Tuesday, March 30, 2010

Lakeport was a thriving stand alone income trust. New foreign owner Labatts lays off 143 workers

Image: NDP MP David Christopherson: Job killer

There is some justice in this world. The NDP supported a double tax on domestic investors, and no tax on foreigners, resulting in the takeover of Lakeport Brewing Income Fund by Belgian based Labatts. Now 143 workers in Hamilton are out of jobs and on the street, which would not have occurred had Lakeport remained the thriving stand alone brewer that it was. The justice comes from the fact that the MP for Hamilton is David Christopherson.....an NDP. Maybe he can explain to these 143 newly unemployed people in his riding why he supported a tax measure that favours foreigners, causes REAL tax leakage, and whose false claims of alleged tax leakage were “proven” with 18 pages of blacked out documents....a point that I made in a public gathering of David Christoperson’s in Hamilton in the fall of 2007?

Lakeport closing April 30
TheSpec.com - BreakingNews -
Lakeport closing April 30

Production being shipped to London

John Burman

Lakeport Brewery will close its doors April 30.

Workers were summoned to a downtown Hamilton hotel this morning and given the news that their jobs are gone.
The closure affects 143 people - 99 hourly workers, another 22 hourly workers on layoff and 22 salaried staff. Employees have been told not to come back to work until Monday.
In a release,  owner Labatt said the decision is “the result of the need to improve operating efficiency in a demanding market and the unexpected excess capacity in (our) brewing network”.
Charlie Angelakos, Labbatt vice-president of corporate affairs, said in a release that closing Lakeport is the “only rational business decision available to us”.
He said Hamilton is among the brewer’s highest-cost plants. London is its most efficient.
Night shift workers at the Burlington Street brewery got notices at 4 a.m. this morning telling them to go to the downtown Crowne Plaza Hotel for a meeting. Off-duty workers were receiving calls as late as 4:45 giving them the same message.
One worker who was at the  Crowne Plaza said managers “just turned red and walked away” when asked what was happening.
Staff said the closure is a “stab in the back”.
The 143 members of Teamsters Local 938 working at the Burlington Street brewery ratified a three-year contract with Labatt Breweries Canada on Feb. 24, 2008.
In 2007, Labatt offers $201.4 million for Lakeport, the Hamilton brewery that created the buck-a-beer market. Lakeport CEO Teresa Cascioli, who transformed the near-bankrupt company into a fierce competitor to Canada's brewing goliaths, gained $43 million from the sale of her 21 per cent stake in the company.
Workers wondered if they aren’t a victim of their own success. Some believe Labatt plans to close the brewery to close out the buck-a-beer market.
Watch thespec.com for details and read the full story in Wednesday's Spectator.
Labatt keeping Lakeport open TheSpec.com - Business - Labatt keeping Lakeport open

Steve Arnold
The Hamilton Spectator


1946 -- Andrew Peller opens Ontario's first independent brewery in decades, 14 years after the Regal Brewing Company shut its city plant.

1981 -- Amstel Brewery Canada Ltd. buys the Burlington Street brewery.

1991 -- Amstel pulls up stakes and closes after steady losses. Ninety-four jobs are lost.

March 1992 -- Bill Sharpe purchases the defunct brewery from Amstel including rights to Amstel's local brand names such as Hamilton Mountain, Laker and Steeler from Heineken. Company is renamed Lakeport Brewing Co. He owns 30 per cent. Cott Beverages Ltd. owns 70 per cent.

December 1992 -- Loblaw's President's Choice Premium Draft Beer -- made by Lakeport Brewing -- hits Ontario beer stores at $5.95 for a six-pack.

December 1993 -- Lakeport introduces a 7.3 per cent alcohol content version of Around Ontario beer. It sells well in Russia.

November 1996 -- Bill Sharpe and Vincent Lubertino (Lakeport financial vice-president) buys out Cott for $17 million.

November 1998 -- Lakeport seeks bankruptcy court protection, owing secured and unsecured creditors $17 million.

1999 -- Teresa Cascioli is named president of Lakeport after the brewery emerges from bankruptcy protection. She takes control of Lakeport after her company, Alphacorp Holdings, invested $3.1 million in equity and working capital.

January 2005 -- Cascioli purchases 100 per cent of the fast-growing Burlington Street beer plant with money from Toronto-based Vengrowt h Capital Partners and the National Bank of Canada.

February 1, 2007 -- Lakeport attracts a $201.4-million takeover bid from market leader Labatt Brewing Co.

March 30, 2010 – Labatt informs workers the plant is closing.

Everything gone after April 30 closure

March 30, 2010
John Burman
Lakeport Brewery will close its doors forever April 30.

Labatt Breweries of Canada which bought the brewery in 2007 says the decision is final and the equipment in the building will be hauled away as Labatt seeks to “improve its operating efficiency in a demanding market.”

Workers were summoned to a downtown Hamilton hotel this morning and given the news that their jobs are gone.

The closure affects 143 people - 99 hourly workers, another 22 hourly workers on layoff and 22 salaried staff. Employees have been told not to come back to work until Monday.

Jeff Ryan, Labatt’s director or corporate affairs, said the brewery will close and “the decision is final.”

Ryan said d the decision is “the result of the need to improve operating efficiency in a demanding market and the unexpected excess capacity in (our) brewing network”.

Charlie Angelakos, Labatt vice-president of corporate affairs, said in a statement that closing Lakeport is the “only rational business decision available to us”.

He said Hamilton is among the brewer’s highest-cost plants. London is its most efficient.

Night shift workers at the Burlington Street brewery got notices handed to them at 4 a.m. this morning telling them to go to the downtown Crowne Plaza Hotel for a meeting. Off-duty workers were receiving calls as late as 4:45 giving them the same message.

One worker who was at the Crowne Plaza said managers “just turned red and walked away” when asked what was happening.

Other workers say the closure is a “stab in the back”, adding they have long suspected Labatt bought the brewery in 2007 with an aim to acquiring its market share and shut it down.

“Really, this is no big surprise,”said operator Kim Norgate, of Dundas, before she went into the meeting she’d been phoned about at 5:45 a.m. Norgate, who has worked at the brewery 18 years said she intends to wait and see what the severance means for her.

John Newton, a filler, got the word at 4 a.m. when a supervisor came to him on the line and handed him an envelope, explaining there’d be a meeting at 8:30 a.m.

Newton too believes Labatt bought the plant to eventually close it. he, like many other workers going in and out of the meeting sid they believed the Burlington Street East operation was efficient and could hold its own for market share.

Ryan said in an interview closing Hamilton and moving production to London, Ont., will not affect the Lakeport brand price.

Lakeport prices, which pioneered the ‘buck-a-beer’ market will “remain the same,” he said

The 143 members of Teamsters Local 938 working at the Burlington Street brewery ratified a three-year contract with Labatt Breweries Canada on Feb. 24, 2008.

Ryan said there are no extra jobs at the London plant at the moment although that may change in future and Hamilton workers are being encouraged to apply for any that come up.

Application for those jobs would be subject to the London plant’s collective agreement, with the United Food and Commercial Workers, not the Teamsters as in Hamilton.

In 2007, Labatt offers $201.4 million for Lakeport, the Hamilton brewery that created the buck-a-beer market. Lakeport CEO Teresa Cascioli, who transformed the near-bankrupt company into a fierce competitor to Canada's brewing goliaths, gained $43 million from the sale of her 21 per cent stake in the company.

Ryan said there are two reasons for closing the Hamilton plant after purchasing it in 2007. One is “unexpected” excess capacity caused by a general decline in beer consumption.

Additionally, since 2007, an agreement reached with the U.S. Department of Justice when InBev and Anheuser-Busch merged in 2008 resulted in the sale of Labatt USA, said Ryan

As a result of this decision, Labatt undertook a review and it was clear transferring the production to London would be substantially less expensive than upgrading the Hamilton brewery, He said.

Hamilton production will fit into London’s excess capacity, he said. And London is one of Labatt most efficient and cost effective plants, he said.

The London plant, he said is twice as cost efficient as Hamilton.

