Today's Hill Times: Why kill the golden goose of tax revenue?

Income trusts: why kill the golden goose of tax revenue?
Some 80 per cent of Canadians support the Marshall Savings Plan for inclusion in Budget 2010. Now it's the politicians turn.

By BRENT FULLARD
Published February 15, 2010
The Hill Times

TORONTO—An Environics poll conducted between Feb. 5-10 found that 79.6 per cent of Canadians support the inclusion of the Marshall Savings Plan (MSP) in Budget 2010 to "Stop the income trust bleeding" (see Stanbury, The Hill Times, Feb. 8, 2010). Full poll details are available at MarshallPlan.ca. The poll was commissioned by the Canadian Association of Income Trust Investors/Taxpayers, which I head up.

Here are 10 more reasons why I believe it is incumbent on all party leaders and MPs to push for inclusion of the MSP in the March 4 federal budget.

(1) The premise on which the double taxation of retirement income in RRSPs (but not pension funds) was based, namely tax leakage, is false. It arbitrarily ignores all of the taxes paid by the 38% of Income trusts held in RRSPs. The MSP turns these “tomorrow taxes” into today taxes, negating that false argument along with the need for the 31.5% tax.

(2) If Michael Ignatieff does not vigorously push for inclusion of the MSP in Budget 2010, he will be viewed as a hypocrite after making speeches decrying Harper’s income trust tax as an act of “vandalism” based on “fallacious” arguments. Ditto for Jack Layton after positioning himself as the champion of upholding transparency, opposing foreign takeovers and protecting Canadians’ pensions.

(3) Any leader who fails to champion the inclusion of the MSP will be denounced along with Stephen Harper, insofar as any future tax draining takeovers of trusts by foreigners and pension plans is concerned. Such leaders will have to explain to Canadians how they are better off by losing major tax revenue for the privilege of having future deals akin to the $5 billion takeover of Prime West Energy Trust by state-owned Abu Dhabi Energy, and how it is fair for Ontario Municipal Employee Retirement System to acquire its next Teranet-like Income Fund from average Canadians who are forced to pay the 31.5% double tax in their RRSP, when neither of these acquirers pays that tax.

(4) Failure to adopt the MSP will continue to make Canadians saving for retirement more captive to the next failed piece of financial engineering emanating from Bay Street, like ABCP or variable rate annuities. [Synthetic products like 'Income Plus' that almost created a “too big to fail” catastrophe of Manulife, whose management recklessly decided to not hedge the inherent risks embedded in that scheme]. Our association presciently warned all party leaders about those risks three years ago and we repeat those systemic warnings again today.

(5) Some 51 takeovers of trusts to date have caused the loss of $1.5 billion in real annual tax revenue, which is three times the government’s alleged tax leakage, that never existed in the first place.

(6) The remaining 169 trusts are at risk, and so too is the $6 billion in annual tax revenue they pay to Ottawa that can only be protected if the MSP is adopted.

(7) Fully taxable profit sharing income trusts are essential to the retirement savings and income needs of the 75% of Canadians without pensions.

(8) The MSP re-establishes a level playing field between RRSPs and pension funds in a manner consistent with how RRSPs were conceived of in the first place in 1957.

(9) Preserving income trusts via the MSP is like preserving 2.5 million full and part time jobs for the 2.5 million Canadians who rely on this essential form of income for their retirement needs.

(10) The MSP is a litmus test for all party leaders: Whose interest will be served –the 79.6% of Canadians who support the MSP according to the poll, or the lobbyists who foisted this litany of unmitigated nonsense on Canadians in the first place?

Canadians will be watching very closely during the first week of Parliament looking for signs of real leadership in support of Canadians’ real interests, the MSP.

Brent Fullard is the volunteer President of CAITI and one of the 75% of Canadians without a pension for whom he seeks to preserve income trusts as an essential investment choice.