Sunday, January 31, 2010

Stephen Harper supports the Marshall Savings Plan



In his Op Ed in the National Post of October 26, 2005 (below Stephen Harper made the passionate case for income trusts. He also made the case for the Marshall Savings Plan, in one of the many policy purposes to which it could be put, when he wrote:

“The government claims that income trusts enjoy an unfair tax advantage over corporate dividends. If they believe this, then the answer is not to shut down a valuable investment vehicle, but to cut the double taxation of dividends. In short, level the playing field and let the market decide between income trusts and dividend-paying companies.”

Ta da.....the Marshall Savings Plan is borne, as it avoids the double taxation of dividends received inside of RRSPs, by transferring these dividend paying stocks to a MSP, where taxes are paid on dividends and distributions in the year received, and hence dividends would be subject to the dividend gross up treatment, which avoids the double taxation of dividends, and place RRSPs (as MSPs) on a level playing field with taxable investors, as the MSP can rightly be thought of as a taxable investor insofar as common share dividends and income trust distributions are concerned.



Questioning income trusts puts seniors at risk

By: Stephen Harper
National Post
Wednesday, October 26, 2005

On September 19, the Prime Minister acted recklessly when he ordered his Finance Minister, Ralph Goodale, to wade into the income-trust market like a proverbial bull in a china shop. On that day, investors were put on notice that their popular income trusts were going to be targeted by a Liberal government seeking higher tax revenues from companies and investors.

Martin's reckless action has caused uncertainty over the future of income trusts, and so has wiped out billions of dollars in market capitalization from Canadian companies and tens of thousands of dollars from the retirement nest eggs of individual investors. Most notable was the damage done to Canadian seniors who may not have the time to recoup their losses.

One couple e-mailed my party to complain that the uncertainty around income trusts caused by the Liberals' announcement trimmed $30,000 from their retirement portfolio in a single day. Another man wrote to tell us that he had lost 15% from his his portfolio.

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.

The government claims that income trusts enjoy an unfair tax advantage over corporate dividends. If they believe this, then the answer is not to shut down a valuable investment vehicle, but to cut the double taxation of dividends. In short, level the playing field and let the market decide between income trusts and dividend-paying companies.

As my party's finance critic, Monte Solberg, says, the success of income trusts represents a rare triumph for investors over the tax man. Let's not be so naive as to assume that the Liberals will do the right thing to protect taxpayers. We'll need to fight hard to keep what we have, and even harder to gain ground.

It's time to stand up to Paul Martin and stop his attack on seniors and investors

Without realizing it, Kevin Lynch argues for income trusts


Kevin Lynch, Harper’s former Clerk of the Privy Council, was a co-conspirator along with Harper, Flaherty and Mark Carney in lying to all Canadians about the alleged existence of tax leakage from income trusts, as a means to deny Canadians a form of profit sharing investment vehicle that promised to end the corporate abuses so rampant in our society and in our capital markets. Bad public policy is what you get when you have academics and egg heads running the bureaucracy. Kevin Lynch and Mark Carney are to income trusts, what Ed Clark was to the National Energy Policy.

Both of these policies, the NEP and the income trust policy, are/were reckless beyond belief.

What isn’t beyond belief though, is that in arguing about all that is wrong with Canada, in his Globe piece entitled “Canada’s productivity gap”, Kevin Lynch, the super bureaucrat with no real world experience to speak of, is actually making a very compelling case for the absolute need to preserve and grow the income trust model and phase out the abusive (ie stock option driven decision making), capital inefficient, totally gamed and tired and worn out corporate model, as follows, Lynch’s text comments in bold, mine italicized and in brackets:

What isn’t beyond belief though, is that in arguing about all that is wrong with Canada, in his Globe piece entitled “Canada’s productivity gap”, Kevin Lynch, the super bureaucrat with no real world experience to speak of, is actually making a very compelling case for the absolute need to preserve and grow the income trust model and phase out the abusive (ie stock option driven decision making), capital inefficient, totally gamed and tired and worn out corporate model, as follows, Lynch’s text comments in bold, mine italicized and in brackets.


Globe Essay
Canada's productivity trap
The harder we work, the less rich we seem to be. We need to emphasize education, innovation and trade to break free


(“Work harder? Less rich?” Yes, which is Canadians need to become full fledged “profit sharing” participants in the work they do and become economically enfranchised again. Something made abundantly more possible with income trusts.)


We need to emphasize education (yes that way people wouldn’t be so susceptible to your tax leakage lies), innovation (what did you think income trusts were, if not an innovative made in Canada profit sharing investment vehicle, that you and Harper killed on falsehoods and for nefarious ulterior reasons, the same way that Diefenbaker killed the Avro Arrow) and trade (you killed an investment vehicle that saw huge amounts of foreign capital come to Canada and be taxes in Canada. Your actions of October 31, 2006 made Canada a laughing stock in the global capital markets and lead to a lawsuit under NAFTA, under the false reliance provisions granted to US investors under that trade agreement. You call that emphasizing trade?)

Kevin Lynch

Globe and Mail
Saturday, Jan. 30, 2010
There are few issues that evoke a blank stare more than productivity.
(something that is enormously affected by businesses’ cost of capital) Upon hearing the word, people either react with lack of interest or recoil in fear that what is coming is a lecture on working harder. The result is an absence of any serious public discourse in Canada about productivity. (this is Kevin Lynch’s way of setting up his article to suggest he is all-knowing and the reader is some dumb schmuck. Bureaucrats prefer things that way, it makes up for their complete lack of real world experience)

It is time we faced some uncomfortable facts.
(Yes, you and along with the Prime Minister and Finance Minister of Canada, lied to Canadians about tax leakage) Canadians have been collectively incarcerated in a beguiling productivity trap for almost a generation.(beguiled by whom?) We work harder and harder, use up our natural resources faster and faster, (and sell these precious resources to foreigners who use tax stripping methods to acquire these devalued companies, like Inco or Abu Dhabi buying Prime West Energy Trust because of your absurd income trust tax fraud) while the trap keeps us less rich, (buying the garbage investment products like Manulife’s Income Plus that wasn’t even hedged or products like ABCP that are disaster waiting to happen, and speaking about “trap”, how about the trap you created with your income trust tax that previously made it tax efficient to hold income trusts in people’s RRSPs, but now that these trusts are converting to corporations, RRSPs are the last place you would want to hold a high dividend paying corporation. That’s a trap that you created and which can only be remedied by the Marshall Savings Plan, something that Diane Francis calls “brilliant”. Do you believe in brilliant solutions to traps that government itself has created?) less able to provide public goods (thanks to the “welfare loss” of your income trust tax) and less competitive. Canadians see more people working and goods being produced as proof that productivity is not a problem. Yet this is the beauty of the productivity trap: While the illness worsens, the patients believe they are feeling better.(Do you mean the gullible Canadians who bought your BS line about tax leakage, only to discover that it is false, and not only is it false, but the policy that this lie of yours was put, namely the trust tax fiasco, has actually caused tax leakage of $1.5 billion a year, to solve a non existent problem that was a third of that size, and the $1.5 billion will potentially grow to $7.5 billion unless the Marshall Plan is adopted?)

(At this point I will sign off and let Kevin Lynch carry on with his inane navel-gazing arguments that sound like they came from the bottom of a Cracker Jack box. Income trusts are a huge boon to Canada, productivity wise, low cost of capital wise, innovation wise, savings wise, corporate discipline wise, etc etc . Tell you what? How about a debate between myself and Kevin Lynch on his income trust policy? I will donate up to $25,000 to a charitable cause, in the form of matching donations for a total of $50,000, on the provisions that the debate is televised? Why doesn’t Kevin Lunch out himself up for a debate and defend the income trust fraud of a policy that he had a hand in foisting on Canadians, in the exact opposite pursuit of everything he professes to stand for? Every point that Kevin Lynch makes in the balance of his article below can be refuted by the fundamental importance of preserving income trusts, but I will leave that to the debate. None more so that the false argument that is advanced below that “Canada’s pensions are actuarily sound” as if to suggest that all Canadians even have pensions, when in fact 75% do not and these are the people who most got the shaft from Kevin Lynch when he lied to Canadians about tax leakage to kill income trusts by taxing them at the hands of average Canadians in their RRSPs at 25%m, while pension funds can own them without paying the 31.5% tax. This is Kevin Lynch’s intellectually corrupt idea of leveling the playing field?)

