win-wins?

Canada's corporate bonds under scrutiny
Eoin Callan , Financial Post
January 18, 2009

TORONTO - Policymakers are shifting their attention from the woes of small- and medium-sized enterprises to the financing needs of Canada's biggest companies as they prepare for next week's budget.
After rapid progress was made in recent days by special joint industry-government working groups examining ways to keep credit flowing to smaller companies and struggling industries, the focus of discussions is turning to the outlook for blue-chip companies and the $20-billion corporate bond market.
Senior bankers are warning Ottawa that financial markets may not be able to meet the long-term funding needs of large companies in the coming year, and are arguing for pre-emptive action.
But there are divisions in the financial sector and scepticism in Ottawa over the need to intervene in the market for corporate bonds, which bankers are warning privately could be the next strut of the global financial architecture to crumple.
The most controversial proposal being advanced is for the Conservatives to create a vehicle that would use taxpayer money to either buy corporate bonds or back them with a government guarantee.
But using public finances to bail out corporate Canada could create a political time bomb and put hiring, firing and investment decisions under scrutiny.
Peter Bethlenfalvy, group managing director of global corporate finance at DBRS, says the implications of a collapse in the corporate bond market would be severe.
"In our free market, capital markets system you have to have a match between users of credit and suppliers," he says.
"Without access to the corporate bond market, some companies might get into troubles not because of their business models or strategies, but because they can't get re-financing," he adds, saying this would likely lead to job cuts and less investment and add to economic duress.
The government is already well advanced in its plans to intervene in the market for short-term financing used heavily by such non-bank lenders as auto leasing companies.
But concerns about Canada's market for bonds issued by the country's biggest firms have been brewing since new issues dropped off after the collapse of Lehman Brothers Holdings Inc., the bankrupt Wall Street investment bank.
Corporate bond issues fell by more than half in the three months after the Lehman collapse, dragging bond issuance for the year down from $18-billion in 2007 to $16-billion in 2008.
But since the New Year, market participants have seen tentative signs of renewal as pent-up demand starts to come to market.
Shoppers Drug Mart Corp. issued $500-million in corporate bonds last week, while Hydro One raised $200-million.
Mr. Bethlenfalvy said it would be hugely premature for Ottawa to intervene at a time when a drug store chain or utility could successfully sell new bonds to finance their activity.
"It would be unwise and is not needed," he said.
But some bankers who have peered into the depths of their corporate loan books and taken soundings among the investment community are more pessimistic about how well the market will hold up as a global recession takes hold.
"The corporate bond market for anything of any maturity is very weak. This could become the next big problem," said one person involved in the dialogue with the government.
Financial Post
ecallan@nationalpost.com
© 2008 The National Post Company. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.

Carole Taylor, head of Flaherty's advisory council, was his accomplice in promulgating the tax leakage lie.

What qualifies Carole Taylor to head Flaherty’s economic advisory counsel? Carole Taylor has demonstrated she has no interest in examining first principles and is willing to jump on the bandwagon and act as Flaherty’s accomplice in promulgating nonsense economic arguments like “income trusts cause tax leakage”. Where’s her proof? Meanwhile 2.5 million Canadians, many of them seniors residing in BC lost $35 billion of their life savings. Great job, Carole Taylor. You are keeping great company in the form of intellectually corrupt Jimmy.

January 26, 2007

The Honourable James M. Flaherty, PC, MP
Minister of Finance
Government of Canada
House of Commons
Ottawa ON K1A 0G5

Dear Honourable Flaherty:

As Minister of Finance for the Province of British Columbia, I am writing in support of your proposed changes to the federal Income Tax Act that impact the tax treatment of income trusts.

I believe the measures you propose are necessary to address the policy and revenue impacts of converting corporations to income trusts. As you note in your October 31, 2006 announcement of the Tax Fairness Plan, there has been an increasing cost in terms of income tax revenues as a result of these conversions. In addition, the conversion of income trusts can result in shifts of tax revenues among provinces and shifts in tax burden among taxpayers. I believe that without action the continued conversions to income trusts would have led to a serious disruption of the tax system.

The measures you propose are appropriate and do provide fair transitional rules for existing income trusts and clear rules for new trusts.

In closing, I would like to thank you for taking the necessary steps to address this issue.

Sincerely,

Carole Taylor
Minister of Finance
Province of British Columbia

pc: Brian Pallister, Chair, Standing Committee on Finance, MP Portage-Lisgar

Ignatieff talks about income trusts on today's Bill Good radio show

See: CKNW AM 980 Here
The question comes up at the 10:55 mark in the show.

To paraphrase, Ignatieff was asked by a listener (Leonard from Kelowna) whether in light of the economic slowdown, the Liberals intend to revisit income trusts as a means to restore investment activity.

Igantieff said that the Conservative’s trust tax was a disaster and that the Liberals have been on this issue now for two years. It was of particular harm to seniors. Flaherty’s argument of tax leakage was "fallacious", and that Flaherty ignores the payment of deferred taxes, as if to suggest they are never paid. Businesses had been harmed. Ignatieff mentioned he had met with a business leader in Vancouver the night before who said that Flaherty’s trust tax prevented his company from pursuing a major multi billion dollar transaction that would have allowed him to grow his company. Igantieff also commented on the harm that the trust tax had done in Alberta.

Bottom line: Ignatieff gets it big time. Surprising what you get when you combine intelligence with ethics and honesty. Almost makes you feel like this is “our country”.

TD Issues $1 billion of equity that is tax deductible......tell me this isn't an income trust or tax leakage?

Making a difference together? Please. TD Bank was nowhere in the income trust marketplace, since TD is no where in the retail brokerage industry in Canada. It was for this self serving reason that TD Bank applauded Flaherty's move to kill income trusts, because it resolves a deficiency in the TD Bank's business. Flaherty killed income trusts on the premise that distributions paid to unitholders on income trusts are paid from pretax cash flows. So how is this $1 billion issue by TD Capital Trust IV any different?


TD plans notes issues to raise $1 billion
January 15, 2009
By Megan Harman
Investment Executive

TD Capital Trust IV, a subsidiary of the Toronto-Dominion Bank, is issuing two different series of notes to raise $1 billion, the bank announced on Thursday.

TD Bank and TD Capital Trust IV entered into an agreement with a syndicate of underwriters led by TD Securities Inc. for the issue, which is expected to close Jan. 26.

The issue will include $550 million of TD Capital Trust IV series 1 notes due June 30, 2108, and $450 million of TD Capital Trust IV series 2 notes, due June 30, 2108

The bank intends to file a final prospectus for the offering with the securities regulators in each of the provinces and territories of Canada.

TD Bank anticipates the notes will qualify as tier 1 capital, with any capital over the 15% regulatory limit to be temporarily counted as tier 2B capital.

Interest on the series 1 notes will be payable semi-annually at a rate of 9.523% per year. Starting on June 30, 2019, and on every fifth anniversary thereafter until June 30, 2104, the interest rate will reset.

Interest on the series 2 will be payable semi-annually at a rate of 10.00% per year. Starting on June 30, 2039, and on every fifth anniversary thereafter until June 30, 2104, the interest rate will reset.

The notes are redeemable by the trust on or after June 30, 2014, in whole or in part.

TD Bank noted that in certain circumstances, the notes or interest may be automatically exchanged or paid by the issuance of non-cumulative Class A first preferred shares of the bank.

The notes will not be listed on any stock exchange.

No surprise here: Harper not trusted to handle economy: poll

Canwest News Service
January 15, 2009

Few Canadians have faith in the ability of Prime Minister Stephen Harper's government to address the economic crisis, suggests a poll released Wednesday.