Workers going into and then leaving the meeting wondered if they aren’t a victim of their own success. Many believe Labatt is closing the brewery to close out the buck-a-beer market.

Before the meeting, many workers appeared to be wary but light-hearted, announcing they have been through many similar scenarios during the life of the brewery, anticipating the worst each time.

It appeared few believed Labatt would shut down Lakeport at the beginning of the beer drinking season.

“For heaven’s sake, the temperature is going to be 24C on Friday ... summer’s coming and people are going to buy beer,” said one man who – as virtually all those leaving the meeting – declined to give his name.

“I don’t know what I am going to do. I am 52 years old,” said one man who at least could take comfort in the fact he is better off than one of his buddies.

“My friend just bought a new house. Was supposed to move in tomorrow.”

Others said they could not see how a plant which was efficient enough to have between 11 and 15 per cent of the Canadian beer market three years ago and has won efficiency awards since suddenly be thought of as an inefficient operation.

“Just proves they bought us to shut us down,” said one.

Many had unkind things to say about Cascioli, the former Lakeport CEO, who gained $43 million for her 21 per cent share of the company.

“Teresa sold us out,” echoed on the sidewalk outside the hotel.

Watch thespec.com for details and read the full story in Wednesday's Spectator.

Sunday, March 28, 2010

David Dodge’s Dr. Doom predictions

Click on image to enlarge

I listened to David Dodge’s comments yesterday about how Canadians need to save more for retirement if they expect to maintain a decent standard of living during retirement. These predictions of David Dodge's are only as good as the assumptions upon which they are based., none of which were revealed. Furthermore it is of no use whatsoever to tell someone in their sixties that they should have been saving no less than 11% of their earnings for their entire working life in order to have enough money to comfortably retire on.

The biggest assumption upon which David Dodge’s doomsday predictions are based is the rate of return that people can expect to earn on their savings and the rate of return at which their savings will accumulate. This variable is the single most important variable when making such predictions and the effects of investment return are compounded during the period of savings accumulation and have a direct effect on the amount of income that one earns during the period of payout, ie during retirement itself.

David Dodge played a role in killing income trusts when he flip flopped on that issue under pressure from Jim Flaherty at the point in time when Dodge’s reappointment as Governor of the Bank of Canada was under consideration, and something that Dodge openly stated he was interested in.

By killing income trusts, David Dodge participated directly in destroying (for no good reason) the investment vehicle that had emerged in Canada that was most well suited to saving for retirement and providing for retirement income. The arguments used by Dodge and others to kill income trust were flat out lies. Full stop.

Income trusts are the vehicle most well suited to the task of retirement savings and retirement income for two principal reasons. First because of their attributed of paying out excess earnings in the form of a profit sharing investment vehicle, and second because of their historical risk return attributes. Income trusts have the highest return performance vis a vis risk of any investment asset class. Also when compared with the returns of other equity investment vehicles, income trusts have dramatically outperformed the returns of traditional corporate equities as follows (Source: BMO)

Annualized returns over the last 10 years:

S&P/TSX Income Trusts: 16.13%
BMO NB Small Cap: 9.07%
S&P/TSX: 5.61%
S&P/TSX 60: 5.56%

The above differences in rates of return are stark. They are also very revealing when one considers that income trusts had almost THREE times the return than was experienced by investing in the top 60 companies that comprise the TSX index. And who was it who was behind the killing of income trusts if not the CEOs of Canada’s largest companies?

The way to deal with Canada’s pension crisis is not to make people more reliant on the government for cradle to grave coverage of their needs, nor to fear monger in the way that Dr Doom David Dodge is doing, but rather to expand the investment options that are available to Canadians and allow the Canadian capital markets to function in an unfettered manner and continue on down the nature path of evolution that it was heading down in the years prior to Flaherty’s intervention of October 31, 2006 which was in the process of restructuring itself to align with the needs of the CAPITAL PROVIDERS (ie investors) and not the whims of the self interested CEOs of the capital users, in order that the capital markets could be the solution to this pressing need for retirement income, by flowing all the excess earnings of corporate Canada through the hands of the business OWNERS rather than the business MANAGERS, and have the OWNERS be the ones to deploy that capital back into the Canadian economy in the manner that was optimal for them, knowing that every dollar paid out under the income trust structure would finds itself reinvested in the Canadian economy in one form or another.

David Dodge and his doomsday predictions are only as good as the assumptions upon which they are based, in the same fashion that the income trust policy is only as good as the assumptions upon which it was based, all of whose assumptions have proven to be false. David Dodge’s doomsday predictions about what amount of money it takes to retire comfortably and what percent of a person’s savings are only as good as the assumptions on which he has based those predictions. Is David Dodge assuming that Canadians will remain forever captive to owning simply the TSX 60 with a return of a mere 5.56%, or is he prepared to acknowledge the errors of his and the Government’s killing of income trusts, whose historical returns are almost three times higher?

Which is it Dr. Doom? I prefer to let the facts speak for themselves, rather than making false reliance upon you, given your past flip flop on income trust to curry favour with the powers that be.

Saturday, March 27, 2010

My comments at the Liberal party’s Canada 150 conference in Halton

This event has been billed as a “big ideas” conference.

A conference looking to find solutions to the many challenges of the day

In order to think big, one has to be prepared to act big in order to have the capacity to do big things.

More than merely thinking, doing big things often means overcoming large obstacles, since one person’s co called “big idea’, may be some one else’s “big nightmare”.

Let me give you an example.

One “big idea” of the last half century was the idea of providing people with universal health care.

Here in Canada,. Tommy Douglas was the champion of that great cause. It was a great cause for the simple fact that the entrenched status quo opposed the concept vigorously, and as I understand history, the doctors of Saskatchewan were his major obstacle that had to be overcome

Perhaps more instructional are the recent events of Barack Obama’s big idea of fundamental health care reform in the US.

As Canadians watching the debate about health care reform in the US, we can only sit back in utter amazement and bewilderment to see how something that we know to be so fundamentally important and worthwhile in nature to all citizens such as universal health care, can be bent out of all recognizable shape, by those entrenched self interests that oppose it.

Emerging from that US health care debate, was the fear mongering of “death panels” and “affronts to democracy” and the ushering of “socialism” and all sorts of false and convoluted arguments that have no basis in fact, but which were enormously effective in manufacturing opposition to something that we as Canadians know to be so fundamentally good, as to be taken completely for granted.

And who was behind this opposition to health care reform in the US? Was it the people themselves or was it the insurance industry fomenting opposition to health care in order to preserve the status quo?

Well that diagnosis should be obvious.

This whole exercise that we witnessed unfold in the US is simply a living example of that philosophy of Tom Flanagan’s that he revealed to all Canadians that underlies the Stephen Harper government here in Canada, namely “It doesn’t have to be true, It just has to sound plausible?.”

Here in Canada we went through a similar version of the rancorous health care debate in the US without even realizing it, however here in Canada the entrenched status quo was successful in achieving their end goal of destroying the big idea known as income trusts through the identical process of fear mongering and false arguments.

As someone who spent 25 years on Bay Street and as the Head of Equity Capital Markets for one of the five bank owned dealers I can tell you that the emergence of the income trust form of investment was the greatest things that has happened to the Canadian capital markets in my lifetime for a whole host of reasons.

But like all successes in Canada, the success of income trusts threatened the established order and therefore needed to be crushed to preserve the status quo at all costs. This wanton destruction of the income trust form of investment in Canada by Stephen Harper on behalf of entrenched special interests is no different, for example, than Diefenbaker’s killing of the Avro Arrow. And whose interest in either the short term, medium term or the long term did that serve?? Canada’s or the US? The people who wanted it killed or the people who wanted it preserved?

Income trusts were killed based on a litany of patent falsehoods. So powerful were those who wanted to kill income trusts that they enjoined virtually all in the Canadian media to repeat these patent lies at every possible opportunity, since a lie told often enough becomes the truth., as has become the Canadian media’s stock in trade.