For several decades, the Canadian medicine chest has been filled with a depreciating exchange rate, unsustainably strong U.S. demand, rising commodity prices and an increasing labour supply. These have kept the symptoms at bay. But with a Canadian dollar over 95 cents, weak U.S. and European demand, uncertainty about energy prices, and growing demographic pressures, a Canadian business-sector productivity level that has fallen to just 75 per cent of the United States means that the productivity trap may be painfully sprung.

The facts of Canada's poor productivity performance are well established, but not well known or understood. Unlike a fiscal deficit or unemployment or inflation, productivity cannot be measured directly. Unobservable it may be; unimportant it is not. A more productive economy grows faster, adapts better to changing circumstances, leads to lower prices, higher wages, and more jobs, improves living standards and affords more public goods.

There are two paths to the improvement of a country's standard of living. One is to have more people working, so that in total we produce more “stuff.” The second is to improve productivity, so that each worker produces more “stuff.” With demographics that ensure fewer future workers, the trap means that we won't be able to drive growth and raise living standards unless we increase productivity, something we have not done well recently.

Start with a statistical glimpse of productivity growth in our business sector. There was strong 4-per-cent average annual growth over the first postwar quarter-century (1947-1973), a much weaker 1.6-per-cent average pace over the next quarter-century (1973-2000) and a tepid 0.8-per-cent average growth rate recently (2000-2008). Comparing countries by output per hour worked per worker, Canada was an astounding 17th among OECD nations in 2007. Since Canadians work more hours than the OECD average, our total output per worker ranked 8th among OECD countries, but worse than the United States. Canada's business-sector productivity in 2007 was 75 per cent of that of the U.S, compared to 90 per cent in the early 1980s.

Next, take a sectoral perspective. From this vantage point, U.S. productivity performance was particularly strong in the manufacturing sector, and concentrated in information and communications technologies. The U.S. service sector also sustained consistently higher productivity growth than Canada's for more than a decade.

One explanation that was advanced in the 1990s to explain the gap was the sorry state of Canada's macroeconomic fundamentals. Our national debt was the second-worst in the G7; our deficits never-ending; our national pension plan in trouble; our bonds and stocks bore high-risk premiums; and the corporate tax rate was significantly higher than our largest trading partner's. These were not conditions encouraging to investment in productivity, Canadian businesses argued, and they were correct.

Fast-forward a decade. Canada's debt is now the lowest in the G7, our national pension plan is actuarially sound, macroeconomic risk premiums have disappeared from our stocks and bonds, and Canadian corporate tax rates are 12.5 percentage points below those in the United States. Despite this, business-sector productivity growth was actually worse in the decade just ended.

THE DOLLAR'S IMPACT

Consider the possible impact of the long decline in the Canadian dollar. A lower dollar paradoxically improves competitiveness but reduces wealth. It encourages business to use more domestic inputs and fewer imported inputs, which the lower dollar makes more expensive. Since Canadian business imports much of its machinery and equipment, firms employed more labour and less capital than their competitors. This reduced short-term costs, but impaired medium-term productivity, as business used older capital and less innovative technologies. This orientation saw Canadian business invest relatively little in home-grown research and development, and spend relatively little to license leading-edge technologies developed elsewhere.

A key source of U.S. productivity growth has been the development and production of information- and communications-related goods, and subsequently the broad application of these throughout the U.S. economy, particularly in the service sector. Sustained increases in service-sector productivity have a profound effect on the economy; services account for 80 per cent of the U.S. economy and 70 per cent of ours. Unfortunately, the intensity of usage of information technologies by Canadian business is only half that of the U.S.

International comparisons again demonstrate the research gap between Canadian businesses and their competitors. In 2007, Canadian business ranked 14th among OECD countries in research and development expenditures as a percentage of GDP. Canadian business spending on R&D was only 1 per cent of GDP, well below the OECD average of 1.6 per cent, roughly half of what U.S. business spends as a percentage of GDP and about a third compared with Sweden, Finland and Korea. This suggests that Canadian business has less capacity to be receptive to innovation, and less of a focus on innovation as part of integrated business strategy in Canada.

DEMOGRAPHICS AND DEMAND

If Canada's business productivity were near parity with that of the U.S., a Canadian dollar near parity would not be as stressful as it is. Moreover, the demographic crunch of a declining working-age population is looming. So is the shifting of demand away from our traditional markets, as the global economy adjusts to the rise of Asia, the financial crisis and the worldwide recession. All these developments underscore the need for urgency in tackling our productivity underperformance.

What will not work are one-off approaches, small fiddles to address a systemic problem and the view that it is someone else's responsibility. In short, a continuation of the status quo will not work. What is needed is behavioural change by Canadian businesses in their long-term strategies, and a shared sense of purpose by business, governments and the research community. A concerted productivity strategy should encompass innovation, the labour force, markets and attitudes, bearing in mind that there is no single or simple or immediate fix to this structural problem.

Innovation is a driver of productivity growth, creating the new products and processes that will allow Canadian business and workers to move up the value-added chain and compete on quality, service and uniqueness, not merely on cost. Canadian business spending on research cannot remain below the middle of the OECD pack if we are to spur innovation on the scale needed. Our public research capacity has improved greatly, but we need to focus on building global centres of research excellence, better commercialization of our research efforts to create jobs and wealth, better models of business-university partnerships, and better market-based means of financing the application of innovation, particularly a stronger venture-capital market in Canada.

Innovation and a highly skilled work force go hand-in-hand in driving productivity in a knowledge-intensive, global economy. Our aging demographics mean that fewer people will be working in the future; it is simple arithmetic that everyone will have to be more productive just to stand still. In a knowledge-based economy, high school completion and rigorous minimum literacy standards should be givens, not aspirations. We have fewer Canadians with university degrees than many of our competitors, fewer still in scientific disciplines, and we have to design new incentives to encourage the education outcomes we need as a nation. Immigration can offset our demographic trends, but its labour-market effectiveness depends on attracting skilled immigrants.

ENLARGING OUR MARKETS

Canada's trade linkages are akin to those of a cautious portfolio manager who is overinvested in traditionally safe markets. With the rise of Asian behemoths such as China and India, Canada needs a market enlargement strategy that includes new economic partnerships with the “Asian triangle” of China, Japan and India, expansion of Canada's Americas strategy to Brazil and a new economic arrangement with Europe. Canada should pioneer new partnership agreements oriented more to the treatment of services, investment, R&D, intellectual property and dispute-settlement arrangements.

Canada is a market-based economy where productivity gains must come largely from business. Governments should place more emphasis on speed, agility and frameworks to support productivity, and less on process and entitlement. Markets need more competition to spur faster adoption of new technologies. Better interaction between university researchers and business is key; in this, Sweden offers useful lessons. More emphasis on trade is essential; we are a trading nation, but not a nation of traders. In short, attitudes matter, they influence behaviour, and we must be strategic.

The global context Canadians face is complex, uncertain and changing structurally. It places a premium on firms, sectors and countries that are flexible, have solid fundamentals and anticipate change. Innovative and productive economies will have a better chance of sustained growth, rising living standards and good jobs. These are the challenges and opportunities for Canada to break out of its productivity trap.

Kevin Lynch is the former clerk of the Privy Council and secretary to the cabinet.

Jack Layton is Stephen Harper's yes man...three bags full sir.


Jack Mintz in an email to Brent Fullard, November 26, 2006

“I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero.”