It found just one in four Canadians believe Harper's government is doing a good or very good job of dealing with the crisis, and more than 40 per cent have little or no confidence the government can make things better.

The poll was conducted by Nanos Research on behalf of the National Union of Public and General Employees.

In total, 1,003 Canadians were surveyed by phone between Jan. 3 and Jan. 7.

© Copyright (c) The Edmonton Journal

Back when Harper cared more about seniors than juniors....the Paul Desmarais Juniors of this world, that is

A chronology of events. The sequence of pandering:

Questioning income trusts puts seniors at risk
Stephen Harper
National Post
October 26, 2005

Many seniors feel the government is putting their retirement at risk and have let Ottawa know. In a letter to the Finance Minister, the Canadian Association of Retired Persons said, "Seniors are actually enraged, frightened and panicked about potentially losing retirement savings that they count on for the essentials of daily living."

Income trusts are popular with seniors because they provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine. They also provide tax relief from a government that is addicted to taking too much money from their pockets and spending it without care, and very often without meaningful results.

So one must ask, why is the government clamping down on the retirement savings of seniors and investors?

But it gets worse. Instead of immediately moving to assure markets that income trusts are here to stay, the Liberals are justifying their actions in the coldest political terms. As one government member was quoted in the media as saying about income trust investors, "They have no constituency. They don't count politically."

That kind of arrogance cannot go unanswered. There is just no justification for what amounts to a Liberal government attack on investors, and especially on seniors.

The government continues to overtax Canadians and run multi-billion dollar surpluses, yet their first instinct is to attack an investment vehicle that can make the difference between bare survival and a dignified retirement for millions of Canadians.

Stephen Harper Harper on Global TV during Election 2006,
December 2, 2005

"When Ralph Goodale tried to tax Income Trusts ... don't forget, don't forget this ...they showed us where they stood. They showed us about their attitudes towards raiding seniors hard earned assets and a Conservative government will never allow either of these parties to get away with that.”

Income-trust crackdown: The inside story
Globe and Mail
November 2, 2006:

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.

Our meeting with John McCallum on January 13, 2009

Yesterday myself and group of concerned Canadians met with John McCallum. We were joined by 30 other people on the phone (Investment managers, issuers and individual investors).

We were meeting with John McCallum to point out the significant damage that has been done to jobs, savings and retirement income by Flaherty’s misguided income trust tax.

We are calling upon the Liberal government to make a repeal of the income trust tax a condition precedent of their support of the upcoming budget, as repealing the income trust tax is tax accretive to Ottawa. At the same time achieves all the stated policy objectives of the day.

That said, try naming one other policy measure that is both tax accretive and stimulative?

Here is the document that was discussed with John McCallum.

The meeting was recorded, and can be replayed by dialing 416-640-1917 Passcode: 21294861#

The Globe's Andy Willis, quite rightly, gets reamed out by his readers

It’s ludicrous to think that Andy Willis (Jim Flaherty apologist) claims to speaks for investors, with this logic (or complete lack thereof):

Will Tories tinker with trust tax deadline?

Andrew Willis
Globe and Mail

There's speculation in the oil patch that Finance Minister Jim Flaherty will extend the deadline for onerous new taxes on income trusts to 10 years – it's now four years – as a populist move in the coming federal budget.

The policy shift would make no sense from a capital markets point of view – investors and corporate executives prefer certainty, even if they object to the Oct. 31, 2006, decision to shut down the sector.

But the Conservatives may decide tinkering with trust taxes fits their political agenda: the party would be seen as doing something for hard-pressed companies. Extending the grace period on the structure would have the greatest impact in the oil patch, where energy trusts remain major players, and resentment over the Tory's broken promise on trusts persists.

Just what Mr. Flaherty would say to trust owners who have rearranged their affairs based on the existing 2011 deadline is hard to imagine. Acting in good faith, many trusts have already been through an expensive and time-consuming conversion to common stock structures. It's also not clear there's political hay to be made here. Vague Liberal promises to tinker with trust taxes in the last election campaign played poorly.

In sum, any Conservative move on trusts would be blatant pandering, and lousy public policy. But that's not stopping talk of a new, more liberal deadline on taxes from making the rounds in Calgary.

1. peter san from ottawa, writes:

No they should do something to correct the damage done based on a bad analysis.

2. Master Blaster from Toronto, Canada writes:

Only an idiot would change the rules this late. A Trusts biggest asset right now is the forced re-org that must occurr before 2011, & the positive change that comes with it.

For those with a depleting asset base we need a better tax structure, & the fed has 2 years to find it. Preferably with a different finance minister.

3. dominic costanzo from Canada writes:

Income trusts should be allowed to survive.There are important investments vehecles that provide jobs,and help seniors,who do not have a company pension to sustain themself, instead of relying on the Gov.The tax leakage is a myth.As of to-day the Gov. has not been able to show that income trusts cause tax leakage.The only analysis provided by the Gov. is 18 pages of blacked out documents.

4. Harper has to go from Canada writes:

Globe and Mail November 2, 2006: by Sinclair Stewart & Andrew Willis Do you remember writing this Mr Willis?

“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico, and told him he should act quickly to stop the raft of conversions, according to sources.”

What do you suppose shutting down the competing product known as income trusts was worth to Paul Desmarais Jr. and the lessened competition in the financial products market meant to his personal holdings in Power Corporation, Power Financial, Great West Life, London Life, Investors Group, Mackenzie Financial, Investment Planning Council?

5. Kublah Khan from Canada writes:

REITS and Oil and Gas trusts had existed and performed an excellent contribution to the Canadian economy for many years. It was only after other businesses started to convert to the trust structure that some became concerned. Why the Conservatives allowed REITS to continue, but closed down Oil and Gas trusts is beyond reason. Flaherty's policy should have dealt with only the business trusts and if he was concerned about the size of O&G trusts he could have limited their size. Flaherty had many options that would not have been as harmful to thousands of citizens of Canada, no Western democratic government has ever treated its citizens in such a manner.
I find it amazing that Flaherty was able to settle the ABCP situation so quicly with a large infusion of taxpayers dollars.

6. David Armitage from Deseronto, Canada writes:

Andrew come on your wrong on this for the simple fact it would free up mor money for anyone holding trust to spend based on distrubutions they receive. That to me would be a good thing in these times.

7. Robin GTA from Canada writes:

"2001 deadline is hard to imagine" did you mean 2010 Andy?

I agree with Kublah Khan, energy trusts should have been exempted like the reits because they exist south of the border. Restrictions on reits should be relaxed to ensure they are competitive with the U.S. reits.

What would happen if some of the U.S. MLP's started moving into Canada and scooping up our energy trusts? All energy companies are on the hunt for reserves . . . Canada is fertile hunting ground.

8. Robin GTA from Canada writes:

"Vague Liberal promises to tinker with trust taxes in the last election campaign played poorly."

Now exactly what do you base this observation on Andy. I can assure you that millions of trust investors are supporting the Liberal proposal of a refundable 10% withholding tax even though most feel there should be NO tax on trust distributions.

Something is better than nothing for those of us who are retired and have NO private or public sector pension plan. That is about 75% of retirees Andy.

The government is looking to help out pension plans . . . what about the other 75% of us who are also getting trashed in this economic mess?

9. Harper has to go from Canada writes:

"Just what Mr. Flaherty would say to trust owners who have rearranged their affairs based on the existing, 2001 deadline is hard to imagine" - Willis What did Harper say to millions of investors who bought trusts based on his election promise "never to tax trusts"? Squat.

10. Robin GTA from Canada writes:

"In sum, any Conservative move on trusts would be blatant pandering,"

What's one more Andy to the Cons 'will never tax income trusts' list of broken promises?