The principal lie upon which killing income trusts was based was the argument that income trust cause tax leakage. Most of you in this room probably believe that argument to be true. But do you have any proof? Do the people from whom you first accepted this argument have any proof? Does the reporter from the Globe and Mail or the Toronto Star have any proof? Does Stephen Harper or Jim Flaherty have any proof? Of course not as there is no such proof to be offered, since the only proof that the Stephen Harper government offered up was 18 pages of blacked out documents…..that they demanded be returned.

Ad libbed portion:

As David Dodge rightly pointed out in his opening remarks, the challenges facing Canada today are dramatically different than those which faced Canadians at similar events like this of the past held in Kingston and Aylmer, for the simple fact that Canada’s demographics are dramatically different today than at any time before. However as Deborah Gillis (Liberal candidate for Halton) also pointed out, the change in demographics can also spell opportunity rather then simply despair, if approached properly.

The importance of understanding demographics is the simple fact that understanding demographics provides invaluable insight into the socio-economic “needs” of the day, combined with the fact that demographics are predictive by their very nature. No one can argue that it comes as a complete surprise that Canada’s baby boomer generation would have to retire some day and that day would occur sometime circa 2010 and that these people would need retirement income, since 75% of Canadians are without pensions.

Just like Lee Iaccoca saw the opportunities borne from a shift in demographics by first introducing the Mustang as the baby boomers entered their driving years and later introduced the mini van as these baby boomers became parents with young families, there were solutions created to fill these unfilled needs of an aging population in need of retirement income. These solutions didn’t come from government. These solutions came from the Canadian capital marketplace, functioning as it should and responding to unfilled and emerging needs, in just the way that Lee Iacocca so famousy did.

Income trusts were that “big idea” in solving that vexing problem of providing retirement income for the baby boomer generation, 75% of whom had no pension to speak of. A Big Idea not borne out of government action or a government program, but rather a reshaping of the Canadian capital markets by the market participants themselves to address the needs of investors and that growing segment of the investor marketplace whose demographics required of them to become “coupon clippers” as opposed to “stock speculators”.

However income trusts were a big idea that was beneficial to all Canadians except the entrenched status quo who were threatened by the advent of something new, and government was employed as their means to shut down something that was wholly right for its time, which is as absurd an argument as if someone were to have told Lee Iacocca in 1964 that Studebakers should rule, and that Mustangs should be outlawed, since that’s the way its always been.

My submission to Ignatieff's "Big Ideas" Conference

My Big Idea: Income Trusts must be restored as the solution to many major problems facing Canada

Income trusts were/are a made in Canada solution to a number of major problems facing Canada, and provided Canada with many significant benefits including:

- dealing with Canada’s looming pension crisis and how to provide retirement income for Canada’s rapidly aging demographic

- leveling the playing field between the 75% of Canadians without pensions and the 25% of Canadians with pensions

- maintaining Canadian ownership and head office control; of Canadian enterprise and limiting foreign takeovers

- directing capital into a business model that places greater disciplines on management that is more aligned with the interests of society, rather than the interests of management per se, and the many abuses inherent in the corporate model

- maximizing the tax collection of businesses’ earning without restricting the businesses themselves

- providing Canadian businesses with an abundance of low cost, readily available capital and the competitive advantage which that entails

- eliminating the reliance of Canadian businesses on debt and the risks of bankruptcy and business failure that debt entails

- eliminating Canadians reliance on investment products like ABCP and similar schemes and directing Canadians retirement savings into the real economy instead

As such, income trusts need to be restored in Canada, by rescinding the Harper government's 31.5% income trust tax or by instituting the Marshall Savings Plan solution (marshallplan.ca) that has been endorsed by 79.6% of Canadians in a recent Environics Research poll.

Income trusts are a form of profit sharing investment vehicle that represented the "democratization" of the Canadian capital markets that was to the clear advantage of all Canadians, but to the perceived detriment of a very small and powerful few who were intent on maintaining the status quo and these people lobbied the government to shut down income trusts.

Apart from seeing 2.5 million Canadians lose $35 billion in the value of their retirement savings, the direst result of double taxing income trusts has seen 51 Canadian businesses fall into foreigners' hands and non taxable entities who can evade the 31.5% tax, which has now caused REAL tax leakage of $1.5 billion a year, as these foreigners and non taxable entities pay no taxes. Meanwhile the former Canadians who did own these trusts and paid taxes on their earnings at the average rate of 38% are being deprived of owning a piece of the country that they live and work in. The income trust tax was the consequence of intense commercial lobbying by the life insurance industry who were intent on killing their competition for Canadians' retirement savings, and were intent on selling Canadians their investment products that are synthetic and derivative in nature, like life annuities and variable rate annuities. During the Global Financial Meltdown these products were revealed to be the flawed instruments that they are.

Meanwhile Canadians are being deprived of investment opportunities that are better suited to their needs and the needs of the country at large, and as such income trusts need to be restored and encouraged to flourish for the betterment of all.

Friday, March 26, 2010

Note to Krista Erickson, CBC Reporter

CBC reporter Krista Erikson has been traveling at taxpayers expense as the “designated traveller” for Calgary Centre Conservative MP Lee Richardson. How’s that for conflict of interest? This is the same Krista Erickson who was handing written questions to Liberal MP Pablo Rodriguez for him to ask during the Brian Mulroney/Karlheinz Schreiber hearings before Parliament, which he dutifully did.

Any one with common sense would know that accepting free air travel from a Member of Parliament would compromise that person’s ability to be independent, or at the very least would compromise that reporter’s perceived independence. Meanwhile is Krista Erickson not familiar with the CBC’s Journalistic Standards and Practices, which reads:

1.2 Journalistic Standards and Practices



CBC/Radio-Canada personnel will not accept offers of free travel or accommodation from outside organizations or individuals to facilitate the gathering of program, news or research material or for any other reason flowing from the person's position or role in the CBC/Radio-Canada.

CBC/Radio-Canada programs must be protected from improper external influence or the suspicion of such influence. Travel and accommodation costs are a form of program expense and are not to be absorbed by outside agencies.

Any exceptions to this policy will be considered only for journalistic purposes and only when no commercial transport is available. In any event, an invoice should be demanded. Approval must be received prior to commitment from the senior officer in information programming.

CBC reporter gets free flights, Erickson registered as MP's designated traveller

By STEPHEN MAHER Ottawa Bureau
Thu. Mar 25 - 7:54 PM

OTTAWA — CBC national political reporter Krista Erickson is registered as the designated traveller for Calgary Centre Conservative MP Lee Richardson, which means she is entitled to receive flights paid for by taxpayers.

The Canadian Association of Journalists and the Canadian Taxpayers Federation both said the designation raises tough questions for Erickson, Richardson and the CBC, since she covers federal politics as part of her job.

Erickson declined to comment Thursday.

“If it’s about Lee, I’m not talking,” she said.

Richardson said he and Erickson have been together for a couple of years. He said he registered her as his designated traveller in the fall or winter. He doesn’t know if she has so far taken advantage of those flights.

“I’ll have to check,” he said. “I’m frankly not sure. It would be for events in the riding she was joining me for, outside of her duties, obviously.”

Under the benefits package available to members of Parliament, each MP gets 64 travel points a year redeemable for free flights. According to the handbook issued to MPs, they can “allocate some or all of the 64 travel points to their designated traveler.”

Most MPs register their spouse as designated traveler, but some designate other family members. Defence Minister Peter MacKay, for instance, has registered his mother, Macha.

In 2008-09, Richardson spent $143,850 of taxpayers’ dollars on travel, although the disclosure provided by MPs does not provide enough detail to know what portion of that went for flights.

Erickson is in an unacceptable position, says Mary Agnes Welch, president of the Canadian Association of Journalists. The organization’s code of ethics says journalists should not have a personal relationship with people they report on. This is worse than that, she said.

“It’s one thing to have a personal relationship,” she said. “It’s another thing entirely to be benefiting from that relationship. Actually being able to fly for free because of that relationship kind of brings it to a new level. A reporter who covers national politics in any way who is in a relationship with an MP is clearly in conflict.”

Kevin Gaudet, of the Canadian Taxpayers Federation, says it looks bad.