NDP MP Denise Savoie in a letter to a concerned constituent in February 2007):


“I have asked Judy Wasylycia-Leis to investigate a number of concerns. I am confident in supporting her position on this matter: “I am confident that government estimates of future tax leakage are solid”"

Independent economists discredit govt tax leakage claims

OTTAWA, Feb. 1, 2007 /CNW Telbec/ - In remarks delivered to the House of
Commons Finance Committee Thursday, Dennis Bruce, Vice President of HLB
Decision Economics Inc., provided data and supporting documentation to
discredit the Department of Finance's tax leakage claims.
"The department is sharply overstating tax leakage," said Mr. Bruce, who
added that there would be minimal costs associated with a 10 year phase-in of
the new tax on income trust distribution payments.
HLB Decision Economics, an Ottawa-based independent consulting firm that
provides analytical consulting services to industry and governments worldwide,
has been working on behalf of the income trust sector to develop a comparative
analysis of taxes generated under the income trust structure versus the
corporate structure.
Mr. Bruce told committee members that his firm worked with the Department
of Finance as it prepared the federal government's 2005 consultation paper on
the tax effects of income trusts. Specifically, HLB was asked by the
department to develop a common methodology and assumptions for deriving tax
leakage estimates.
Mr. Bruce said that HLB and the Finance Department achieved consensus on
the methodology with one exception - they disagreed on whether to include
deferred taxes. Deferred taxes are derived from distributions, capital gains,
and dividends received in tax exempt accounts. While they are not immediately
taxable, they are taxable upon withdrawal from such accounts.
"The discussions that you are hearing about deferred taxes reflect
confusion about budgeting convention versus policy analysis," said Mr. Bruce.
"While federal budgeting is done on a current basis, federal policy analysis
is done on a life-cycle basis. Accounting for the life-cycle effects of tax
changes, namely deferred taxes, is appropriate in the consideration of tax
policy."
Mr. Bruce went on to outline the factors that resulted in the differences
between HLB's tax leakage estimates and the tax leakage figures put forward by
Finance Minister Jim Flaherty. These factors include:

<<
1) The Department's assumed effective corporate tax rate for energy
trusts fails to reflect the reductions in the tax rates for resource
corporations from 2004 through 2006, from 27.12% to 24.12%. This
results in an overstatement of tax leakage of $84 million;
2) The Department's figure for income trust units held in tax exempt
accounts is overstated. Derived from data from surveys, Statistics
Canada, interviews and Scotia Capital Markets data, the percentage of
units held in tax exempt accounts is 31 percent, less than the
Department's 38 percent estimate. This results in an overstatement of
tax leakage of $125 million;
3) The value of deferred taxes is excluded from the Department of Finance
analysis. This results in an overstatement of tax leakage of
$80 million; and,
4) The Finance Department's atypical inclusion of the impact of limited
partnerships, which reduces the tax leakage to $45 million.
5) The impact of future legislated tax changes post 2010 has not been
accounted for. Doing so reduces the ongoing federal tax leakage after
2010 by $232 million.

Mr. Bruce stressed that the discrepancies between HLB and the Finance
Department led his firm to conclude that the Finance Department is "sharply
overstating tax leakage."

Specifically, HLB concluded that:

- Federal tax leakage for 2006 was $164 million, not the
half billion dollars stated by the Department; and,
- Ongoing tax leakage, post 2010, after taking into account legislated
tax changes, is $32 million per year, about five percent of the
Department's figures.
>>


For further information: Dennis Bruce, Vice President, HDR - HLB
Decision Economics Inc. (613) 234-0080; Cell: (709) 632-1708

pfft...so much for the NDP!


Dr Mike has left a new comment on your post "Jack Layton’s role in bringing systemic financial risk to Canada”

So much for the NDP being the party of the people & the defender of the little guy.

Millions of us small investors scrimped & saved over our working lives in order to have a good comfortable retirement.

We saved & we invested in order to look after ourselves & not be a burden to others.

We invested our savings in income trusts because we wanted good returns & we wanted control over the company that we were able to own ourselves.

Along comes Flaherty with the help of the NDP & kicks us in the groin telling us we were losers & idiots for having all of our eggs in one basket.

Well , we put our eggs in that particular basket because the PM in his trained economist wisdom told us to invest in income trusts.

We believed him so we did just what he told us.

Who would of thought that he may be lying.

The NDP became full partners in the lie
, bought & paid for by the pension plan trust tax carve-out.

The NDP has lost all credibility as defenders of the little guy as their fingerprints are all over the knife in our backs.

Dr. Mike Popovich

Saturday, January 30, 2010

Jack Layton’s role in bringing systemic financial risk to Canada


Click on image to enlarge

When I last spoke with the NDP’s Finance Critic Thomas Mulcair on January 15, 2010, to acquaint him with the terms of the Marshall Savings Plan to deal with the income trust mess that his party and the Conservatives had created, I was literally bowled over how little this guy knew about finance and his inability to recognize a “brilliant” face saving win win solution for all Canadian taxpayers. Instead all I got was some dogmatic nonsense about how the trust structure was being used for things it was never intended and he used BFI Income Fund as some sort of poster child for a trust gone wild.

I then pointed out to him that his absurd logic and absurd policy only hold forth the argument that all would be right and just with the world if BFI were simply bought by a pension fund, as somehow that type of ownership in undeserving of the 31.5% tax, whereas ownership in an RRSP gets double taxed at rates as high as 62%. I also pointed out to him, where does he get off saying that just because something has evolved to a point different than where it started, doesn’t mean its bad, as I asked him how successful would mankind have been had it not been for the evolution of an opposing thumb and fingers?

Given that was a rhetorical question, I then pointed out to him that income trusts are a unique form of investments with attributes that are good for investors and for the issuers and the Canadians economy itself. I told him that income trusts are a form of profit sharing investment vehicle and the fractional ownership of a business profitability and represent an important democratization of the capital markets, a term I borrowed from Gordon Tait of BMO Capital Markets and his seminal research report entitled “The inconvenient truth about income trusts”.

I then pointed out to Thomas Mulcair that standing in the way of people saving for retirement and taking choices away from people was playing right into the hands of commercial interests like Manulife who are seeking to kill the competition for their grossly inferior investment products and specifically named Manulife’s Income Plus, a variable rate annuity product that Manulife failed to hedge. I asked him whether he was even aware that Manulife and almost gone bust during the global financial meltdown. Mulcair had no idea what I was talking about. I told him that killing income trusts was the goal of the life insurance industry and groups like Manulife, who specifically launched their product Income Plus in the first week after the Halloween massacre and that its popularity sky-rocketed in the absence of a viable income trust market....only for Manulife to expose itself to massive stock market risks that it didn’t bother to hedge that underlay this Income Plus product.

I then told Mulcair that Warren Buffet called any life insurance companies that issued this type of product to be “crazy”, and Warren Buffett was talking about those firms that attempted to hedge these products, whereas Manulife did not even bother to hedhes these riks. I wasn’t even sure whether Mulcair even knew who Warren Buffett is, but surely he did, although nothing else I said was met with any degree of knowledge on Mulcair’s part. He had no idea that Manulife almost went bust and even less idea what risks were associated with Manulife pumping out more variable rate annuity products now that the NDP had been duped into killing income trusts on Manulife’s behalf. Talking to Mulcair, I was reminded of babes in wonderland

I concluded by saying to Mulcair that this policy that was endorsed by his party has been an unmitigated disaster and that one of its greatest adverse policy outcomes is that it promotes the sale of synthetic derivative products like Income Plus, by insurance companies and they aren’t even insuring them against the risks that are embedded in these products. How's that for a contraduction in terms: an insurance company that doesn't insure itself? I told Mulcair that his party’s total ignorance of the capital markets is contributing to systemic financial risks and creating “too big to fail” outcomes like Manulife nearly became. I contrasted this with income trusts who pay out only what they earn. Nothing more, nothing less, No too big to fail, No bankruptcies. He didn’t have a clue what I was talking about.

Perhaps if Thomas were to read today’s Financial Post, he might get some idea of what the NDP have been aiding and abetting through their total ignorance of financial matters, a point we have been making since we ran an ad in the Hill Times back in early 2007 entitled “Strange bedfellows: The NDP and Manulfe Financial Corporation”. Strange bedfellows indeed. This is but a sampling of this expose article in today’s Financial Post:

Inside the fortress: Drama behind Manulife's doors

Theresa Tedesco, Chief Business Correspondent, Financial Post Published: Saturday, January 30, 2010

BLINDSIDED


Trouble began showing up on Manulife's radar in April 2006. ( my note: so they thought they would make things worse by launching more of the same in the immediate aftermath of Flaherty’s income trust bombshell of October 31, 2006 and supported by the NDP) But by 2006, according to the company's internal documents, the insurer was now dealing with growing risk exposure caused by the gap between the amount it promised to pay its variable annuity customers in the future, and the amount set aside to meet those guarantees.

Manulife's chief executive took his case to Ottawa, where he met with Bank of Canada Governor Mark Carney; Kevin Lynch, the Clerk of the Privy Council and Secretary to the Cabinet; and federal Finance Minister Jim Flaherty. He also requested time with Prime Minister Stephen Harper.( Would be interesting to know what meetings good old Dominic D'Alessandro had with these guys just prior to oct.31/2006.)