11. Plus 8 from Mont Tremblant, Canada writes:
BIO

It would be good of the G&M to find a few writers for the business section with some training in economics or business. It would make the columnists and news more worthy of the time spent reading them.

The Income Trust provided an excellent vehicle to attract both the savings or the retiring generation and foreign investors interested in a return ALL while keeping Canadian management control.

The alleged tax loss they were supposed to create has been shown to a trumped up illusion to justify the quick betrayal of a solemn Conservative campaign promise. (I voted Con only because they promised to keep Income Trusts..so much more the fool I was!) Billions were lost with that failure in Harper/Flaherty integrity..and much more of the same has followed.

However, I do agree that only delaying the taxation of Income Trusts is a pandering move. Either get rid of the threats to this respected and beneficial investment tool or get rid of them as stupidly planned. Nothing will be helped with delays and even more uncertainty from Ottawa and Flaherty. I hope they take the first route.

I AM convinced any decision taken will not be made based on good sense..only the contemptible drive to gain political advantage.

end

12. tom morton from Northern Ontario, Canada writes:

......Mr. Willis said.."Vague Liberal promises to tinker with trust taxes in the last election campaign played poorly.".. Actually Mr. Willis the Liberal position, during the last election campaign, on the taxation of these BUSINESSES was quite clear...not at all vague. Why would you even say such a thing? And how would you know the Liberal position "played poorly". Can you back this statement up with any facts or, like the Cons...are you going to show us a bunch of blacked out pages as your proof... just as the Cons showed us 18 blacked out pages as their proof of tax leakage. Last election the Green Shift played poorly. But the Liberal position on the taxation of income trust BUSINESSES played very well for my wife and myself. For the first time ever we gave money to a political party and worked on the Liberal campaign. And we used to be Conservatives!


13. Island Man from Victoria from Canada writes:

Income Trust investors deserve a bail out more than ABCP investors. Income Trust investors had their eyes open and did their homework before investing, only to be blindsided by Harper's broken promise to protect their investments. A broken promise based on 18 blacked out pages of 'evidence' regarding mythical tax leakage. If Harper can bail out ABCP then Income Trusts deserve a bail out too.

Andrew, how you can define doing the right thing as lousy public policy. Lousy public policy was formulating major tax changes with no consultation, no factual basis and no thought of mitigating damages to stakeholders...that was lousy public policy and that happened on Halloween 2006.

Extending the conversion deadline is not enough. Growth restrictions on these companies also need to be lifted so they can operate without government restriction.

Extending the deadline will not only allow Income Trust investors an opportunity to continue collecting distributions, although reduced, during this economic downturn, it will allow enough time for us to get a Liberal government elected to reverse this ill-thought tax law of Flaherty's.

For once I hope the rumour has validity.

14. Island Man from Victoria from Canada writes:

Andrew, even you must realize that forcing struggling companies through conversion during this economic downturn is not a good idea? And have you thought about the massive numbers of capital losses that will be recorded by investors over the next 2 years? Have you considered what that will mean in lost future capital gains taxes? And have you considered how many further foreign takeovers will occur in the oil patch because these companies remain devalued due to Harper and Flaherty's betrayal? And perhaps you can share with us the proof of the need to change the tax rules on Income Trusts? All we have seen is 18 blacked out pages from the government. And perhaps you can explain why Private Pension Plans are excluded from the new tax rules? Why were only individual investors taxed?
There are so many factual reasons to reverse this tax law and no basis to allow it to proceed...unless you can show us some proof that Harper and Flaherty have not shown us? The only certainty is that we were betrayed by our government, shown no compassion or mercy and ignored in our please for mitigation.
So if they found an escape clause to help correct a wrong then why not let them use it? As Harper says, never let a good crisis do to waste.

15. Robin GTA from Canada writes:

Isn't this Andy Willis's Blog? Don't bloggers normally respond to contributors, interact with contributors?

Where are you Andy, step up and answer some of our questions, many great ones posted here in response to your blog.

Hello?

16. S A from Vancouver, Canada writes:

Andy: Island Man makes probably the best point thus far. This is a tremendous 'escape hatch' for the Finance Minister, and The Conservatives as a party. We all recognize Stephen Harper broke a specific promise which had very real impact on many citizen's investment decisions. It was hastily done, and clearly without consultation or any solid research. It was a hammer approach to the Income Trust problem. As Tip O'Neill famously said "All politics is local". If Stephen Harper ever hopes to regain my vote he will need to employ Island Man's 'escape hatch', to erase the broken promise that me a cost deal of money. What a wonderful opportunity for Mr. Harper to 'help' retirees, without admitting error. Classic 'win-win' situation.

17. Kublah Khan from Canada writes:

Willis says:
"In sum, any Conservative move on trusts would be blatant pandering, and lousy public policy."

K.K. says:
"In sum, any Conservative move on trusts would be a very wise political move and could easily be shown to be in the public's best interests"

18. Alastair james Berry from NANAIMO BC, Canada writes:

"In sum, any Conservative move on trusts would be blatant pandering"

Which is worse BLATANT LYING or BLATANT PANDERING?

The Pandering may return a few disgruntled Tory sheep to the Harper fold. As such it is POLITICALLY EXPEDIENT.

19. Walter Toronto from Toronto, Canada writes:

We still haven't seen the details of all those tax losses supposedly caused by income trusts. On the other hand we can provide details of tax losses caused by buyouts by private equity, foreign companies, pension plans, etc. And maybe this reversal would play well both in Ontario and Alberta - quite a miracle.

Anyway, Andrew, your comments have been glib and unsupported.

Okay NDP. Listen up: “Debt is the pariah in the new economic order”

There was a good article in Saturday’s Globe by industry player (read: not a lame reporter) Tom Bradley entitled “Debt is the pariah in the new economic order”. This is a reality that all Canadians, especially policy makers need to understand.

Interest on debt, like distributions on income trusts is paid from pre tax cash flows. Both are then taxed in the hands of investors. So far, so good. The differences between debt and income trusts are however twofold. First distributions on income trusts paid to foreign investors is taxed at the rate of a 15% withholding tax. Courtesy of Jim Flaherty (the true progenitor of tax leakage), interest paid to foreigners is now taxed at a rate of ZERO. Flaherty reduced the withholding tax on interest from 15% to ZERO in the 2007 budget. This causes tax leakage, without a doubt. The other main distinction, that is making itself known these days, what with the pending bankruptcy of Nortel and Canwest today issuing warnings on its debt covenants, is that debt has interest and principle obligations that are mandatory repayment obligations. The failure to make timely interest and principle payments, means that a company is insolvent. When was the last time you heard of an income trust going insolvent?

An income trust will (virtually) never go insolvent as there is no obligatory payment of distributions to unitholders and there is no fixed maturity repayment. Distributions are paid to investors in accordance with the “ability to pay”. There is never any mismatch in the ability to pay with an income trust. If Nortel and/or Canwest were income trusts, they wouldn’t be filing for bankruptcy or be in default of their debt covenants. This is a virtue that is lost on many, including the NDP. Apart from this important virtue, the attributes of an income trust, versus a common share, are such that the marketplace is wiling to place a higher value on a business structured as a trust versus a corporation. This is simple matter of supply and demand, and has nothing to do with any tax benefit conferred on trusts at the expense of Ottawa, since Ottawa collects as much from a business as a trust as it collects from the same business as a corporation, and often more.

The corollary of this higher value that is placed on these companies formed as income trusts, is that they have a lower cost of capital and are much better able to compete in the global economy, where cost of capital is a major determinant of competitiveness. We do want Canadian enterprise to be competitive don’t we? Those who lobbied for the death of income trusts were actually lobbying for a preservation of the status quo, and sought to deny the emergence of the greater cost of capital competitiveness of Canadian businesses.