“That will be a problem for them, for the Tories and the CBC. That will be a problem all the way around. It looks to me like he would be running afoul of the conflict of interest commissioner, and their guidelines of avoiding the appearance of conflict of interest,” said Gaudet.

“And I would have thought that she would be tripping over journalistic integrity by putting herself so closely aligned with the reception of resources available to a member of Parliament.”

CBC says it is taking care to avoid any conflicts.

“I have to be careful,” said Jeff Keay, a spokesman in Toronto. “We wouldn’t make any comment about any personal relationships of our employees, except to say that we ask our journalists to declare any potential conflicts of interest and then we address those appropriately.”

Richardson said Erickson is not covering him.

“She does have a protocol about covering me or anything involving Conservative events, so she doesn’t cover any of that stuff,” he said.

Erickson is no stranger to controversy. In 2007, when former prime minister Brian Mulroney was testifying before a Commons committee in relation to his business relationship with Karlheinz Schreiber, Erickson handed written questions to the Liberals for them to pose to Mulroney.

In response to a complaint from Doug Finley, then the director of political operations to the Conservative Party, and now a senator, CBC ombudsman Vince Carlin found that Erickson had violated established practice at CBC by “unwisely” giving questions to the Liberals.

Jim Duplicity

Jim Flaherty’s duplicity is without equal. Yesterday when pressed to explain why he has done nothing to deal with the pension issues of the day, his reply was:

“There will be no back-of-the-envelope quick changes to this,” Mr. Flaherty said. “The first rule is to do no harm.”

Need I remind you how duplicitous a statement this is? To think that Flaherty has learned from his past mistakes of destroying $35 billion of Canadians life savings along with leaving 220 Canadian companies susceptible to foreign takeover as result of his rash and mindless income trust tax is to not understand Jim Flaherty. Had Flaherty had any remorse or misgivings about that complete rape of Canadians’ saving for retirement he would have adopted the “brilliant” Marshall Savings Plan in Budget 2010, but he did not, did he?

With duplicitous persons like Jim Flaherty, I have learned that the higher the principle that he invokes, the more of an an excuse he is actually engaged in making. To invoke principles like “fairness” and “do no harm” are for Jim Flaherty nothing more than excuses. In this instance, the argument (excuse) of “do no harm” is merely his excuse for doing nothing whatsoever to date on the pressing matter of pension reform.

It is worth observing that I employed the principled argument of “do no harm” during the first 24 hours following Flaherty’s reckless income trust policy announcement of Halloween 2006, and framed the argument in the legal concept of “duty of care” which is one of the principal foundations on which civilized societies are based, thinking that Flaherty as a lawyer might have some understanding of such a concept, which clearly he does not. Diane Francis subsequently made the same point in a column of hers on December 6, 2006, when she posed the operative question:

“Where was the prime minister's morality? Where was the Finance Minister's duty of care?”

To accept Flaherty’s argument that the principle of “do no harm” is what is preventing him from implementing some obvious fixes to the Canadians system of pensions and retirement savings is to be deluded once again by the duplicitous Jim Flaherty. If “do no harm” was Flaherty’s guiding principle, rather than simply a convenient and lofty sounding excuse, where was that philosophy in play on October 31, 2006, and if this philosophy only recently took hold in the 60 year old Jim Flaherty, then why did he not implement the Marshall Savings Plan in Budget 2010, since doing so only had benefits to all Canadians and detriments to none?

The real question to confront the duplicitous Jim Flaherty with is not the concept of “do no harm”, but rather, to turn that concept on its head and ask Jim Flaherty just exactly what “good” was achieved by his absurd, and duplicitous income trust tax?

The answer to that is very simple to answer, as no good was accomplished by his income trust tax, and instead a litany of harm.

My only other request would be that for anyone in the press who might deign to ask the Jim Flaherty this most revealing question, that they ask him for proof this time, as the only group to do as much harm as Jim Flaherty on the income trust matter, was the press itself who dutifully reported his lies as if they were the truth, with Diane Francis being the singular exception. She is the only journalist in Canada who followed the rule of “do no harm” and the only journalsit to seek out the truth.

The others in Canadians media were all engaged in some propaganda exercise that continues to this day, as witnessed by that pathetic piece of propaganda aired on The National on February 26, 2010. The irony of that piece of propaganda was that it was broadcast at the very time that while CBC was also broadcasting a six part documentary entitled “Love Hate Propaganda” about Hitler’s use of propaganda in the Second World War. It seems duplicity is becoming contagious in Canada? First Flaherty, followed by the dutiful and brain dead media.

Wednesday, March 24, 2010

Kommissar von Finckenstein

The notion that the Chairman of CRTC, Konrad von Finckenstein, feels that "Canadians can afford higher cable fess" is confirmation that Ottawa has gone berserk.

This arbitrary ruling is absurd on so many levels.

First, a lot of what is broadcast by Canadian commercial TV producers, like CTVGlobemedia and Global is propaganda to start with, like the BS that is spun about outright lies like tax leakage from income trusts. Why would I want to pay for propaganda? Propaganda on networks that I avoid watching like the plague? Propaganda that shouldn't exist in the first place and now I am being forced to subsidize those who put their commercial interests ahead of reporting the truth and are happy to spin the government's lies when it suits their purposes.

Second, the idea that the cable companies and the local networks should negotiate a fee for the broadcaster's signal leaves out one important party to those negotiations namely the party who is going to pay for the "service": i.e. the consumer, since whatever fee is agreed to by the cable companies will simply be passed on to the consumer (probably with some handling charges, given we are dealing with cable companies here!).

And third, where is it in the CRTC's mandate to impose regimes that see consumers pay more and get nothing in return? The CRTC is supposed to protect consumers, not fleece them.

Canadians can afford higher cable fees, CRTC says

By Jamie Sturgeon,
Financial Post
March 24, 2010

Cable subscribers have shrugged at rate increases in the past and might be willing to do so again if new fees are passed on to them, the national broadcast regulator suggested Tuesday.

In a report submitted to the federal cabinet, the Canadian Radio-television and Telecommunications Commission (CRTC) said it does not believe "that significant affordability issues would be created" for consumers if a new compensation regime is introduced as early as next year.

Called "value for signal" or "fee for carriage," the new system would see big cable firms such as Rogers Communications Inc. and Shaw Communications Inc., for the first time, pay conventional-TV networks such as Global and CTV Inc. a fee for station signals.

On Monday, the CRTC moved to adopt the measure to help offset declining revenues at network-TV stations and preserve the Canadian content they produce.

Tuesday's report stems from a rare order-in-council from Heritage Canada in September and a subsequent public hearing in December.

The Harper Conservatives have been cautious about supporting a CRTC ruling that would raise costs for consumers and create a potential backlash from voters.

But the regulator's decision would almost certainly do just that, causing "modest price increases" for cable.

But Canadians may be willing to eat the charge, the CRTC's submission suggests.

The average cable rate was $53.22 a month last year, according to CRTC figures. That's up almost 50 per cent since 2002 when rates were deregulated, representing an annual rise of 5.6 per cent to the average bill.

"Such results do not seem to suggest a significant withdrawal of demand for [cable or satellite] television services when consumers are faced with rate increases," the CRTC said.

The rise has helped lift revenues and profits at the major cable firms. Now, with the fortunes of networks dimming, the CRTC aims to buoy the entire system with a new negotiation regime similar to one that exists in the United States.

The CRTC has put the decision to the Federal Court of Appeal, which it has asked to determine whether it has the jurisdiction to impose what some term a new "TV tax."

The move opens up a new battleground on which the broadcast and cable-satellite consortiums will continue the years-long fight over fees for over-the-air station signals.

Mirko Bibic, senior vice-president of regulatory affairs at BCE Inc., which operates satellite service Bell TV, said the telecommunications giant is preparing its case.

Phil Lind, vice-chairman of Rogers Communications Inc., the largest cable company in the country, also said the company would fight the decision in court.

Neither CTV or Global could not be reached for comment. (Global is owned by Canwest Global Communications Corp., parent of the National Post.)

The most critical scrutiny, however, could come from the federal government, which has the option of overturning Monday's decision.