According to internal company documents reviewed by the Post, the insurer's chief risk officer made a presentation to the company's chief executive Mr. D'Alessandro, warning that the company's balance sheet at the time "could not absorb the growing equity risk."

Friday, January 29, 2010

Ed Clark '“I don’t take myself so seriously"... so why does Ottawa or Queens Park?



Ed Clark: Infamous for the NEP, and Ontario’s HST tax cut for corporations like TD Bank, and backroom supporter of killing income trusts, since TD doesn’t have a retail distribution platform. The NEP was supposed to protect Canadian energy assets for Canadians, whereas the income trust tax has seen energy assets effectively stolen by foreigners causing a major loss of sovereignty and tax revenue. It’s no wonder that Ed Clark doesn’t take himself seriously with a track record like that? I don’t know who would?

What Toronto can teach New York and London

By Chrystia Freeland
Financial Times
Published: January 29 2010 17:20 | Last updated: January 29 2010 17:20

Question for Flaherty


The other day Jim Flaherty was asked a questions about reports that once all these income trusts businesses are forced to convert to the corporate model where they will avail themselves of the endless tax loopholes of the corporate model (like interest deductibility etc) which result in corporations only paying average taxes of 6.2% (according to StatsCanada, and less once Flaherty’s 22% corporate tax cut kick in) he said;

“The change to the rules in income trusts was to ensure there was fairness in the tax system, and we will continue to aim for that goal.”

If that’s the case perhaps someone could ask Flaherty the following;

“What incentive is there for the income trusts that were acquired and taken private by the various pension funds to convert to corporations and start paying some taxes, given that they will not incur that 31.5% tax, as would have been the case if they were held by the public and given that you exempted these businesses from the tax? How does this ensure fairness in the system, in view of the following tax dodge driven takeovers to date (with more likely to come)?

OMERs: Teranet Income Fund $2 billion (September 2009)
Caisse: Legacy Hotel Income Fund $815 million (August, 2007)
OMERs: Golf Town Income Fund $237 million (August 2007)
PSP: Thunder Energy Trust $419 million (April 2007)
BCIMC: CHIP Income Fund: $1,265 million (August 2007)


How much “tax leakage” will this be costing all taxpayers? Is CAITI’s estimate of $162 million a year from these 5 transactions (alone) correct?

If so, how is that possibly fair or equitable? Why do pension funds get to directly access the pre-tax cash flow of active businesses, but RRSP investors can not? Why do the 25% of Canadians with pensions get a better deal than the 75% of Canadians without pensions? Why the two-tiered pension system? I thought RRSPs were created 50 years ago by Liberal government to provide for a level playing field?

Barrie Examiner slams Harper on Income trusts


Just imagine if Jack Layton told Canadians that Harper had lied to him about tax leakage, or would Jack prefer that Ignatieff tell all Canadians that Jack & Steve lied to all Canadians about tax leakage?

Harper needs to meet promises with action

Our opinion
Barrie Examiner
January 29, 2010

So Canada's Prime Minister, Stephen Harper wants the G8 to honour past promises instead of making new ones. That's what our country's leader is telling other countries leaders in Davos, Switzerland.

This sounds like a great idea. Why go running off at the mouth making promises that then disappear into the cold thin air.

Talk is cheap. Actions, speak louder than words. Ah, these sayings, so much wisdom in two sentences.

It's so short and sweet and to the point. Anyone can understand these things.

So let's back the prime minister and hey, let's make it a part of our creed that this day forward, anyone who wants to make a promise to you has to have had backed up their previous promises with action to make the old promises come true.

And while we're on the subject...

Promise: Harper campaigned for an elected senate. His first act as Prime minister, he appointed his campaign co-chair Michael Fortier as a senator.

Promise: As leader of the Opposition watching some high profile members of parliament flee his benches for the Liberals, Harper led the fight to ban floor-crossing without a byelection. Once he won the election and his party was installed as the government, Harper overlooked the hard work of fellow candidates and stole David Emerson from the Liberals, rewarding him with a cabinet post. Neat note: Helena Guergis, a very vocal opponent of floor crossing worked closely with Emerson when he was made minister by Harper.

Promise: Harper pledged prior to the 2004 election to abolish the GST on gas as the price went above 85 cents a litre. As Prime Minister, he told us we just had to get used to higher fuel prices.

Promise: Legislation would be brought in to regulate when Canadians would vote and prevent governments from calling elections before they had lost the confidence of the House of Commons. The legislation was passed, but the prime minister ignored it and went to the Governor General in 2008 and asked her to dissolve parliament so he could have an election. She did and he did.

Promise: Prior to the 2006 election, the Conservative election platform said: "A Conservative government will...stop the Liberal attack on saving and preserve income trusts by not imposing any new taxes on them. Once in office, Finance Minister Jim Flaherty announced Income trusts would be taxed like corporations starting in 2011. Thousands of seniors lost their savings as a result.

Promise: Harper as part of the 2006 election campaign, promised to clean up government polling. He had regularly beat up the Liberal government for its spending $18 million on polls. In the first year as the governing party, the Conservatives spent $31.2 million on polls.

We could go on, but we have limited space. Let's just say if Harper could just meet these

promises with some action that would make them come true, he can consider his feet firmly planted on level moral ground and then he can start telling other people how they should behave.

Until then, he really needs to stop lecturing. He needs to stop promising.

Talk is cheap.

Actions speak louder than words.

We hold these Harper lies to be self evident


Click on image to enlarge

Letter to: Pension Investment Association of Canada


Mr. Peter Waite
Executive Director
Pension Investment Association of Canada

Dear Peter:

Re: The manifold inequities of the Tax Fairness Plan


Thank you taking the time to speak with me on the phone yesterday. As promised, I am writing to review in greater detail the matters that I raised on the phone, some of which you acknowledged you were not aware of.

Our association’s mandate:

Our association defines its mandate in much the same way that your association defines its mandate. We represent the interests of the 75% of Canadians who are without pensions and who seek to preserve the investment vehicle of profit sharing income trusts while also preserving the integrity of policies that have governed RRSPs since their inception, whereas you represent pension funds who manage the pensions on behalf of the 25% of Canadians with pensions.

It is instructive to note that to the amount of money that Canadians have invested in RRSPs for retirement income is roughly equal in size to the amount of money managed by your pension fund members, some $600 billion in each instance. As such we should be afforded with similar respect, albeit from different vantage points, on matters that affect the viability of Canadians saving/providing for retirement income. The income trust tax is one such matter.

Income trust matter, past and present:

As you know the policy rationale for making changes to the income trust marketplace and to income trusts themselves was the widely invoked premise that income trusts cause tax leakage and the less prevalent argument that income trust may have some negative consequences to Canada’s economy. Both of these notions were laid to rest, during the extensive work that was done by the private sector during the Public Consultation Round (PCR) when Mr. Goodale was Finance Minister. As you will recall this public consultation process was prematurely truncated and never reached its final conclusion, since a snap election was called, culminating in a change of government in early 2006.

That change of government was ushered in, in part, because of the promise made by Stephen Harper of “Unlike the Liberals, a Conservative government will never raid seniors nest eggs,, by taxing income trusts”.

I reference the Public Consultation Round of 2005, because your association submitted a letter dated December 6, 2005 (at which point it has been concluded by Finance Minister Goodale that no changes to the taxation of trusts would occur) in which you state:

“As noted in our letter to the Prime Minister of Canada and the Minister of Finance in April 2004, our main concern was that any proposed solution not discriminate against pension funds by, for instance, introducing caps on income trust holdings or tax on income trust distributions that only applied to pension fund holdings. PIAC is pleased that the solution proposed by the Department of Finance will result in pension funds not being treated differently than any other income trust investor.”

Our association supports fully the words and principles of “fairness” and “level playing field” that are at the core of your comments above. You go on at the close of your letter to say:

“Our fundamental objective is to ensure that any other changes do not place pension plans in a disadvantaged position in relation to any other investor, given our responsibility of funding and providing pension income for millions of Canadians.”

