Debunking David Dodge’s flip flop

Former Bank of Canada Governor David Dodge went from being a proponent of income trusts in late October 2006 to being an opponent shortly thereafter. This sea change in attitude being separated by one thing, namely the government’s surprise announcement on October 31, 2006 that it was going to start double taxing income trusts based on their spurious claims of tax leakage. Meanwhile David Dodge’s comments were confined to matters relating to income trusts’ effects on the economy.

Now who would ever rely on a person whose views are so readily determined by the direction of the prevailing political wind? Furthermore, who would rely on a person whose views on this subject are qualified by the enjoinder “limited evidence suggests”?

Who would assign value to the views of a person who allows himself to be politically compromised and whose evidence is merely “limited”, when we have two reputable groups, namely HLB and PwC who performed studies based on an exhaustive analysis of the entire universe of trusts and their effects on the economy?

Hardly a tough choice to make. Duh? Limited evidence from a compromised source or exhaustive evidence from two independent sources?

If like me, you prefer the latter to the former, you will be interested in the following studies, both of which are available on line. Wished I could say the same about David Dodge, but he has no such report to speak of, just random musings that blow with the wind:

(1) HLB Decision Economics: Income Trusts and the National Economy, which states “The evidence amassed in this study demonstrates that the public policy concern over trusts negatively effecting productivity is not only unwarranted, but that suppressing growth in the trust sector – by means of law, regulation or taxation policies - could be tantamount to suppressing growth in the Canadian economy.”

(2) PricewaterhouseCoopers: Income Trust Survey, which states “There is little evidence to support the hypothesis that income trusts hinder capital expenditure, productivity or economic growth. A review of Canada’s 250 trusts indicates that trusts have been making a significant contribution to Canada’s economy, investing their capital and growing their businesses at impressive rates. A study of the five year performance of trusts reveals that sales, net income and capital expenditure grew significantly during the period 2000 – 2005 even as the trusts were returning cash to their investors.”