Prime Minister Stephen Harper reiterated his party's position during question period on Tuesday.

The government, he said, is "concerned about anything that imposes fees on consumers without their consent."

The price tag on individual station signal is anyone's guess. Specialty channels such as TSN and HGTV command upwards of $1 or more a month, a fee lumped into a customer's cable bill.

© Copyright (c) The Vancouver Sun

Tuesday, March 23, 2010

Travers echoes my point: Canadian politicians are “hope”less, captive to special interests/elites

In his article of today entitled “Obama teaches us hope can still prevail”. Toronto Star columnist Jim Travers makes point that I made in my piece yesterday entitled
Obama scores victory against insurance industry, while Canadian politicians remain captive to it, which Travers states as: “By frustrating some of North America's most deeply entrenched special interests, the president is reinforcing the fading notion that politicians with good intentions can still beat the odds to make a difference.”


Sorry, Canada, the U.S. has the better safety net

Last Updated: Friday, March 19, 2010 | 3:42 PM ET Comments18Recommend32
CBC News

Have you been watching the American health-care fight?

Then you know that their health insurance system is a mix of government guarantees, private options and employer-funded plans that offer complete coverage to some — the poor, the rich, seniors, government workers — but leave millions of others without a safety net.
Canadians may be surprised to know that, when it comes to pensions, Americans have a strong safety net. (iStockphoto)Canadians may be surprised to know that, when it comes to pensions, Americans have a strong safety net. (iStockphoto)

And while many Americans have excellent health care through their employers, they're one layoff away from losing it. What's more, over the years employers have cut back on coverage so that many of today's jobs come with no health insurance at all. And that's not counting the growing ranks of the self-employed who have to fund health care on their own.

Ah, Americans. The more we watch them tearing themselves apart over health care, the more we want to give ourselves gold medals.

But before you get too smug, dear Canadian reader, consider this: The above isn't only a summary of American health care. It's also a pretty good description of Canada's imperfect retirement system.

Just replace "health insurance" with "pension." Too many Americans can't get proper health care? Too many Canadians don't have a proper pension.

The fix for Canada's retirement system is going to come, in part, from borrowing from the American approach. Why? Because the American system of government-sponsored pensions, known as Social Security, offers retirees bigger pensions than Canada's equivalent program, the Canada Pension Plan.

That's right: Their government-run retirement safety net is wider than ours. What's more, and perhaps less surprisingly, the Americans also do a better job of fostering private retirement savings.

There's a growing realization that Canadians are not saving enough for retirement, collectively or individually, and a good number of us — at least a fifth by most estimates — run the risk of seeing our living standards drop when we hit retirement age.

In the coming days, Ottawa is expected to announce that it is starting public consultations on improving the pension and retirement system. The Harper government has been lukewarm to the idea of wholesale pension reform, but it is under growing pressure from the provinces, led by British Columbia and Alberta. Two years ago, they proposed the creation of a new supplemental national pension plan, and several other provinces have since signed on to the idea. (Full report - PDF)

This, remember, is how medicare came about in the 1960s. Keith Ambachtsheer, director of the International Centre for Pension Management at the University of Toronto's Rotman School of Management, even calls his version of the reform plan "Pension-care." (More - PDF)

Provincial and federal experts agree that we don't need to reinvent the retirement wheel. The way forward is to build on what's best about the existing Canadian framework: the CPP's guaranteed pensions and low-cost money management, and the encouragement of private savings through registered retirement savings plans (RRSPs), company registered pension plans (RPPs) and tax free savings accounts (TFSAs).

To improve what we already have, we should borrow from the U.S. approach: by offering an expanded national pension plan, coupled with more room and better tax treatment for private pensions and individual savers.

The result would be the world's best retirement system. Oh, and the cost to taxpayers would be approximately zero.

That's because this is not about today's workers subsidizing the already-retired. This isn't generational warfare. It's about people saving more for their own retirements. That's how CPP already works — your pension tomorrow is funded by your pension deductions today.

CPP is a well-funded, actuarially sound pension scheme. Polls show that Canadians worry about whether CPP will be there when they retire, but their concern is misplaced: it is the most solid of the retirement options.

It's also more solid than Social Security, in that it's a system where current workers fund their own future retirements, rather than relying on current workers to fund current retirees.

Under CPP (or Quebec's parallel QPP), employees have 4.95 per cent of their earnings deducted from their paychecks, up to the maximum insurable income of $47,200, which is the average full-time wage. Employers contribute an equivalent amount.

The more you contribute, up to the annual ceiling, the more of a pension you're entitled to.

If you've worked a full career earning the average wage or more, you can retire at 65 with a maximum CPP pension of $934 a month, an amount that rises each year with inflation.

You'll also get an Old Age Security payment of $517 a month, though it gets clawed back if you're in an upper-income bracket. The same goes for the Guaranteed Income Supplement, which is only paid to the poorest retirees.

As for U.S. Social Security, it has a higher payroll deduction rate (6.2 per cent of wages), a higher maximum insurable income ($107,000 US) and therefore offers considerably higher benefits.

For example, the top Social Security payout in the U.S. at age 65 is currently $26,292 a year whereas the CPP maxes out at $11,208.
Nest egg

The Canada-U.S. comparison exposes the CPP's only real flaw — it's great as far as it goes, but it doesn't go far enough.

Most experts say you'll need an annual income worth 60 to 70 per cent of your former working wage to maintain roughly the same standard of living. For most Canadians, CPP meets only a small fraction of that requirement.

Say you earn $85,000 a year. When you retire at 65, the maximum CPP and OAS pension you can receive is $17,400 a year. If you're aiming for 70 per cent of your pre-retirement income, you're short $42,000.

If you work in the public sector, you have nothing to worry about. Your pension is gold plated. If you work for one of the dwindling number of large companies that offer guaranteed, defined-benefit pension plans, you probably have nothing to worry about either, at least so long as you work there long enough (as in most of your career) to earn a full pension. And so long as your company doesn't end up like Nortel.

Everyone else? To guarantee a $42,000 retirement income stream, indexed to inflation for 25 or so years, you'll need a nest egg of about three quarters of a million dollars.

Very few of us are going to be able to save that much. Not many people are disciplined enough to sock away the maximum RRSP savings, month after month, year after year, decade after decade, in anticipation of a distant and uncertain reward.

So what to do?
The options

BC and Alberta are leading the call for the creation of a new, voluntary contribution national pension plan, what some are calling a supplementary CPP, or SCPP.

Employees, employers and the self-employed would all be able to contribute. The money would be managed at low cost by a professional board similar to the Canada Pension Plan Investment Board and, though the program would be voluntary, you would be automatically signed up.

You could choose to opt out, but the default position would be "in."

This is the reverse of the RRSP system, where you have to make a conscious effort to open an account, find an investment adviser and make regular contributions. Many Canadians never do.

Others are calling for an expansion of CPP payroll deductions and benefits. That's the U.S. approach and — oh, irony — the federal NDP proposal (PDF).

Others are proposing higher limits for both RRSPs and registered pension plans, as in the U.S..

Which choice is best? How about all of them.

Giving Canadians the option of contributing some of their savings to a government-sponsored, professionally managed supplemental CPP would not cost the public purse anything. Neither would increasing RRSP and RPP contribution limits, as in the long run every cent contributed to these tax-sheltered accounts would eventually be withdrawn and taxed. Higher ceilings would let people with upper-middle class incomes tax shelter enough for their retirements-as they can in the U.S. We should also let the self-employed pay into voluntary, group pensions plans. The self-employed can already buy dental insurance, why not pensions?

Raising CPP premiums and benefits is a little trickier, because half of the CPP premium is paid by the employer.

That means that from an employer's perspective it functions as a tax on jobs, effectively raising the cost of hiring, particularly the hiring of entry-level and low-wage workers. It's the kind of disincentive an economy in recession doesn't need.

As such, the NDP plan to double CPP premiums probably goes too far. But a gradual and lesser raising of CPP premiums to the U.S. level over the course of a decade or more could work. The cost to the taxpayers would be, once again, zero.