If the NDP thinks that there is a tax benefit conferred on trusts at the expense of Ottawa, then they need to prove it. 18 pages of blacked out documents is all Flaherty has offered as his empty "proof". Is that the NDP’s standard of proof? I certainly hope not, if they wished to be viewed as a credible junior opposition party.

Meanwhile, BCE provides a good case example of the new paradigm of debt being the pariah of the new economic order. Denied by Harper ans Flaherty to maximize shareholder value (and tax collection to Ottawa), BCE resorted to a LBO, that would have seen Ottawa lose $800 million a year in taxes (vis a vis an income trust) and see the company burdened with a capital structure that was 90% debt (or was it 105%?). That looming debt load was what prompted BCE to fire 2500 people and increase service costs to its customers. Is that what the NDP stand for? Meanwhile the BCE deal was completely stillborn in this new economic order that is before presently us. BCE was deemed to be insolvent before it even left the womb of the cowboy capitalists who conceived it.

Wake up NDP. Somebody has to own these companies. Preferable don’t you think that these companies be owned by Canadians (rather than foreigners) under a capital structure that ensures their ongoing survival and competitiveness? A model that also just happens to maximize the collection of tax revenue by Ottawa. Yes Virginia. I am speaking about income trusts.

Debt is the pariah in the new economic order

TOM BRADLEY
Globe and Mail
January 10, 2009

When trying to explain what's going on in the stock market, we often draw comparisons to the housing market. It helps to put the mysteries of Wall Street into terms that people are more familiar with, namely real estate.

For the purposes of this column, the analogy is useful in discussing how a new economic order is developing in the corporate world.

For purposes of the comparison, the house is equivalent to the company's operating assets - its facilities, staff, products, customers and brand. In the case of the house and business, the assets have a capital structure laid over top. The homeowner likely has a mortgage on the house. A business may have some long-term liabilities against its assets, such as bank debt, bonds and/or preferred shares.

If the value of the assets drop from $500,000 to $400,000, not everyone is affected equally. Mature homeowners with no debt are down 20 per cent. That's serious money, but not nearly as bad as a younger family with a $300,000 mortgage. Their equity has declined 50 per cent.

Leverage and a 20-per-cent drop in asset value makes for a wide range of outcomes, which shape future options and actions. A family with a small mortgage and a need for more space can use the weak environment to upsize. They're smiling all the way. At the other end of the spectrum, the new owner who put zero down has been wiped out and is looking for rental accommodation.

In business, the severity and duration of the credit crisis has made a company's capital structure a key differentiator. The economic order is changing based on whether you're "levered" or "liquid." Companies with a clean balance sheet, no near-term debt maturities and some cash around haven't had to do anything new or different to move up the industry ladder. They've just held their place while their once formidable but debt-laden competitors have slipped into survival mode.

Think of it as revenge of the guy who drives a seven-year-old Honda Accord and has no mortgage, or the executive that finished second on his last three deals. Over the past five years, a period when anything that moved could get a loan, these under-levered "losers" lagged behind, but they're looking pretty good now.

The impact of the credit crisis has been nothing short of remarkable. One of the most extreme and tragic examples of this is Teck Cominco. The company is well run, owns high-quality assets and is diversified across different commodities. And it has always had a strong balance sheet, until recently when it did a heavily leveraged deal at the top of the market (Fording Coal). With the rapid decline of commodity prices, Teck has gone from being one of the world's leading mining companies to fighting for its life, all in a matter of months.

Teck, and other firms like it (levered), will be forced to sell assets at distressed prices and/or dilute existing shareholders, just as the banks have done. And they need the credit markets to open again so they can refinance their debt. Other cyclicals like Barrick, Potash Corp. and Magna International (liquid) also want the credit markets to reopen, but their motives are different. They want access to credit so they can expand their capacity, purchase distressed assets or do deals that are accretive to profits.

The hypersensitivity to financial strength has caught many investors off guard. Buying stocks when they're beaten up is a value investor's bread and butter, but it hasn't worked so far. Stocks with any balance sheet or liquidity issues have started out cheap, got cheaper, hit a point where there was no downside, became a screaming buy, and then ... and then ... became too risky to hold because of the threat of bankruptcy. The reward/risk measure gets better and better until it flips over.

Leverage and the credit crisis have dealt some companies a serious blow. But I'm not as discouraged as most people. Companies will recover and many will come out of the downturn in a stronger position than they went in.

In the meantime, there is a new greeting etiquette developing among business and investment people that reflects the importance today of a sound capital structure. A typical exchange on the Street goes something like this.

"Hey Jake, how are you doing?"

"Levered. How about you Fred?"

"Liquid. Hang in there buddy."

Harper and Flaherty get an earful on income trusts in BC

Harper, Flaherty in B.C. to woo voters ahead of Jan. 27 federal budget
James Keller, THE CANADIAN PRESS

SURREY, B.C. - Prime Minister Stephen Harper and his finance minister came to B.C. on Monday to show voters their government is working hard to manage the country's troubled economy.

Harper didn't announce any new plans or so much as hint at what could be in the coming budget. Instead, he re-announced a $1-billion highway development.

"The Prime Minister and I and others ... have been doing that since before Christmas, listening to Canadians from coast to coast and all walks of life," Flaherty said.

"This is fundamentally important, it's necessary so that we hear what the concerns are."

Flaherty urged the crowd to have their say, telling the group of mostly seniors that he's not thin-skinned.

"I want you to tell me what you think we should do," he said.

"You're in a great position tonight to influence what will be in the budget of Canada."

The budget questions posed and the advice given by the crowd were mostly tame.

But one point of contention was the Conservative tax on income trusts.

"What you did when you destroyed the income trusts in your October Halloween budget (in 2006) was terrible," one man said. "We suffered thousands of dollars in losses."

Another man told the finance minister much the same thing.

"You need to unring the bell on income trusts and restore them," he said. "They need to be restored because Canadians are suffering huge losses."

The Jan. 27 federal budget will likely include much of what was in the government's failed fiscal update in November, which almost toppled the Conservative minority.

The November economic statement included additional credit for the business development bank, measures to help the financial and manufacturing sectors and improvements for pension management.

But the Conservatives will likely need to go further to ease the fears of Canadians and pacify the opposition as gloomy predictions about the economy become an almost-daily occurrence.

As Harper and Flaherty tried to woo the westernmost province, there was more bad news from the Bank of Canada.

The bank released new surveys that indicate the country's business community has become increasingly pessimistic about what lies ahead as companies brace for slower sales, shrinking prices and disappearing jobs.

Statistics Canada reported last week that 34,400 jobs disappeared in December as the unemployment rate continued to climb to 6.6 per cent.

Many economists expect Canada to lose another 200,000 in 2009.

"This is not normal budgeting," said Flaherty.

"The world is not in its stable fiscal condition. These are extraordinary times."

-with files from Dirk Meissner in Victoria and Sunny Dhillon in West Vancouver

Content Provided By Canadian Press.

No one's job is safe

Harper kept Flaherty in the role of Finance Minister following the October 2008 election in the belief that the troubled economy demanded "continuity" and therefore a change in Finance Ministers would be imprudent, although sorely needed. Flaherty's first act of office was the Fiscal Update, which was the mother of all FU's, as it almost brought an end to Harper's continuity in office.....and may yet.

Unlike Ontario, where Flaherty was quasi successful in burying his $6 billion deficit, he is about to do his incompetent self one better, by delivering a budget deficit of some $40 billion.