On that point, again, our association whole heartedly agrees. However I do wish to point out that this important principle was not adhered to in the changes that the Harper government, under Mr. Flaherty, made in October 2006, since Mr. Flaherty’s provisions place “other investors”, namely RRSP investors at a “disadvantaged position in relation to other investors”, namely pension funds. This disparity between investors arises from the simple fact that Mr. Flaherty’s income trust tax applies only to “publicly listed” income trusts, but not to private trusts. Private trusts are ineligible investments in RRSPs whereas private trusts are eligible investments with pensions plans, who are members of your association. This public versus private provision does nothing more than create an unlevel playing field amongst different classes of income trust investors, and immediately gives rise a “tax arbitrage” that can be exploited by one type of investor but not the other, and leaves the one type of investor susceptible to the predatory actions of the other type of investor, as discussed later below.

The idea that tax policy is designed in a way that is discriminatory against one type of investor while favoring the other, is the very position that you strongly advocated against. I call upon you to strenuously object to this same adverse outcome that has arisen under Mr. Flaherty’s policy, as if it was your members who were being discriminated against, even though it is our members who are bearing the brunt of that discrimination. I say this for reasons of integrity of our capital markets as well as the integrity of public policy, but also for the following reasons:

(1) The entire income trust policy is based on a false premise that income trusts cause tax leakage:

This false premise only has the semblance of truth when one adopts a flawed analytical methodology that “manufactures” tax leakage. The manner in which tax leakage has been manufactured by Mr. Flaherty is the act of leaving out all the deferred taxes that are paid by the 38% of income trusts that reside within either RRSP and/or pension plans. This is very dangerous precedent to set, and this skewed analytical framework may come to haunt future public policies and directly adversely affect you, in the same way that it has directly adversely affected RRSP holders of income trusts.

During the Public Consultation Round a definitive study was done by the independent economics consulting firm, HLB Decision Economics, who are the only group to actually work collaboratively with the Department of Finance and together they created a model for answering the otherwise unanswered question of tax leakage or no tax leakage. That study is entitled “The tax revenue implication of income trusts” and is available on line here:

http://www.caif.ca/incometrusts/publications_studies.htm

In reading the above study it will become quite clear to you that the methodology of leaving out deferred taxes, as if they were never paid or collected is wrong. Leaving out deferred taxes is also in complete contradiction to the proper rules of Accrual Accounting employed by the Government of Canada in its own financial statements, and Accrual Accounting is the standard laid down by the Auditor General. To create tax policies on a basis that is incompatible with how the government is told to conduct its affairs by the Auditor General is not only wrong, but also arbitrary and capricious in nature, particularly when the policy to which that flawed analysis was put, caused Canadians saving for retirement the permanent loss of $35 billion of their hard earned retirement savings (including the $300 million loss incurred by the CPP) and the loss of an essential “profit sharing” investment vehicle ideally suited to providing retirement income as well as saving for retirement.

This error by Finance in arriving at their claims of tax leakage, was also acknowledged by Jack Mintz in an email to me of November 26, 2006 in which he stated:

“I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero.”

To validate what I am saying on this crucial point, I recommend that you contact the lead author of the above noted study. His name is Dennis Bruce and can be reached at (613) 234-0080; Cell: (709) 632-1708, or dennis.bruce@hdrinc.com

I have also included at the bottom of this letter a press released that was issued at the end of the Public Hearings on Income trusts by Dennis and HLB entitled “Independent economists discredit govt tax leakage claims”

(2) Not only did tax leakage not exist in the first place, this policy’s outcome created real tax leakage, along with a “welfare loss”:

The inevitable takeover of artificially devalued, cash flow rich income trusts, that was predicted by knowledgeable professionals from the very outset of Mr. Flaherty’s income trust taxx, has now seem 51 income trusts moved from the hands of taxpaying Canadians into the hands of non-tax paying foreigners and other entities all of which use means such as leveraged buyouts to evade the payment of any taxes in Canada. This “zero” tax collection outcome was further assured when Mr. Flaherty reduced the withholding tax paid by foreigners on interest payments to service leveraged buyout loans from 15% to 0%, while at the same time arguing that the 15% withholding tax paid on income trust distributions to foreigners was stripping Canada of much needed tax revenue.

As debatable as that observation might be, what is not debatable is the real tax leakage that Mr. Flaherty’s income trust tax has caused, where none existed previously. The 51 takeover of income trusts announced and completed since the announcement of Mr. Flaherty’s income trust tax on October 31, 2006 amount to $58.9 billion in total. These 51 businesses pay approximately $5.3 billion in annual distributions that previously were taxed in the hands of Canadians at the rate of 38% (according to the Department of Finance) resulting tax revenue of $2 billion, that is now foregone now that these businesses have been acquired using means that eliminate the payment of taxes to Revenue Canada. To the extent that these businesses, as income trusts, were held 15% by foreigners and 85% by Canadians, the foregone tax revenue is still a whopping $1.5 billion per annum, or some three times the amount of Mr. Flaherty’s wildest claims about “tax leakage”, a condition that never existed in the first place.

The damage from this policy is far from over, as we enter the final year before the implementation of Mr. Flaherty’s unfounded income trust tax, as there are still 169 of the original 220 income trusts in the marketplace, that remain highly vulnerable to the same unwelcome outcome that befell the first 51. Meanwhile there is the welfare loss that these takeovers have cost Canadians who found there investment losses caused by the income trusts tax, “crystallized” by events beyond their control, as precipitated by these hostile takeover of their income trust investments by parties who are able to evade the very tax that has significantly diminished the value of these trusts in Canadians’ hands, but not in foreigners hands. Meanwhile this is a welfare loss with no offsetting benefit to the Canadians directly affected, nor any other Canadian.

(3) The income trust policy contradicts the very premise on which RRSPs were created in 1957:

The RRSP as we know it today was the creation of the Liberal government of Louis St Laurent when Walter Harris was Minister of Finance. The debates in the House of Commons are reaffirming of why RRSPs exist today and the reason they were created in the first place, comments such as:

Mr. Michener: “ This could affect some 400,000 taxpayers who are self employed; in fact it could go beyond that as framed because it is open to the employees who are not already contributors to an approved pension fund. I recall that my first plea on behalf of the self-employed described them as being discriminated against by the legislation as it stood in May of 1953 when Mr. Abbott was finance minister. I further believe representations have been made, perhaps over a period of ten years by different associations of self-employed persons, who find themselves in the invidious position of not being able to save for their retirement money which had not been taxed as would have been the case had they been contributing to approved plans.”

Mr. Herridge : “ Mr. Chairman this interesting provision will be to the advantage of possibly, I understand, half a million Canadians, mainly professional and business people. It will, I think, give those people a measure of fair play which had been denied them in the past. We feel that such a scheme is necessary if industrial workers are to have a measure of security on retirement, and the mobility which is their right in a modern democratic civilisation so that they can move from one company to another and not be chained to one area, in other words the right to full security that would be provided by such a national scheme, I think that in view of the large public investment in pension schemes - and a much greater investment still will result from the present changes to the Income Trust Act – the government has a direct responsibility for some action with respect to a national scheme in this country, I recall that last year we were told that over $30 million was lost to the federal government owing to pension schemes, and that sum will probably increase rapidly in the future. Future contributions, deductions and so on will make for even faster growth than in the past and I think that in the present occasion is a splendid opportunity for the minister, in the words of Winston Churchill, to “bring the magic of the law of averages to the rescue of millions who need it at this time.”

Mr. Harris: “On the other hand, there is no question at all in my mind but that stability of income and security for the future do work out to the advantage of the taxpayers of Canada generally, because such security minimizes the number of occasions on which emergency measures might have to be taken here in order to look after persons who otherwise might have been able to look after themselves through this kind of pension program that the hon.member has in mind. I merely say this to indicate that the Minister of Finance is not disinterested about seeing that adequate security and income is provided at all times

The Deputy Chairman: “shall the resolution carry? Some hon. Members: “Carried” The Deputy Chairman: “I think that completes the paragraphs.”

In these seminal comments that addressed the original policy intent of RRSPs of matching the benefits otherwise only available to that subset of the Canadian population that belonged to pension plans, you will see the words “discriminated against by the legislation”, “in the invidious position of not being able”, “as would have been the case had they been contributing to approved plans” and “the Minister of Finance is not disinterested about seeing that adequate security and income is provided at all times”.