While we're at it, let's also raise the CPP contribution ceiling, from the average wage to one and a half times the average wage, or around $70,000. That's still well below the Social Security ceiling, and in any case raising the ceiling has no impact on hiring in lower-income jobs.

Taken together the changes would marry the best of the Canadian approach to the best of the American approach. The result? A novel retirement system, better than either of them.

Read more: http://www.cbc.ca/money/story/2010/03/19/f-canada-us-pension-reform.html#ixzz0ixa0Dvfl

Tony Keller has been an editorial writer, columnist and editorial page editor for The Globe and Mail; a columnist for the Toronto Star; managing editor of Maclean's; and editor of the Financial Post Magazine. He is currently a visiting fellow at the Mowat Centre for Policy Innovation.

Travers: Obama teaches us hope can still prevail

President Barack Obama works the phones March 21, 2010 during the historic U.S. vote on health care. In recent months, Canada has had its own, more timid, struggle between powerful elites

By James Travers
National Affairs Columnist
Toronto Star
March 23, 2010

Hope is the prodigal child of politics everywhere. Just when it seems gone forever, back it bounces.

For Canada as well as the U.S., Barack Obama's health-care victory is one of those rebounds. By frustrating some of North America's most deeply entrenched special interests, the president is reinforcing the fading notion that politicians with good intentions can still beat the odds to make a difference.

Characteristic of this cautious country, the contest here is more temperate. Up here we politely protest the arcane proroguing of Parliament while timidly trying to restore the democratic equilibrium. Down there, racial slurs and "death panel" fear-mongering inflamed a debate that nearly denied tens of millions of Americans better access to a social service most Canadians consider a right.

Still, the similarities are instructive. Stripped bare, both struggles are about control of power and distribution of benefits.

Here we are having it out over Parliament's eroding ability to hold the Prime Minister accountable. There it's about the president's capacity to deliver a pivotal election promise so politically charged and divisive that health-care reform thwarted the best efforts of as skilled and cunning a predecessor as Bill Clinton.

Underlying both issues is the dominance of elites over very different systems nominally dedicated to the same purpose of advancing public well being.

In Canada, 50 years of rising prime ministerial power and falling respect for the utility of government have eclipsed the influence of MPs, the civil service and even cabinet ministers. Now filling that space are those with the influence that comes with private access – appointed officials, hired-gun consultants and a few top mandarins more likely to whisper what the Prime Minister wants to hear than speak truth to power.

In the U.S., presidents can only look north in wonder at the freedom of prime ministers to dictate their nation's course. Encumbered by the checks and balances our Westminster system largely leaves to precedent and civility, the White House must manage a Congress too often beholden to lobbyists with obese bankrolls.

Even if the pressure points are unique, the dynamic is common. Parliament is flexing what little remains of its muscle to impose discipline on a minority Prime Minister refusing to accept the will of the majority. The president is pulling every available lever to overcome resistance, including much in his own party, supported by those defending their hegemony.

Neither process is pristine. In Ottawa, opposition parties sometimes seem more determined to score partisan points attacking ruling party autocracy than they are willing to face an unwanted election to defend a cornerstone democratic principle. In Washington, health-care legislation has been so compromised by the necessary wheeling and dealing that the reforms are far less inspirational than the president claims and much more protective of the status quo than the medical lobby admits.

So where's the hope? It springs from Parliament's resistance to the continuing efforts of serial prime ministers to slip democratic bonds. It pushes through the hardened crust of U.S. privilege to at least partly fulfill a president's promise to those who voted for him with such great expectations.

Just as a prodigal's return never erases the pain of separation, Ottawa's pushback and Washington's pin-step forward can't replace what's been lost here and might have been there. But in political families as dysfunctional as these, any progress should be celebrated with all the joy of a homecoming.

James Travers' column appears Tuesday, Thursday and Saturday.

Monday, March 22, 2010

Hill Times: Flaherty’s two biggest budget blunders

Flaherty’s two biggest budget blunders: half measures on stock options, no measures on income trusts
Failure on the part of Finance Minister Jim Flaherty to correct his income trust fiasco is the economic equivalent of losing 2.5 million full and part-time jobs.

By Brent Fullard
The Hill Times
March 22, 2010

OTTAWA—Since 2007, I have argued that taxing employee stock options gains at half the rate of income is unfair to taxpayers, and counter to the interests of society, since stock options skew corporate decision-making. Others like Roger
Martin, dean of the Rotman School, have drawn similar conclusions as outlined in The Globe and Mail article of May 22, 2009, entitled “Distorted incentives behind the financial crisis.”

Budget 2010 contains measures to eliminate what Finance Minister Jim Flaherty calls this stock option “loophole.” However, Flaherty’s measures contain loopholes of their own, and only apply to options that are “cash settled” with their employer versus the marketplace.

The effects will be clear: all employee stock options will now become marketplace settled as opposed to cash settled.

This will do nothing to address the question of tax fairness, as no logic holds that taxing stock options at half the rate of employment income is any more fair, simply because these options are now being cashed in with the marketplace and not the employer.

This is a distinction without a difference, leaving a huge tax loophole in place and the issue of distorted incentives completely ignored.

If Flaherty possessed vision and leadership he would have made the taxation of employee stock options his number one agenda item at the Iqaluit G7 Finance Ministers meeting, as the means to prevent another global financial meltdown by eliminating
the distorted incentives, principally employee stock options, that caused it.

The adverse consequences inherent in stock options will not be addressed by merely changing the manner in which they are taxed, but rather through their
elimination entirely.

Stock options are a creature of publicly-listed corporations. One form of business model not reliant on stock options is the income trust model that compensates managers for making real economic gains in the business, rather than merely artificial
and transient ones.

Income trusts are a profit-sharing investment vehicle that pays out profits to its owners in the form of monthly distributions that are fully taxed in the hands of investors. To the extent that management increases these distributions to their owners, they participate in those gains, which are real economic gains by their very nature. Contrast this with the corporate manager whose compensation is tied to gains like boosting earnings per share, which can be easily manipulated and share price gains, which often occur for reasons outside the managers’ control. This, coupled with the “no downside, all upside” nature of stock options themselves, and the corporate world of compensation, starts resembling a lottery ticket more than it does a prudent form of compensation.

The faux crisis that arose from the announced conversions of BCE and Telus into income trusts, which led to Jim Flaherty’s irrational knee jerk move to kill the income trust model, along with $35-billion in the value of Canadian’s retirement savings, had nothing to do with the professed loss of tax revenue to Ottawa (since there was no such loss), but everything to do with a group of highly-influential corporate business people who were hell bent on keeping the system of personal compensation that they were so adept at gaming, namely stock options.. So they decided to game the government.

Therefore the “distorted incentives” that were behind the global financial meltdown were also behind one of the worst policy blunders this country has witnessed as described in the article by W.T. Stanbury, entitled: “Leadership? 10 reasons why tax on income trusts a public policy ‘train wreck,’ ”(The Hill Times, Sept. 22, 2008).

Failure on the part of Flaherty to correct his income trust fiasco, whose looming double taxation of retirement income is the economic equivalent of losing 2.5 million full and part-time jobs for the 2.5 million Canadians who are reliant on this essential
source of income, demonstrates that Jim Flaherty possesses neither the compassion nor the competence to be the Finance Minister of Canada and when faced with making easy economic decisions is only capable of taking half measures and no measures at all.

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


Obama scores victory against insurance industry, while Canadian politicians remain captive to it

Obama’s health care reform victory on behalf of the American people is a victory against the insurance industry and the insurance industry’s massive lobbying campaign and campaign of misinformation and often outright falsehoods. It’s a shame that Canadian politicians don’t have anywhere near the same value system. Moral fortitude and leadership capabilities as Barack Obama, as the same insurance industry has a stranglehold on policy making in this country, except the battleground is not health care, but something of almost equal social importance and certainly something as equally commercially lucrative for those who can bend the rules in their favour, namely managing the retirement savings of Canadians.