James Travers: “'Seinfeld' election exposed media flaws”

Article: Here

My posted comment:

Jim. you forgot to mention this Seinfeld episode:

No James, where Canada’s media truly failed Canadians was on the income trust issue. The media played Blind Nurse Maid to Harper and Flaherty on this policy. A policy that cost Canadians $35 billion of their life savings, representing years of blood sweat and tears (assuming journalists are familiar with those concepts?). A policy that was predicated on the premise that income trusts cause “tax leakage”. Tax leakage being an infinitely provable or disprovable construct , for which Flaherty’s “proof” took the form of 18 pages of blacked out documents?

Some proof, eh Canada’s media pushovers? Pushovers like your colleague Carol Goar, who in a moment of brief honesty revealed: “I didn't explore the possibility that [Flaherty] was lying. Perhaps I should have.”

Well, duh?

True to your Seinfeld analogy, Canada's media is a comedy about nothing

Note to Harper: "Leaders who recruit charlatans and suck-ups rarely succeed"

Who's who in Harper's Cabinet. Distinguishing the charlatans from the suck-ups


Let Ignatieff do his own thing

By: Dan Lett

Michael Ignatieff’s choices for his inner circle have come under fire.

If there is one thing Liberals simply cannot abide, it is a winner.

Consider the case of one Michael Ignatieff. Despite having recently assumed the leadership of the federal Liberal party at a critical time in the political history of this country, Ignatieff continues to spend too much time dodging the sniping from the very people he is supposed to be leading.

This week, national reports indicated Ignatieff was close to completing his inner circle. Not surprisingly, that circle is comprised of many Torontonians who played an instrumental role in luring Ignatieff into federal politics, getting him elected to the House of Commons and running his leadership campaign. Despite the inherently logical approach of dancing with the ladies that brung him, he has been criticized from within the party.

A Canadian Press report this week indicated "some Liberals" were unhappy Ignatieff was not recruiting from the ranks of those Grits who supported other leadership contenders. The report suggested Ignatieff might be ignoring good people from other camps, a strategy that contributed to former prime minister Paul Martin's destruction.

There is no doubt some Liberals are concerned about Ignatieff's actions. This is a familiar refrain when a new Grit leader takes over. But these naysayers are revealing more about themselves, and the damaged Liberal party brand, than Ignatieff.

Ignatieff is most definitely relying heavily on the people who helped him assume the leadership. These include Ian Davey (principal secretary), son of the great Liberal "rainmaker" Keith Davey; fundraiser extraordinaire Rocco Rossi (party national director); Don Guy (national campaign director), a former chief of staff to Ontario Premier Dalton McGuinty; and former Chrétien hit man Warren Kinsella (war room director). Respected former Liberal MP Paul Zed will serve as chief of staff on an interim basis.

In relying solely on those from within his camp, is Ignatieff merely repeating the mistakes of Martin and setting the stage for his own destruction? Hardly.

First and foremost, Martin's ignominious leadership campaign contributed little to the party's defeat in the 2006 federal election. There is no doubt the Martinites ignored the work of government to engage in leadership politics. But it was the stench of the Quebec sponsorship scandal, and the mid-campaign allegation Liberals had leaked policy on income trusts, that snatched defeat from the jaws of victory in that election.

Ignatieff has not adopted any of the sheer ruthlessness of Martin's leadership bid; a prolonged, bloody ground war that separated Grits into two camps: pro-Martin or persona non grata. More importantly, that ruthlessness extended into the prime minister's office after he became leader. Pro-Martin MPs and supporters were rewarded; everyone else was relegated to the fringes of the party.

It wasn't so much that Martin only recruited from among his own supporters for his inner circle. Those who opposed him, and supported other leadership candidates, were dead to him.

Ignatieff has spent a lifetime studying governance and, during that prolonged education, he must have learned leadership is not a solitary task.

Leaders who recruit charlatans and suck-ups rarely succeed. The most successful political leaders are those who surround themselves with people of intellectual substance, who can stand up to their masters when necessary.

Taking all this into consideration, Liberals should be more concerned about whether the new advisers have the metal to stand up to the intellectually extravagant Ignatieff, and whether he is willing to listen to his advisers and govern his behaviour accordingly.

That is not to say there isn't value in bringing in the best people from other camps. In forging his cabinet, U.S. president-elect Barack Obama recruited his chief leadership contender, Hillary Clinton, to serve as secretary of state and retained George W. Bush's secretary of defence, Robert Gates. As his chief of staff, he picked Rahm Emanuel, a Democratic congressman who initially supported Clinton.

Looking at Obama's example, Ignatieff would be well-advised to make sure leadership contenders such as Bob Rae and Dominic LeBlanc have the leader's ear when it comes to determining the future direction of the party. In return, those former opponents should acknowledge the leadership race is over.

With Parliament in such a precarious situation, the Liberals should know by now that everything they do is part of an audition to return to government.

However, until the Liberals figure out they should be fighting Conservatives, instead of each other, they should not expect to govern the country.

dan.lett@freepress.mb.ca

The minimum condition precedent for the Liberals' support of the Budget......"Canadians deserve the truth"

Unless of course the Liberals are in the habit of being ignored and letting past misdeeds by the Harper government go unchecked, the Liberal Party needs, at the very minimum, to impose the will of Parliament as contained in the first recommendation of the Finance Committee dated February 2007(that was completely ignored by Potentate Harper), below:

RECOMMENDATION 1:

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 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.

As Michael Ignatieff himself has said many times “Canadians deserve the truth”. Hence the absolute imperative of answering the outstanding question above. Failure to do so, will simply mean that democracy in Canada is a joke. Goodness knows the media have been of utterly no use in answering this most fundamental of questions. In fact quite the contrary, as Canada’s media is simply an organ of the very corporate interests who lobbied Harper to shaft Canadians with his corrupt income trust tax. This places a premium on our elected politicians to perform their duties. How precarious of circumstances is that? I am holding Michael Ignatieff to his word.......”Canadians deserve the truth”. The truth about income trusts is long overdue. Now is the time to act. Procrastination by the Liberals on this issue is unacceptable.

Upon learning the truth, Canadians will quickly realize that the income trust tax adversely affects all Canadian taxpayers, since their was no loss of taxes in the first instance, whereas all the takeovers of vulnerable trusts that have ensued, has caused tax leakage of $1.2 billion a year, a number that will only continue to grow if the situation is not rectified immediately. I repeat, $1.2 billion a year in lost taxes from Flaherty’s utter incompetence, which will also become the legacy of the Liberals if they fail to act now.. Furthermore correcting this enormous fiscal blunder would be a win-win-win in terms of protecting Canadians’ savings, incomes and employment. Isn’t that what I heard Scott Brison say on CBC this week, that the Liberals were seeking to achieve in the upcoming budget? Now is the time for the Liberals to act, and demonstrate action that aligns with their flowery and emotive rhetoric of the past two years on the income trust issue.

Liberals: We aren’t looking for your sympathy. Just your leadership in the face of Canada’s tin pot dictator and two bit Prime Minister.......Stevie the Crook. Nothing about this is difficult or daring. 95% of leadership is showing up for work. Please do your job on behalf of the 2.5 million Canadians who were directly adversely affected and on behalf of all tax paying Canadians who are also adversely affected.

Handing it to the Liberals on a silver platter

........will the Liberals walk the talk? Seize the opportunity? Advocate for ripped-off Canadians?


Les Parsneau writes:

(1) "We are ready to consider all propositions. We are in an unprecedented period," Mr. Harper said.

What a great opening for Iggy. Brent does he have the detailed information to explain to Flaherty and Harper how repealing the income trust tax will help the economy? He should present it to Harper and the country through some press releases.

http://www.theglobeandmail.com/servlet/story/RTGAM.20090109.weconomy10/BNStory/Front/home


(2) "Sometimes when government gets into things, they come up with rules that don't make much sense," he (Flaherty)said..."