These are most instructive to the current circumstances of the so called Tax Fairness Plan, that sees all of these seminal objectives of the RRSPs original intent being violated, in which pension funds can evade the payment of the onerous 31.5% tax on publicly traded income trusts, by the mere act of taking them private, whereas this is an option that is precluded from the 75% of Canadians who rely on RRSPs in the belief they would entitled the holder to “the right to full security that would be provided by such a national scheme”, which under Jim Flaherty’s income trust policy they do not.

(4) The tax arbitrage embedded in the income trust tax discriminates in favour of pension funds and against RRSPs

Tax arbitrage is defined as “Trading that takes advantage of a difference in tax rates or tax systems as the basis for profit”

Mr. Flaherty’s income trust tax policy is a policy that created a difference in tax rates for income trusts on the basis of whether an income trusts is public, and taxed at 31.5%, versus an income trust is private, and taxed at zero. This creates a huge incentive to “trade” income trusts from public to private, as “the basis for profit. This particular “trade” is only something that is available to pension fund and not to RRSPs, since RRSPs are precluded from holding private investments. This “carve out” provision for private trusts to be free of the 31.5% tax, is an unfair proposition and contrary to the basis on which RRSPs were created in the first place. This condition is also contrary to the views expressed by your association in the letter referenced above since this arrangement violates your principle of “not being treated differently than any other income trust investor”, except in this instance it is RRSPs that are being disadvantaged as opposed to pension funds.

Be it discrimination or reverse discrimination, neither is acceptable to our association and I would hope the same holds true for your association.

Compounding this problem is the fact that many public trusts have been acquired by pension funds and taken private. The vast disparity in value that arises when one party incurrs a 31.5% tax on distributions, and the other does not, creates a large “profit” for pensions funds who engage in this predatory practice. Take for example the going private takeout of Teranet Income Fund, which is the monopoly land registry system for Ontario, which was taken private in a hostile bid by OMERs. Not only was the bid by OMERs hostile, they actually exploited the absence of competing bidders to lower the price they originally agreed to pay. That event was covered in a Globe and Mail; article entitled “OMERS cuts Teranet bid because it can:.

Quite apart from the dynamics of that one example, the thing that all these go-private takeout of trusts by pension funds have in common is that $1.00 of distributions that previously was worth $1.00 inside an RRSPs is now going to be worth only $0.685 to an RRSP, but still worth $1.00 to the pension fund.

Given that the value of an income trust in the marketplace is almost exclusively derived from its level of distribution payment, it is clear that this unlevel playing field is rife for exploitation by the pension funds and to the disadvantage of RRSP holders. Not only do these forced sellers, faced with a looming 31.5% tax not receive any takeover premium relative to the undisturbed price (had the tax not been operative) they are faced with the valuation that is ascribed to the newly reduces $0.685 rather than the $1.00 distribution. The difference is the “profit” referred to in the definition of tax arbitrage above.

This tax arbitrage opportunity has been exploited in these “going private” transactions by pension funds:

OMERs: Teranet Income Fund $2 billion (September 2009)
Caisse: Legacy Hotel Income Fund $815 million (August, 2007)
OMERs: Golf Town Income Fund $237 million (August 2007)
PSP: Thunder Energy Trust $419 million (April 2007)
BCIMC: CHIP Income Fund: $1,265 million (August 2007)

(5) Pension Income Splitting in not a salve, but rather a compounding inequity

Pension income splitting was offered up along with the income trust tax as if it were some type of salve for the immense financial damage that had been inflicted on income trusts investors, without warning and without justification, given that tax leakage did not actually exist. Rather than acting as a salve, the manner in which this tax break has been administered is grossly unfair to seniors as it only benefits 14% of seniors to the exclusion of 86% of seniors, and requires that a senior have qualifying pension income. Something that income trust investors are least likely to have, as income trust investors are almost exclusively without pensions and therefore without pension income. This pension income splitting benefit is worth up to $12,000 in after tax income for those senior couples lucky enough to benefit from it.

I would not normally mention income splitting with you, as it is a benefit that extends beyond the mandate of the pension funds that your association represents, and is an “out of plan” benefit, except however certain of your association’s members did make this association between those matters of Mr. Flaherty’s omnibus trust tax policy that were “in plan” with those aspects of his policy that were “out of plan”, namely the matter of pension income splitting, as per this press release from OTPP:

November 1, 2006

Teachers' response to new federal income trust policy
The Ontario Teachers’ Pension Plan has advocated for a taxation policy on income trusts that does not discriminate against pension funds, and we are pleased to see that this is the case with the government’s announcement yesterday (October 31, 2006).

The reality is that, in a protracted period of low interest rates, it is important to find alternate investments with yields that help make up the difference. Income trusts have allowed us to do that in recent years. The challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented to us, but we are confident that our investment team will find them. The four-year implementation period for this new policy will enable us to gradually make any necessary adjustments to our portfolio.

There is good news for pensioners and other seniors over age 65 in this new policy, which will help take the sting out of the new tax policy on income trusts for them: the age exemption tax credit will be increased by $1,000 and income splitting will be permitted.

Contact: Deborah Allan, Director, Communications and Media Relations, Ontario Teachers' Pension Plan, (416) 730-5347, deborah_allan@otpp.com

For income trust investors who are among the 75% of Canadians without pensions, there was no such silver lining in the income trust tax, as they did not benefit from pension income splitting and nor were they able to evade the 31.5% income trust tax by the mere act of taking an income trust private, instead they were left with only the “challenge will be to find the investment vehicles that will replace the income and cash flow that income trusts have represented”, which has become a virtually impossible task, as there are no such alternative investments in the public markets, which means the 75% of Canadians without pensions will suffer a major dimunition in their retiremnt income and a corresponding decrease in their standard of living. Or what I call the hidden pension deficit crisis. The one you NEVER hear the politicians, policy makers or the press even talk about or acknowledge.

(6) Marshall Savings Plan Solution:

Fortunately there is a solution to address the mess that has been created by Mr Flaherty’s rash and ill-conceived income trust policy for inclusion in Budget 2010. Apart from its many virtues of this proposed solution known as the Marshall Plan is that virtue that this solution is a face saving solution for the Harper government. This solution was conceived of by our association on behalf of two or our association’s members, David and Lorraine Marshall of Cornwall Ontario, and on behalf of the 75% of Canadians who are without pensions and all other members of our association

Rather than explaining the policy for you here, I will refer you to the Diane Francis article of January 19, 2010 entitled “Tories must correct income trust blunder The Marshall Plan”

That article is available here: http://network.nationalpost.com/np/blogs/francis/archive/2010/01/19/tories-must-correct-income-trust-blunder.aspx

I would also refer you to the extensive feedback that we have received from Canadians across the country in support of the Marshall Plan. This feedback will soon be available on the website we are launching entitled MarshallPlan.ca, but for the meantime is available here:

http://caiti-online.blogspot.com/2010/01/200-reasons-to-adopt-marshall-savings.html
http://caiti-online.blogspot.com/2010/01/another-200-reasons-to-adopt-marshall.html

Here are a few selected comments:

St. Albert, Alberta Comments: For many years of my wife & I owned and operated a small business. Since we were among the estimated 75% of Canadians without pensions, we invested heavily in income trusts for our retirement income, based on Harper's election promise/lie to not raid senior's nest eggs by applying any new taxes to them, which he broke 10 months later. The net result of this reneged promise and the unproven allegation of tax leakage (witness the finance department's 18 pages of blacked out documents, end result of foreign takeovers of trusts etc.) was an irreplacable loss in all of our retirement accounts of over $300,000 and a much reduced retirement income.
Please do what is the right and responsible thing to do---resolve this income trust fiasco and implement the proposed Marshall Savings Plan to restore the chance of seniors to provide for themselves the retirement income that we diligently planned and saved for most of our lives.

Terrace Bay, Ontario Comments: The Marshall Plan would seem to be an excellent way to start to earn back some of the respect lost by the ambush of the most vulnerable members of society - those whose sole source of income are the fruits of their own careful investment choices. Broken promises (i.e. - lies) have no place in government, especially when they are so blatant and damaging to such a wide sector of the people.

Caledon, Ontario Comments: Restore a level playing field between the 75% of Canadians without pensions (RRSPs) and the 25% of Canadians with pensions

Joliette, Québec Comments: J'espère que vous voudrez aider les gens à la retraite qui n'ont pas de pension comme les élus. Nous avons besoin d'un revenu minimum et de bénéficier du revenu d'entreprises stables et matures qui ne visent plus à grossir.