Bending of rules in one’s favour is exactly what Stephen Harper’s and Jim Flaherty’s income trust policy was all about, and resorting to outright lies and fabrication was Harper and Flaherty’s means to that end. The media was only too happy to oblige these politicians in this task of ripping off Canadians, by repeating those lies at every possible opportunity. The CBC included. Journalists like Diane Francis and Greg Hebert and politicians like Paul Szabo were the rare and noble exceptions to that pathetic rule

Bending of rules in ones favour is what was going on rather than the feel good argument of “leveling the playing field”. The clear intent of the income trust policy was to destroy and eliminate the competition in order that the less robust and more inferior team would be the only team left on the field. Even if the filed were level, what kind of competition and choice is created when there is but one team on the field?

Income trusts were the greatest capital markets innovation that had ever come from Canada and was the market’s innovative solution to a vast number of problems that exist today, including:

(1) providing a means for retirement income in a protracted low interest rate environment, via an investment vehicle that avoided “reinvestment risk”, since it had no fixed maturity date, a form of inflation protection, as it was tied to the earnings of a business, and growth potential, again because it was tied to business

(2) improved governance measures that favoured the true owners of a business over the managers of a business

(3) improved disciplines imposed on business managers that rewards real economic gains, rather than often illusory ones

(4) a form of low cost of capital that placed Canadian enterprise at a competitive advantage and with an abundance of domestic and foreign capital available to it

(5) maximizing the tax collection of Canadians business earnings by taxing the investors rather than the business itself, providing the perfect world outcome of eliminating taxes at the business level, without forsaking the tax collection thereof

(6) allowing stand alone business of all sizes to thrive and achieve value maximization, thereby leaving them less vulnerable to foreign takeover or consolidation under the conglomerate mindset of the corporate model, allowing for more and varied public companies rather than fewer, more conglomerate type businesses, meaning less risk to the economy, and greater employment.

Instead Canada is a country that is governed by politicians who are either completely oblivious to how they are being so openly gamed by the insurance industry or are happy to play along with the wishes and whims of the big boys who pull their strings. as Canadians get their life savings destroyed and their choices eliminated in order to make them captive to the inferior synthetic and derivative investments wares of the insurance industry. Inferior products like Manulife’s Income Plus and variable rate annuity products that Manulife’s management was so reckless and/or incompetent, that they thought they could issue billion of dollars in promises to investors on a wish and a prayer and do nothing whatsoever to hedge the risks imbedded in those promises.

The events of the last 18 months and the global financial meltdown underscored and made vivid to even the blind what was wrong with the income trust policy from the outset and the risks it represented to all Canadian on so many fronts. The fact that Canadian politicians have done nothing to connect any of these dots, is only evidence that they are all willing participants in this scheme by the life insurance industry to deprive Canadians of real investment choices and replace this wider array of choice with a limited set of choices that favour the life insurance industry itself. Meaning Canada is devoid of a Barack Obama or a Tommy Douglas with the current crop of politicians to chose from, namely Harper, Ignatieff, Layton and Duceppe. Their complicity is like a disease.

As for Duceppe’s talk over the weekend about the Bloc being the equivalent of the French resistance in the Second World War, I would argue that the Bloc is more like the Vichy Government of the second world, more than happy to accommodate the German occupiers, expect in this case its the life insurance industry the Bloc are more than happy to accommodate, along with the other members of that Vicchy government mindset, Harper Ignatieff and Layton, who along with 18 pages of blacked out documents as “proof” of tax leakage are all traitors to the principles of true democracy, as their silence is complicity of the worst kind.

Thursday, March 18, 2010

David Dodge: Heed the wisdom of Sandy McIntyre

Canadians need to save more: Dodge


Income trusts level the playing field
It’s time to level the investment playing field, and give the average retail investor the same tools as the public service pension plans, by restoring income trusts.

by J.A. McIntyre
The Hill Times
March 1, 2010

TORONTO—In 2005, Statistics Canada found that 85 per cent of public sector workers and only 26 per cent of private sector workers have employer-sponsored pension plans. It is therefore remarkable that the discussion of “pension reform” seems to be preoccupied with the concerns of this relatively small group of Canadians as opposed to the concerns of the vast majority of Canadians.

In this piece, I explain why the major decline in investment returns makes it imperative to preserve the income trusts as an investment vehicle for RRSP investors in order to preserve a level playing field between those workers with pensions
and those without.

The pension problem is exacerbated by declining investment returns. From January 1956 to December 2009 the S&P/TSX Composite Index generated an average annual return of approximately seven per cent plus dividends for a total annual return of 10 per cent. To put this into the proper risk context, equity investors experience annual volatility in excess of 20 per cent to achieve returns of half that level.This type of risk/return is poorly suited to paying a recurring monthly income benefit. As portfolio returns declined following the last serious government review of RRSPs and RRIFs in 1992, the amount of capital required to generate $45,000 in annual income from a balanced portfolio (50 per cent equity, 50 percent fixed income) has increased from approximately $700,000 in mid 1992 to more than $1,300,000 as of December 2009. Declining yields have exposed the under-capitalized funding of both pension and individual investors’ retirement plans.

The individual investor accumulates capital to take care of their retirement in a Registered Retirement Savings Plan (RRSP) and when they need to begin harvesting their savings the capital is transferred into a Registered Retirement Income Fund (RRIF). In a RRIF mandatory withdrawals start at four per cent at age 65 and rapidly rise to 7.38 per cent at age 71. It is very clear that an investment return in a RRIF below four per cent is inadequate as one’s income and capital will decline in absolute terms from age 65 onward. Indeed, the mathematics of an RRIF require a compound annual return of eight per cent to deliver a long term income stream that keeps pace with two per cent inflation; the targeted inflation goal of the Bank of Canada’s monetary policies. This return could be achieved using Government of Canada bonds when the withdrawal rates were set in 1992, but today this return of eight per cent cannot be generated using low risk, fixed income investments.

With the market decline in returns, RRIF holders are forced to expose themselves to equity-like returns and risks. In response, RRIF investors moved some of their money to income trusts because they met a very direct need, and when properly executed, delivered predictable eight per cent or better returns with lower volatility (risk) than the stock market.

Like private equity funds employed by pension funds, income trusts gave individual investors a degree of control over the business’s capital allocation and direction of management that were unavailable in traditional equity investment.

The crux of the issue is clear: if public income trusts are not appropriate then why are private income trusts acceptable to the government? The Finance minister did not object to the taking private of many public income trusts like Teranet and GolfTown by the Ontario Municipal Employees Pension System. OMERS, a pension fund, are benefiting from unfair tax legislation that exempts them from the 31.5 per cent trust tax whereas individual investors’ RRSPs and RRIFs are exposed to this tax

Both groups of investors, pension plans and RRSP/RRIF holders need the returns provided by the income trust structure. Why is it acceptable to Canadian taxpayers that public service pension plans, like OMERS, whose benefits are guaranteed by the tax revenues of either the federal or a provincial government, are allowed to use tax structuring that is denied taxpayers themselves? The “tax leakage” argument so much emphasized by Finance Minister Jim Flaherty was quickly shown to be incorrect by HLB Decision Economics and others like BMO Capital Markets.

Bottom line: Level the investment playing field, and give the average retail investor the same tools as the public service pension plans, by restoring income trusts.

J.A. (Sandy) McIntyre is senior vice-president and chief investment office, Sentry Select, Toronto. The company has managed income trust portfolios since 1997.

The Hill Times

Dumbing down with David Dodge

Having helped destroy the option of getting more return from your savings (i.e.by killing income trusts through the many spurious and patently false arguments that were employed by him and others intent on screwing the average Canadian) now Dodge David wants us to save more? Canadians are supposed to increase savings while taxes like the HST destroy their after tax earnings and wages aren’t keeping pace with inflation. What planet does this guy live on?

Meanwhile Where is David Dodge’s proof for any of his false arguments against income trusts? David Dodge is the problem. Not the solution.

Canadians need to save more: Dodge

Janet McFarland
Globe and Mail
10:11 EST Thursday, Mar 18, 2010

Toronto — Canadians need to save between 10 per cent and 21 per cent of their pretax incomes each year – if they save consistently for 35 years – to have comfortable retirement incomes, according to a new report by former Bank of Canada governor David Dodge.