How true as they apply to the income trusts. Nothing Flaherty has done though because, it is "they" the government not "we" the government.

http://www.theglobeandmail.com/servlet/story/RTGAM.20090109.wstimulus10/BNStory/Front


(3) "Liberal Leader Michael Ignatieff says he will judge the Conservative government's budget on whether it protects those most vulnerable to the recession..."

How about the seniors who have been and are income trust holders whose life savings and investments in income trusts have been and are being decimated by this recession and the insidious income trust tax?

http://www.theglobeandmail.com/servlet/story/RTGAM.20090109.wPOLignatieff0109/BNStory/politics/home

Les Parsneau
Collingwood, Ontario

Prorogue this

Ignatieff vaults Liberals into tie with Tories, poll suggests

OTTAWA — A new poll suggests the Liberal party has bounced back into contention now that Michael Ignatieff is at the helm.
The Nanos Research survey, provided exclusively to The Canadian Press, suggests the Liberals have moved into a virtual tie with the governing Tories.
Liberal support stood at 34 per cent, one point ahead of the Conservatives and up eight points from the Liberals' dismal showing in the Oct. 14 election under the leadership of Stephane Dion.
The poll suggests the Liberal resurgence was particularly pronounced in Quebec, where the party vaulted into the lead with 39 per cent support to 29 per cent for the Bloc Quebecois, 17 per cent for the Tories and 14 per cent for the NDP.
The telephone poll of 1,003 Canadians was conducted Jan. 3-7 and is considered accurate within 3.1 percentage points 19 times in 20.
A voter honeymoon with Ignatieff, who was hastily installed as leader last month, appeared to be the driving force behind the Liberal bounce.
Thirty-four per cent of respondents said they had a more favourable impression of the party since the change in leadership.
Moreover, 23 per cent said Ignatieff would make the best prime minister - double the score previously won by Dion, although still 12 points behind Prime Minister Stephen Harper.

Wait a second. You mean stock options can be repriced and still be taxed as capital gains?

OUR TILTED TAX CODE


Below we learn that Teachers’ doesn’t want boards of directors to reprice their employees’ stock options in light of today’s depressed share prices.

Isn’t this rich. Strange that Teachers’ can unilaterally reprice the BCE deal, but they don’t want companies repricing stock options?

That gross hypocrisy aside, stranger still, is that Ottawa allows repriced stock options to be taxed like capital gains. What could be further from the concept of a capital gain than a repriced stock option? I wish I could reprice my investments in such a manner. I know a few people who would like to reprice their income trusts that were hammered in value by Ottawa.

GOVERNANCE: EXECUTIVE COMPENSATION
Don't reprice options: Teachers

JOHN PARTRIDGE

January 9, 2009

One of Canada's biggest pension funds is urging companies not to reprice stock options or change other types of equity-based compensation to make up for the drubbing their share prices may have taken in the global meltdown of financial markets.

Instead, executives should share the pain with their shareholders, who do not have access to such techniques, the Ontario Teachers' Pension Plan said yesterday as, in advance of annual meeting season, Corporate Canada gears up to begin disclosing how much top company officials were paid for their labours in 2008.

"This is a sort of pre-emptive move on our part," Wayne Kozun, Teachers' senior vice-president of public equities, said in a telephone interview, noting that while some companies have earlier fiscal year-ends - banks and broadcasters, for example - Dec. 31 was the date for most.

"It's to say to boards of directors that, certainly, a lot of executives have done very well in the past few years, and as long as shareholders did well, we don't have a problem with that.

"But shareholders have suffered in the last year, so you shouldn't necessarily make management whole just because there was a bad year."

Teachers also has established itself as a leading advocate of shareholder rights over the past decade and more, and is a founding member of the Canadian Coalition for Good Governance.

Because it is still early in the year, the pension fund has not yet seen any cases where companies have sweetened the pill for their executives - or are proposing to - because of the equity market crash, Mr. Kozun said.

Teachers' representatives have talked about the issue to board members of some of the companies in which it is a shareholder, and the pension fund has been encouraged by what it has heard so far. "Hopefully, they will take into account the feelings of shareholders such as us," he said.

Mr. Kozun added, however, that it is impossible for Teachers to issue a blanket statement that it will necessarily vote its shares against any company proposals to sweeten the terms of its equity compensation because of the market plunge. "There can be very extenuating circumstances," he said.

Toronto-based compensation consultant Ken Hugessen, meanwhile, is recommending that boards of directors should take plenty of time to evaluate how stock-based pay plans and the stocks themselves have performed.

"I think everybody feels we're still in a period of substantial economic and financial uncertainty," he said in a telephone interview.

"These programs were for the most part designed to run for a number of years, and to sort of run out and start 'fixing' them because you had one rough quarter - and at this stage, that's what it is - in our view would be a bit premature."

Asymmetrical executive compensation is at the root of many of today's problems.

Executive compensation is asymmetrical. A large portion of that asymmetry comes from executive stock options. That asymmetry is further amplified by the Canadian government, who have arbitrarily and unfairly decided to tax employee stock option gains at half the rate of income? Why?

The value of this tax break is immense and is being hoarded by the upper 1% of our society. Apart from being grossly unfair, it is without justification or social purpose.

Capital gains are taxed at half the rate of income, because there IS capital at risk. However, gains from employee stock options entail ZERO capital at risk. Employee stock option gains are merely a form of income from employment, and should be fully taxed as such. This tax benefit for the uber wealthy needs to be closed in the upcoming budget. Failure to close this loophole will mean that government has simply been inveigled into a compensation scheme that has proven itself to be adverse to society.

Do you really think there would have been a sub-prime mortgage market if it weren’t for the way people were/are compensated? Maybe you should ask the CEO’s of Bear Stearns, Lehman Brothers, Citibank and Merrill Lynch. Here in Canada you might want to ask the CEO of Manulife why he decided to stop hedging his firm’s open ended exposure from synthetic investment products like Income Plus, if not to artificially drive profits and artificially inflate Manulife’s stock price......and his stock option gains.....taxed at half the rate of income from employment.

Sheesh, could it be more obvious? Why is the Canadian government providing tax incentives that encourage the latest and greatest abuses from the private sector?

Yesterday, back dating stock options. Today, sub prime. Tomorrow, gawd knows what?

What Flaherty doesn’t tell you, can only hurt ya

A few short months ago, in the last election during a debate at the Father Leo Austen High School, Jim Flaherty was trying to pump happy gas into the high school students in attendance by arguing that Canada was basically immune from the problems going on in the US and that our banks had none of the problems that were going on south of the border. He then revealed that the problems of Canada’s banks were confined to the arcane “bank to bank” lending market and that consumers and businesses would be unaffected.

Upon hearing this nonsensical argument being advanced by Canada’s Finance Minister in a roomful of young and impressionable students, I did my best to lace into Flaherty’s preposterous argument and asked the students where do they think their parents borrow money for their credit card bills or borrow money for their mortgages from, if not the banks? I then went to point out that if the banks are having difficulty funding one another (as Flaherty was arguing), then how long do you suppose it will be before these difficulties make their way into Canadians’ every day lives? I said that Flaherty was being delusional. Maybe that’s why Flaherty wouldn’t agree to have the videotape of this high school debate released to the public, since he was knowingly feeding these kids a litany of hogwash.

Now we have Flaherty creating a panel to deal with the very situation that was infinitely foreseeable three months ago, at which point Flaherty was in full denial mode. Now he claims that availability of credit is his “No. 1 concern”?