Conclusion:

Thank you very much for taking the time to speak with me on the phone yesterday and for turning your attention to the troubling matters contained in this letter. I hope your association can see its way to supporting our proposal for the creation of a Marshall Savings Plan to arrest and partly correct the damage caused by Mr. Flaherty’s income trust tax and to restore a measure of fairness and equality of treatment and investment opportunity as between the 75% of Canadians without pensions and the 25% of Canadians with pensions.

Alternatively, serious consideration should be given in Budget 2010 to rescinding the Tax Fairness Plan in its entirety and in all its manifold inequity of outcomes.

I don’t think it behooves your association or the members of your association to be advocating for government policies that seek equal treatment for you in one instance, while on other occasions being acceptant of policies that result in unequal treatment for others. For principles such as fairness to even be considered principles, means that they must be adhered to consistently and uniformly, rather than selectively and arbitrarily, as has occurred and continues to occur under that abuse of the English language and abuse of moral principles known as the Tax “Fairness” Plan.

Please let me know if I can be of any further assistance to you on this matter, and we look forward to your association’s support in ensuring that no investor “be treated differently than any other income trust investor”, as presently exists today under a policy that needs to be rescinded or remedied via the Marshall Savings Plan.

Yours truly,


Brent Fullard
President and CEO
Canadian Association of Income Trust Investors/Taxpayers
www.caiti.info

647 505-2224 (cell)

cc. Members of CAITI and the 75% of Canadians without pensions.



Independent economists discredit govt tax leakage claims

OTTAWA, Feb. 1 /CNW Telbec/ - In remarks delivered to the House of
Commons Finance Committee Thursday, Dennis Bruce, Vice President of HLB
Decision Economics Inc., provided data and supporting documentation to
discredit the Department of Finance's tax leakage claims.
"The department is sharply overstating tax leakage," said Mr. Bruce, who
added that there would be minimal costs associated with a 10 year phase-in of
the new tax on income trust distribution payments.
HLB Decision Economics, an Ottawa-based independent consulting firm that
provides analytical consulting services to industry and governments worldwide,
has been working on behalf of the income trust sector to develop a comparative
analysis of taxes generated under the income trust structure versus the
corporate structure.
Mr. Bruce told committee members that his firm worked with the Department
of Finance as it prepared the federal government's 2005 consultation paper on
the tax effects of income trusts. Specifically, HLB was asked by the
department to develop a common methodology and assumptions for deriving tax
leakage estimates.
Mr. Bruce said that HLB and the Finance Department achieved consensus on
the methodology with one exception - they disagreed on whether to include
deferred taxes. Deferred taxes are derived from distributions, capital gains,
and dividends received in tax exempt accounts. While they are not immediately
taxable, they are taxable upon withdrawal from such accounts.
"The discussions that you are hearing about deferred taxes reflect
confusion about budgeting convention versus policy analysis," said Mr. Bruce.
"While federal budgeting is done on a current basis, federal policy analysis
is done on a life-cycle basis. Accounting for the life-cycle effects of tax
changes, namely deferred taxes, is appropriate in the consideration of tax
policy."
Mr. Bruce went on to outline the factors that resulted in the differences
between HLB's tax leakage estimates and the tax leakage figures put forward by
Finance Minister Jim Flaherty. These factors include:

<<
1) The Department's assumed effective corporate tax rate for energy
trusts fails to reflect the reductions in the tax rates for resource
corporations from 2004 through 2006, from 27.12% to 24.12%. This
results in an overstatement of tax leakage of $84 million;
2) The Department's figure for income trust units held in tax exempt
accounts is overstated. Derived from data from surveys, Statistics
Canada, interviews and Scotia Capital Markets data, the percentage of
units held in tax exempt accounts is 31 percent, less than the
Department's 38 percent estimate. This results in an overstatement of
tax leakage of $125 million;
3) The value of deferred taxes is excluded from the Department of Finance
analysis. This results in an overstatement of tax leakage of
$80 million; and,
4) The Finance Department's atypical inclusion of the impact of limited
partnerships, which reduces the tax leakage to $45 million.
5) The impact of future legislated tax changes post 2010 has not been
accounted for. Doing so reduces the ongoing federal tax leakage after
2010 by $232 million.

Mr. Bruce stressed that the discrepancies between HLB and the Finance
Department led his firm to conclude that the Finance Department is "sharply
overstating tax leakage."

Specifically, HLB concluded that:

- Federal tax leakage for 2006 was $164 million, not the
half billion dollars stated by the Department; and,
- Ongoing tax leakage, post 2010, after taking into account legislated
tax changes, is $32 million per year, about five percent of the
Department's figures.
>>


For further information: Dennis Bruce, Vice President, HDR - HLB
Decision Economics Inc. (613) 234-0080; Cell: (709) 632-1708

Wednesday, January 27, 2010

Obama states he is open to better ideas on health care?


Meanwhile here in Canada we have a pension crisis and a deficit crisis to deal with. In a timely response to both of those crises, grass roots Canadians have proposed to all responsible persons in Ottawa the “brilliant” Marshall Savings Plan that throws off $6 billion in much needed annual tax revenue AND solve the income trust fiasco that can be implemented NOW, in a way in which I am sure Obama wishes he had 60 Democratic senators and not 59?

This grass roots initiative has been wholeheartedly endorsed and enjoined by over 525 Canadians in the space of 48 hours from across the entire country and across all economic lines calling for all responsible persons in Ottawa to do everything they can to implement the Marshall Savings Plan into Budget 2010.

Please see those letters posted on the CAITI blog at http://caiti-online.blogspot.com/2010/01/another-200-reasons-to-adopt-marshall.html

Grass roots Canadians who show such initiative and innovation need to be represented by their representatives to help one another in solving some of today’s more intractable problems. How many other win win solutions are out there to deal with Canada’s pension crisis and Canada’s deficit crisis?

I wonder, what Obama’s reaction to such a golden win-win opportunity would be?

Reuters is allowing a biased and inherently false news article to go unrebutted



Today Reuters published a news story (see below) that quoted Flaherty as saying “The whole purpose of the changes with respect to income trusts in 2006 was to ensure that there was fairness in the Canadian tax system, and we'll continue to aim at that goal”

Meanwhile the Reuters Principles (see below) that govern the reporting by Reuters states “ That Thomson Reuters shall supply unbiased and reliable news services to newspapers”

The comments by Flaherty are not just grossly biased, they are false. To suggest that a tax regime that allows the Public Sector Pension Plan to privately own artificially devalued Thunder Energy Trust or OMERs to own artificially devalued Teranet Income Fund and NOT PAY the 31.5% trust tax, whereas I HAVE TO pay the 31.5% tax when I hold those very same investments is nothing remotely akin to achieving “tax fairness in the Canadians tax system” unless you think discrimination is fair, and the 75% of Canadians without pensions (and no seat at the negotiating table) go to the back of the bus, while the 25% with pensions (and endless access to the Minister of Finance) go to the front of the bus,, where they exploit this tax advantage by predatorily acquiring these artificially devalued trusts in a scheme known as a tax arbitrage.

Reuters is required by its own governing principles of accurate and unbiased reporting to report on what I have just told them, which is that Flaherty’s statement is false and highly misleading to the Canadian public about what was actually achieved by his income trust tax policy, which is a complete unlevel playing field between the holding of trusts by pensions funds and the holding of trusts by RRSPs, when it needs to be understood that this is in complete defiance of why RRSPs were created by a Liberal government over 50 years ago, which was to create a level playing field between these two sub groups of investors and make them one equal class and not two classes, with one preying on the other employing bespoke tax loopholes and tax holidays.

Meanwhile Reuters is owned by the billionaire Thomson family of Toronto, and the Thomson family has exploited this gross unfairness as between the 31.5% tax loophole that applies to RRSPs but not to private trusts, in their predatory purchase of Sleep Country Canada Income Fund, placing Reuters in a conflict of interest position of the possible reasons why this gross unfairness went unreported in their article of today and allowed Flaherty’s words to go unrebutted when he falsely claimed the income trust tax policy was designed to create tax fairness. It did nothing of the sort.

Please correct the public misperception that you are fostering with this biased and factually misleading statement by Flaherty in your article of today.

