Today's Guelph Mercury: It’s time to reverse bad financial policies

It’s time to reverse bad financial policies
January 22, 2010
Guelph Mercury

Gerry Barker

The recent stoppage of play on Parliament Hill by the governing Tories resulted in halting Canada’s public business until March. It was the second time Parliament was shut down in the last 14 months.

In September 2007, we re-elected a Tory minority government and the result was a fumbling of finances unmatched in modern Canadian political history.

The fumble started Oct. 31, 2006, when Finance Minister Jim Flaherty announced that income trusts would be taxed as corporations starting Jan. 1, 2011. The result was a market sell-off of monumental proportions as panicky investors dumped units of trusts, driving unit valuations down. Estimates are the losses to most individual investors in 2006 and 2007 exceeded $34 billion. Never had any democratic government deliberately caused a market sell-off of such proportions.

It was a political gamble based on specious information, and pressure from Canadian insurance companies whose annuity and retirement products were being shunned by investors. Many Canadians including senior citizens requiring a consistent income stream, purchased income trusts that provided far superior returns to those offered by the insurance and banking industries.

Adding fuel to the fire was the increasing number of trusts that were being created, plus investment by major institutional financial companies. The government claimed there was “tax leakage” because the trusts avoided corporate tax by sending as much as 90 per cent of profits to unit holders usually on a monthly basis. What they refused to recognize was that most of the trust income was taxable in the hands of the owners.

Flaherty insisted that the move was to “level the playing field” but for whom? When he testified before the Commons finance committee, there were 18 pages of the presentation blackened out, denying this committee the reasons for the trust elimination.

It is now patently clear that senior executives of the insurance industry lobbied the prime minister to eliminate income trusts. Another Flaherty red herring was the argument that several major Canadian corporations were considering converting to income trusts. The government had several options to deal with the trusts, including grandfathering existing trusts to create a more orderly and fair transition for income trust investors.

In seeking a majority in 2007, the Tories’ lame attempt to influence the voters resulted was proceeded by slicing two points off the GST. On the surface, it fit the Conservative ideology to reduce personal taxes. In reality, it presented a loss in revenue of $10 billion a year. So far, that loss of revenue has cost the government of Canada more than $30 billion.

Did the pointy-headed Ottawa bureaucrats believe that you can cut revenues and continue increased spending on the military, health care, social benefits, provincial relations, Quebec, and the criminal justice system?

Next came the 2008 global financial crisis. While Flaherty assured Canadians they were safe from the gathering financial storm, Canada’s $9 billion surplus disappeared in the space of three months. In its place, a financially re-born Flaherty announced last February a stimulus package that would create a $35 billion federal government deficit.

The fiscal band-aid package occurred following the first proroguing of Parliament when the opposition threatened to defeat the Tory minority government. Harper requested that the Governor General agree to a halt of the public’s business at the height of the world-wide financial depression.

This past summer, the government admitted that tax revenues had dropped precipitously and the new deficit is now $55 billion and counting.

Thousands of Canadians have felt the results of this fiscal mismanagement by the Harper government, which, when faced with a real crisis, once again picked up their bat and ball and called the game.

Here are some suggested solutions:

Get Parliament back to work.

This year, withdraw from Afghanistan and NATO, a cold war alliance that is no longer relevant.

Restore the GST to seven per cent until the deficit is eliminated. Appoint an independent, non-partisan commission to study moving taxation to a consumption tax system and eliminate income taxes for those earning $70,000 or less.

Complete the harmonization of GST and provincial sales taxes to level the playing field of taxing goods and services.

Allow the major cities (those with a population of more than 60,000) to create new consumption taxing powers to move off the reliance on property taxes and provincial handouts. Create more civic autonomy.

Restore income trusts to the same tax status that existed in October 2006. Have any new applications for trust status be vetted by an independent commission.

Establish a 10-year plan to rebuild Canada’s infrastructure to be controlled by the provinces, with funding from the federal government.

Eliminate agriculture subsidies to major corporate farm organizations.

Abolish food marketing boards to open markets and reduce consumer costs.

Peg the Canadian dollar at 90 cents versus the U.S. dollar.

Amalgamate all three levels of education to be controlled by a single bureaucracy financed by the provinces. No student should be denied post-secondary education for financial reasons.

Gerry Barker writes a column regularly in the Guelph Mercury. He may be reached at gerrybarker76@gmail.com