Flaherty forms team to revive credit market

Paul Vieira, Financial Post
January 06, 2009

The Minister of Finance, Jim Flaherty, said Tuesday he is considering introducing measures in the coming budget aimed at increasing the flow of credit to firms and householdsGreg Pender/Saskatoon Star PhoenixThe Minister of Finance, Jim Flaherty, said Tuesday he is considering introducing measures in the coming budget aimed at increasing the flow of credit to firms and households

MONTREAL -- The Minister of Finance, Jim Flaherty, said Tuesday he is considering the introduction of measures in the coming budget aimed at increasing the flow of credit to firms and households.

He told reporters in Montreal that a working group, consisting of banking and government officials, has been assembled to address "gaps" in credit markets. Among the issues the group is looking at is resuscitating the securitization and commercial paper markets, and "policy options" aimed at doing that are expected to be part of the Jan. 27 federal budget.

"We have had discussions about ways in which we can accomplish the goal of making sure the commercial paper works and functions. Those discussions are ongoing and there are a number of policy options there," Mr. Flaherty said.

The Finance Minister was in Montreal as part of his cross-country consultations toward designing the pending budget to be delivered in three weeks. He said the No. 1 issue being addressed in the consultations is access to long-term financing.

In efforts to date at boosting credit availability, the federal government has pledged to buy up to $75-billion of mortgages off banks' portfolio, as well as offer temporary insurance on interbank lending. However, firms, particularly small to mid-sized and those in the struggling manufacturing sectors, have complained that financing is not available, or it is on more onerous terms.

Mr. Flaherty said he "would expect to address in the budget" the issue of credit access, "as it is the No. 1 concern."

Mr. Flaherty's comments about resuscitating securitization and commercial paper markets came after he, Bank of Canada governor Mark Carney, and the federal bank regulator met with the chief executives of the country's big banks about tightness in Canadian credit markets.

The big banks argued in their meeting that their lending has increased on a year-over-year basis. However, they argued a number of players have fled from the small to mid-sized field and the big banks can't be expected to pick up the slack, while at the same time protect consumers' deposits in the face of the most serious financial crisis since the Great Depression. This was something Mr. Flaherty acknowledged Tuesday, noting there had been some "exits" from the financing scene, by players such as foreign banks and the financing arms of the Detroit car makers.

"Banks in Canada have been prudent lenders and, because of this, largely avoided the financial difficulties and subprime mortgage issues that have plagued banks in other countries," Nancy Hughes Anthony, president of the Canadian Bankers Association, said in a statement Monday. "It is in everyone's best interest that banks stick to these sound, fundamental principles of prudent lending."

Mr. Flaherty said he wanted to "encourage" the CEOs of the big chartered banks to work with Ottawa to ensuring robust credit flows, adding it was a team effort.

"We all have responsibility to ensure the financial system functions properly, in support of the Canadian economy. And the government has a role to play in that."

Open Letter to the Prime Minister

Orillia Packet and Times
January 8, 2009

Letter to the editor and open letter to the prime minister:

Dear Steven Harper,

I would like to nominate myself as a candidate for the Senate. I have an MBA, own property in Ontario, support an elected Senate and am an honest person with no criminal record. I am certainly as well qualified as Nancy Green (I ski a Mount St. Louis), Pamela Wallin (I am not a Liberal appointee) and Mike Duffy (I'm in better shape than he is and will last out the eight-year term).

OK, If I can't get a seat in the senate, can I get a bailout from the losses I experienced in the stock market in general or at least, the losses due to the Conservative's change in tax policy on income trusts? You are bailing out the ABCP investors and GM workers, why not me? I am interested in your logic as to why ABCP investors, who didn't check out their investments properly, deserve to be bailed out more than I do.

I trusted the election promises of the Conservative party when I invested in income trusts so I am more deserving of a bailout. Thanks.

Ross Fidler

Manulife involved in "blatantly abusive tax shelter"

Manulife in hot water over tax shelter

Eoin Callan, Financial Post
January 06, 2009


Manulife Financial Corp. is attempting to take advantage of the credit crisis to cash in early on a complex financial transaction that lawmakers view as a "tax shelter scam" and were due to shut down.

Canada's largest insurer on Monday turned to a U.S. court to force a rural electricity cooperative in Indiana to make an immediate US$120-million payment under the tax avoidance scheme in a move that would force the non-profit utility into bankruptcy.

The windfall would provide Manulife with a cash injection at a time when its U.S. subsidiary, John Hancock Financial, is draining capital from the parent company because of heavy exposures to volatile financial markets and is being claimed early because of a slip in the credit rating of one of the parties to the controversial transaction.

But the aggressive move is inciting fury on Capitol Hill, where influential members of Congress say the company is exploiting a legal loop hole to claim money it is not legitimately entitled to given recent findings that the underlying tax scheme is abusive.

Spurred on by Manulife's court action, a Democratic Senator is drawing up a new law that would apply a punitive excise tax on the Canadian insurer and any other financial institution that took similar steps, according to congressional aides.

At the heart of the fractious dispute that could jeopardize the power supply to 350,000 homes in the U.S. heartland is an opaque tax scheme that briefly gained popularity a few years ago among accountants working on behalf of insurers and banks with an appetite for risk.

Under the complex structure, financial investors entered into deals with non-profit utilities in the United States in which they acquired generating stations and train tracks and then immediately leased the assets backed to the co-operatives.

The exchanges of assets only took place on paper and had no underlying economic substance, but allowed financial companies to claim tax benefits the non-profit groups had no use for. But the deals have since been deemed abusive by U.S. authorities and were described as "shady tax shelters" and a "tax shelter scam" in Congress last month by Montana Senator Max Baucus.

While it is not clear how many of these transactions Manulife is involved in, public records suggest it is party to at least three similar deals.

The Internal Revenue Service is understood to be probing these transactions and pursuing a settlement with the Canadian insurer along the lines of earlier deals in which financial companies surrendered 80% of the withheld taxes.

The probe is understood to include the deal initiated in 2002 by Manulife's U.S. subsidiary, John Hancock, with the Hoosier Energy Rural Electric Cooperative, which led to the Toronto-based insurer owning parts of an electricity generator on the Wabash River in Indiana's corn belt.

As things stood before the credit crisis struck, that deal looked set to be wound down along with the others targeted by the IRS.

"The IRS will certainly deny the benefits that John Hancock is claiming," according to Joseph Bankman, a Stanford law professor whose opinion was submitted to a U.S. court on Monday.

But in the fine print of the 4,000-page agreement detailing the original transaction with the non-profit group is a clause that required the deal to be backed up by a financial guarantor with a triple-A credit rating in case the utility defaulted on its lease payments.

While Hoosier has never faltered in its commitments to Manulife under the deal, the financial guarantor -- Ambac -- has seen its credit rating downgraded amid the credit crisis along with many backers of so-called credit default swaps.

Manulife has seized on the change in the credit rating to claim a $120-million payment under the credit default swap for "early termination," allowing it to collect the tax benefits upfront.

Lawmakers and a lower Indiana court have dismissed this as a technical default given the guarantor is still backing the deal and Manulife could not reasonably expect to enjoy the tax benefits anticipated when the original deal was struck.

Hoosier argued before an appeal court on Monday that the claim by Manulife combined "some of the worst aspects of modern finance" that "combines the sometimes toxic intricacies of credit default swaps and investment derivatives with a blatantly abusive tax shelter."

Manulife declined to comment.

Liberals to hear economic ideas during 'listening' tour

"At a time when Canadians are worried about their jobs, their pensions, and their savings, Michael Ignatieff and the Liberal party are committed to holding a national conversation about Canada's economy," the Liberals said in a release."

Well, if that’s truly the case, then the Liberal’s upcoming budget demands MUST include a repeal of the income trust tax, which has caused the loss of $35 billion in Canadians savings and treats RRSPs at a significant disadvantage to Pension Plans. Harper destroyed the only prudent investment vehicle that existed for the 75% of Canadians without pensions that allowed them to generate decent retirement income. Meanwhile Harper carved out an exception for pension plans from his draconian 31.5% tax. How is that fair? Meanwhile Harper has bailed out these incompetent pension funds from their ABCP exposure.