Also please note the following conflict of interest as between Reuters and the income trust policy unfairness that you fail to draw to the attention of your readers, but which has not escaped the attention of your owners as they exploit it to their financial advantage. Is Canada a Third world Canada where discrimination is pawned off as Tax Fairness:

Westerkirk spreads wings with Sleep Country takeover

Andrew Willis
Globe and Mail

Thomson family (owner of Reuters) holding company Westerkirk Capital continued to move out of the shadow of its larger corporate cousin on Thursday by teaming up on the $356-million buyout of Sleep Company Canada Income Fund.

......ask Flaherty why the Thomson billionaire are getting away with paying ZERO taxes and no 31.5% tax as his idea of a Tax Fairness Plan. Tell any one of these 500+ people why they have become second class citizens to the Thomsons:

400) belleville Comments: I am 78yrs old and have been fighting throat cancer for 6yrs and survive on liquids. I do not have a pension and have a RRIF which was totally invested in energy trusts which I was advised to keep invested after the Harper Flaherty promise. My RIFF dropped about 80 thousand dollars and the cut the annual minimum payment in half. The result was that any enjoyment I hoped for was lost for ever.


http://caiti-online.blogspot.com/2010/01/another-200-reasons-to-adopt-marshall.html

http://caiti-online.blogspot.com/2010/01/200-reasons-to-adopt-marshall-savings.html

Thank you
Brent Fullard
Caiti.info



Flaherty says to keep close eye on trusts

Wed Jan 27, 2010 10:14am EST

OTTAWA (Reuters) - The Canadian government will keep an eye on income trusts to make sure they do not avoid taxes when their favored tax status expires next year, Finance Minister Jim Flaherty said on Wednesday.

Flaherty was responding to a question, at a news conference on Haiti, about some income trusts trying to avoid paying tax in 2011. He said the government tries in each budget to close any loopholes it may find.

"If there's an issue with respect to the income trusts, then we'll look at that as well. The whole purpose of the changes with respect to income trusts in 2006 was to ensure that there was fairness in the Canadian tax system, and we'll continue to aim at that goal," he said.

(Reporting by Randall Palmer; Editing by Jeffrey Hodgson)

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Obama advisor says voters are craving for fiscal discipline and transparency


Senior Obama Advisor Valerie Jarrett was just on CNN where she stated that in today’s economic climate, voters are craving for fiscal discipline and transparency. She went on to stress that voters are deserving as well as demanding of fiscal discipline and transparency. That said, where’s Flaherty’s proof of tax leakage? Where is the Opposition Party’s sense of craving on the part of Canadian taxpayers who pay their salaries on the matter of transparency about Flaherty’s fraud called tax leakage? Blatant patent lies like tax leakage don’t sit well with the public, especially when they are being hidden under a rock by those who are sent to Ottawa to “represent” them?.

Where is Canada’s Obama?” Who is going to step up play the role of Obama, the empirical President to Harper, the imperial Prime Minister? This is a cake walk! I could do it in my sleep. Let’s see some action SVP.

Since when is tax policy designed to keep inferior products like Manulife’s Income Plus afloat, at a cost to investors of $35 billion and a cost to all taxpayers of $7 billion in foregone tax revenue? Manulife almost became a “too big to fail” taxpayer bailout because they didn’t hedge the risks embedded in that inferior junk food investment product.

Canada's little Dutch boy of Finance doesn't have enough fingers to plug this torrent of REAL TAX LEAKAGE


Re REUTERS Canada's Flaherty says to keep close eye on trusts [nN27174235]

If Flaherty hadn’t lied to all Canadians about tax leakage, in the first place he would have these problems to face, in the second place. Corporations only pay taxes at the blended average rate of 6.2% (Statscan) and their dividends are taxed at half the rate of income and the stock gains as well. Meanwhile trusts pay zero in taxes but THEIR OWNERS pay taxes at the rate of 38% on those same stream or earnings. What pea brain would think such an arrangement would cause tax leakage? And what loopholes does Flaherty intend to close for corporations? Surely not that huge corporate tax “loophole” known as interest deductibility. He tried that once and was burned to the ground. Is he now planning on changing tax laws pertaining to capital depreciation and tax free recovery of original investment dollars. Flaherty is an ambulance chaser-at-heart is desperate pursuit of hiding his original lie about tax leakage and all the unintended, yet totally predictable outcome of his myopic income trust fraud of a policy



REUTERS Canada's Flaherty says to keep close eye on trusts [nN27174235]


* Will seek to close tax loopholes if there are any
* Favored tax status expires in 2011

OTTAWA, Jan 27 (Reuters) - The Canadian government will
keep an eye on income trusts to make sure they do not avoid
taxes when their favored tax status expires next year, Finance
Minister Jim Flaherty said on Wednesday.
Flaherty was responding to a question, at a news conference
on Haiti, about some income trusts trying to avoid paying tax
in 2011. He said the government tries in each budget to close
any loopholes it may find.
"If there's an issue with respect to the income trusts,
then we'll look at that as well. The whole purpose of the
changes with respect to income trusts in 2006 was to ensure
that there was fairness in the Canadian tax system, and we'll
continue to aim at that goal," he said.
(Reporting by Randall Palmer; Editing by Jeffrey Hodgson)
((randall.palmer@thomsonreuters.com; +1-613-235-6745; Reuters
Messaging: randall.palmer.reuters.com@reuters.net))
Keywords: CANADA ECONOMY/TRUSTS


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companies around the world.

The MORAL HAZARD to all 308 MPs of not adopting the Marshall Plan


Stephen Harper and Jack Layton lied to all Canadians about tax leakage.

Tax leakage is no more an arcane concept than knowing what time of day that it is or the amount of money in your bank account at any point in time. Tax leakage, or not, is a hard fact

Stephen Harper and Jack Layton lied to all Canadians about tax leakage, because they relied on analysis cooked up by Mark Carney that left out 38% of the taxes collected by Ottawa from income trust taxpaying investors

That is also a hard fact.

As such Stephen Harper and Jack Layton are SOLELY responsible for all of the litany of adverse consequences of their deceitful actions that have occurred to this point in time, including the 51 takeovers that have seen Ottawa permanently lose over $1 billion in annual tax revenue.

The ongoing destruction caused by the gross deceit and incompetence of Stephen Harper and Jack Layton, can be HALTED by the adoption of the Marshall Plan, on terms consistent with the fact that income trusts DO NOT CAUSE TAX LEAKAGE.

The Marshall Plan’s greatest virtue is that it does not require either Stephen Harper or Jack Layton to admit to their lie about tax leakage, as the Marshall Plan’s structure makes the inclusion or exclusion of those 35% of taxes a moot point (btw, name of my cottage up north).

HOWEVER, now that the Marshall Plan is ON THE TABLE, all FOUR of the LEADERS of the federal parties, Harper, Ignatieff, Duceppe and Layton SHARE EQUALLY, along with the other 304 MPs in the MORAL HAZARD directly associated with not taking proactive and immediate steps to see that the damage of Harper and Layton’s deceit and incompetence is MITIGATED and AMELIORATED.

The existence of a Liberal Plan that can only be implemented in a scenario of an election and an election won by the Liberals counts for nothing under the circumstances of today and its mere presence in the past does NOTHING to provide protection for the Liberals from the moral hazard arising from the continued takeover of trusts, now that the Marshall Plan can be made to achieve that end and is not dependent on things beyond the Liberals control. Like winning an election that hasn’t even been called or won.

Failure to take immediate steps to implement The Marshall Plan into Budget 2010 will mean that these representatives of the people are acting in contradiction to what is best for ALL CANADIANS, as implementing the Marshall Savings Plan is a decision that involves no trade-offs, except perhaps abandoning the nefarious goals of the corporate CEOs and LifeCo big wigs who put Harper and Layton up to this fraudulent policy in the first place. Those people are BAD FOR CANADA and should go back into the hole they came from. There is no moot point about that.

Michael Ignatieff, Gilles Duceppe and all 306 other Members of Parliament: Failure to act promptly and decisively in adopting the Marshall Plan in Budget 2010 means that you own the moral hazard of not doing so and the clear and present dangers that loom with certainty if you do not. Every takeover of a Prime West by and Abu Dhabi or a Teranet by an OMERs will be like looking in the mirror and seeing the glib idiotic visage of a Jack Layton or a Stephen Harper. Take your pick it isn’t pretty. As for the Marshall Plan, the choice is obvious, as there is virtually no choice involved. Just a few ounces of conviction.