The Liberals need to demonstrate that they are serious about their stated concerns about “pension and savings” by demanding that Harper repeal the income trust tax. Doing so will also preserves Canada’s tax base which has taken a $1.2 billion a year hit from the takeovers of income trusts under tax avoidance structures and non tax paying entities



Liberals to hear economic ideas during 'listening' tour

Juliet O'Neill, Canwest News Service
January 7, 2009 1:01 PM

Liberal Leader Michael Ignatieff and two MPs are setting out on a 'listening' tour to hear views on economic policy from a number of Canadian cities.


OTTAWA — After a quiet month since he was acclaimed Liberal leader, Michael Ignatieff and two MPs who specialize in economic policy plan a "listening" tour, starting in Halifax Thursday and Friday, to tune into local business and community views on the economy.

The tour over several weeks will include town hall meetings and other events in Vancouver, Calgary, Toronto and Montreal. Nova Scotia MP Scott Brison said he and Toronto MP John McCallum will travel with Ignatieff, who was chosen by the Liberal caucus to replace Stephane Dion after rival leadership candidates stepped aside.

"At a time when Canadians are worried about their jobs, their pensions, and their savings, Michael and the Liberal party are committed to holding a national conversation about Canada's economy," the Liberals said in a release. Brison said the Liberals have a number of economic policy commitments and are open to new ideas.

In an interview, he also said the Liberals stand by "the principles" of the economic policy in the coalition accord agreed with the New Democratic Party and supported by the Bloc Quebecois in late fall. Key to the accord was a call for stimulating the economy and providing extra support for the unemployed and retired persons.

The tour will go beyond the Jan. 26th resumption of Parliament and the federal budget the following day. The opposition parties united in a threat to defeat Prime Minister Stephen Harper's minority Conservative government several weeks ago and asserted they could form an alternative government. Harper avoided defeat by persuading the Governor General to suspend Parliament. The budget is the next opportunity to defeat the government.

"The coalition proposed investing in people, in training and income support and infrastructure," Brison said. "All of those principles continue to be important. In broad strokes, all the opposition parties showed in the coalition accord that we actually understood the need to invest in people and infrastructure and provide meaningful stimulus. The only people who didn't get it in November were the Conservatives."

He also said some of the policies from the Liberals' election campaign platform are still appropriate although he would not want to suggest all will be adopted under Ignatieff, who has already distanced himself from Dion's green shift proposal for a carbon tax and redistribution of revenues through tax cuts.

"The economic situation has clearly worsened but there are some strong existing policies in our arsenal that make even more sense today," Brison said. "In the current economy they can provide real stimulus and they would help strengthen productivity and competitiveness as we move into a period of recovery in the future."

Examples he cited were grants to make homes more energy efficient, a move that would support the construction industry and help Canadians reduce energy costs and greenhouse gas emissions. Another proposal was for "green bonds" which would provide a fixed investment vehicle and a pool of capital for municipalities to tap for environmentally-friendly infrastructure projects.

The coalition accord proposed stimulating the economy by an unspecified amount by accelerating infrastructure spending, housing construction and retrofitting and investing in the manufacturing, forestry and auto sectors. It advocated skills training measures, eliminating of the two-week waiting period for employment insurance recipients, and measures to protect pensions and to lower withdrawal requirements from registered retirement income funds.
© Copyright (c) Canwest News Service

Flaherty's absurd government bailout of ABCP, triggers $200 million in success fees

Lawyers, advisors bill $200M for ABCP
John Greenwood, Financial Post
Tuesday, January 06, 2009
Financiaal Post


Canada's market for asset-backed commercial paper remains just as illiquid as it was the day it seized up nearly 17 months ago but the lawyers and financial advisors trying to rescue it have already billed noteholders for nearly $200-million.

According to documents filed in connection with the proposed $32-billion restructuring, lawyers for the investors committee, their financial advisors JP Morgan and others had been paid or submitted invoices for $199.1-million as of Dec. 8, 2008.

The lion's share of that money -- $87-million -- is going to JPMorgan, the New York financial advisor contracted by the investor committee to figure out how to convert the $32-billion of frozen paper into long term notes.

Meanwhile, thousands of holders of frozen ABCP, including some in financial distress, are still unable to access their investments.

Lawyers for the investor committee are expected to file a motion asking an Ontario Superior Court judge to approve an amended restructuring plan as early as today, paving the way for a court hearing by the end of the week, which is widely expected to result in a positive ruling.

The revised plan is bolstered by $4.45-billion in additional margin facility to support the leveraged credit default swaps that make up the bulk of the assets underlying the frozen ABCP.

The new cash is being provided mostly by the federal government, Ontario and Alberta, which has led some observers to call it a government bailout.

Observers say that if the court gives the green light to the workout as expected, it could be completed before Jan. 16, clearing the way for about 1,800 retail investors to get all their money back as part of a deal announced by Canaccord Capital and Credential Securities.

In a note to clients on Dec. 24, Mark Maybank, Canaccord chief operating officer, called the revised restructuring "an exceptionally important milestone in what has been a long and challenging process, but one that we have great confidence will be completed successfully."

Mr. Maybank said that under the current timetable, retail noteholders would have their money returned the week of Jan. 26.

While individuals will get their money back, the rest of the noteholders are unlikely to be so lucky.

Under the restructuring, the companies and institutions that hold the vast majority of the frozen ABCP will get new notes that they will most likely have to hold until they mature in 2016 since the market for investment products such as this is not expected to thaw.

The market for non-bank sponsored ABCP fell apart in August, 2007, after investors stopped buying and the banks that had agreed to provide emergency liquidity declined to step up. That prompted a group of major investors led by the Caisse de depot et placement du Quebec to halt the market while they put together a rescue plan.

Critics complain that the restructuring is flawed because it relies on the same group of liquidity providing banks that refused to step up in August, 2007, triggering the market collapse.

The $4.45-billion of additional margin facility was demanded by players such as Deutsche Bank AG, Merrill Lynch & Co. and Citigroup Inc. as a condition for entering into the revised plan.

Layton no longer trusts Harper, so why do the NDP blindly trust Harper’s tax leakage analysis?

Layton no longer trusts Harper, so why do the NDP blindly trust Harper’s tax leakage analysis?

Today we learn in the Edmonton Sun that “Jack Layton no longer trusts Harper”.

Welcome to the club. So why does Jack Layton and the NDP trust Harper’s tax leakage argument that destroyed the retirement plans of hundreds of thousands of Canadians? Where is the trust to be found in 18 pages of blacked out documents? Where did the NDP MP’s get off writing to their concerned constituents that: “Dear constituent: I have spoken with Judy Wasylycia-Leis, our party’s Finance Critic, she is confident that the government’s estimates of future tax leakage are accurate.”?

This income trust tax is a fraud. The NDP are the enablers of this fraud. The NDP needs to call upon Harper to prove his allegation that income trusts cause tax leakage.


Layton no longer trusts Harper
By PETER ZIMONJIC, NATIONAL BUREAU
Edmonton Sun
January 4, 2009

OTTAWA -- When it comes to politics, NDP Leader Jack Layton says 2008 taught him one certainty: don't trust the prime minister.

In a wide-ranging year-end interview, Layton says all hope that Stephen Harper's minority Conservative government was willing to work with other parties to get things done has died.

"I don't have confidence in him to deliver what he says now, because what we have experienced with Mr. Harper is that he will say anything and then reverse himself," said Layton.

"He will say anything to retain power."