The report says many Canadians are unaware of the high savings levels they need for their retirement years, and may believe they are saving adequately when they are not.

The report, co-authored by Alexandre Laurin and Colin Busby and published by the C.D. Howe Institute, calculates various savings scenarios based on assumptions that Canadians aim to have annual retirement incomes between 50 per cent and 70 per cent of their preretirement incomes.

“Our findings provide Canadians with a ‘reality check' about the saving rates required to meet their retirement goals,” Mr. Dodge said in a release Thursday.

The study said a broad debate about retirement incomes in recent years has mostly focused on potential reforms to rules for corporate pension plans or the possibility of expanding public pension coverage through a new national supplementary plan.

But there has been little public information about required savings rates for individuals, it says, even though many baby boomers are nearing retirement age and are concerned about whether they are saving adequately.

“The required level of personal saving is unknown to most individuals, leaving them to their own devices for a large part of retirement planning,” the report says.

It also says registered retirement savings plan (RRSP) maximum contribution levels do not allow higher income higher earners to save enough to replace 70 per cent of their incomes in retirement.

And it says many companies' group RRSP plans, defined contribution pension plans and even traditional defined benefit pension plans do not set aside enough income annually to provide “adequate or reasonably assured retirement incomes.”

The authors base their savings calculations on what they call “prudent” assumptions, including a nominal rate of return on investments of 5 per cent, an inflation rate of 2 per cent, and a real return on investments of 3 per cent. They assume annual wage growth of 3 per cent.

The calculations look at three scenarios: early retirement at age 63, normal retirement at age 65 and late retirement at age 67. And they assume Canadians begin saving at age 30 and invest consistently each year.

The report also includes another set of calculations based on a scenario in which some people save less in their thirties, more in their forties and the most in their fifties. In those cases, investors must save much more in their later years to compensate for the shorter investing periods.

According to the findings, people who earn between $42,803 a year and $150,000 a year need to save between 11 per cent and 21 per cent of their annual earnings to retire at age 65 if they want to have retirement incomes at 70 per cent of their preretirement earnings.

Globe says Flaherty's tax leakage is PURPORTED tax leakage? WTF!

The Globe has an article today that is aptly titled “Tinkering under the hood, or complete overhaul” in which the author refers to Flaherty’s central premise of his income trust policy of tax leakage as being “purported” tax leakage.

Purported? WTF!

You mean to say that we are three years into this policy with less than a year to go and the central premise of tax leakage has not been proven to exist? How can this be, when we had the CBC parroting Flaherty’s tax leakage lies on The National less than two weeks ago like they were the god given truth? Is Canada a democracy or is Canada a dictatorship? If Jim Flaherty said the world is flat, would we all believe him? Where is his proof of tax leakage?

Purported: –verb (used with object) to present, esp. deliberately, the appearance of being; profess or claim, often falsely: a document purporting to be official.

The analogy of someone tinkering under the hood of a car is very appropriate. How do we know that this shade tree mechanic (Flaherty) is competent or not? How do we know whether the oil leak that he talks about under the hood requires the entire engine to be replaced as he claims, or whether the oil leak that he speaks about wasn’t caused by his own incompetence as he poured oil from the can all over the engine rather than down the oil filler spout?

Purported tax leakage?

This is demanding of a major investigation. Purported tax leakage is hardly the basis on which to destroy $35 billion of Canadians savings.. Purported tax leakage is hardly the basis on which to deprive the 75% of Canadians without pensions an essential CHOICE, based on some dogma about tax leakage. That’s no different than depriving women of the right to choose, based on some religious dogma imposed by one sanctimonious group onto the affairs of another.

The entire sentence in today’s Globe concerning purported tax leakge reads “The tax-law change, announced in October of 2006 to stop purported “tax leakage," was also intended to level the playing field and make trusts subject to the same income tax as standard corporations”. This messaging of “leveling the playing field” is a most insidious and misleading one, as it reveals the underlying deceit of what this policy is all about and how Canadians are being completely bamboozled. Ask yourself, on what basis should the playing field be established as being “level”, if not some parameter or dimension that is of concern to all Canadians and affects all Canadians in a potentially adverse way? One such basis for determining whether the playing field would be level or not, would be whether income trusts cause tax leakage, making these two objectives one in the same, rather than distinct. What else could leveling the playing field be about if not tax leakage and be of concern to all Canadians, such that these dracomian measures of eliminatin essential investment choice would be just and appropriate?

This observation also places a premium on knowing whether tax leakage is real or not. If the purported tax leakage argument falls away, then Canadians need to know what purpose this policy is now being intended to serve and what justification there is for this policy? Perhaps “leveling the playing field” is simply corporate babble speak for “CEO’s want to keep their horrendous and obscene compensation schemes only permissible under a model of ownership as easily manipulated and abused as the corporate model”, or some such other self interested goal, as I know it to be? Would that objective provide a valid foundation in the minds of Canadians to have enacted this policy in the first place or to allow it to continue today of for Jack Layton’s support? Why are we implementing tax policy on something so vague and nebulous as “leveling the playing field” without even knowing what we are even talking about?

In any event, Canadians need to be told the truth, and not allow major tax policies to be allowed to proceed based on mere suppositions or PURPORTED truth. “Purported” is hardly the threshould test for anything, apart from being the basis to test such hypothesis with more investigation and analysis.

For those like Flaherty who speak the babble speak about “leveling the playing field” and are so seemingly concerned about the conduct of fair play, are Canadians not even entitled to knowing the truth about something so infinitely provable or disprovable as tax leakage? Are Canadians so gullible and the state of Canada’s democracy so fragile and marginal that we can’t get the truth about this purported tax leakage argument? Why in the absence of proof, are the assertions of government, especially a minority government taken as given, like sermons from the mount? Jim Flaherty’s Ten Commandments? It should be the obligation of government to prove its case, rather than expect Canadians to take its pronouncements as proof, which is like proroguing Canadians right to know and Flaherty’s right to cover up>

Come on media, you have a huge role to play and a responsibility that you have so far ignored on this entire matter. Your conduct to date is no better than the whole US media falling for the nonsense about WMD and the invasion of Iraq and the role played by journalists like Judith Miller of the New York Times in fostering falsehoods about WMD, no differently than people like Terry Corcoran of the National Post fostered Flaherty’s patent falsehoods about tax leakage in order to bring about some nefarious ulterior goal.

Operating a democracy in such a “faith based” manner can lead to disastrous consequences, as occurred with the US invasion of Iraq that was premised on Weapons of Mass Destruction. Flaherty’s income trust policy has destroyed many Canadians’ lives and caused a massive wave of takeovers. This is why proof of tax leakage is demanded and is readily at hand in the way that disproving the possible existence of WMD in Iraq is difficult to do. Unlike disproving WMD, we don’t need UN Weapons Inspectors. We simple need for Canada’s Minister of Finance to provide Canadians with his proof of tax leakage, which is demanded of him, especially given his touting the importance of improving Canadians’ “financial literacy”. Improving financial literacy is putting the cart before the horse for a Finance Minister whose every action is to keep Canadians in the dark, with his 18 pages of blacked out documents that only served to corroborate our claim that there is no tax leakage, so Flaherty demanded they be returned, but whose lies are still available for all to see here: http://caiti-online-media.blogspot.com/2007/04/to-finance-minister-flaherty-your-tax.html

Tinkering under the hood, or complete overhaul?

Income trusts could face deep management changes as they get ready for 2011 conversion deadline

David Milstead
The Globe and Mail
Thursday, Mar. 18, 2010

Trusts that convert to standard corporations will be able ‘to attract non-Canadian investors on a greater scale,’ says John Krukowski of KPMG in Toronto.

As the golden era of income trusts draws to a close this year, many will choose to become traditional corporations. Yet while the conversion should be nearly seamless, the new entities may be entirely different animals from their predecessors.

At issue: Will a former income trust maintain a semblance of its healthy yield? Will its management move away from a cash-generation model to embrace aggressive growth strategies? And will the company change its executive-compensation practices as a result?

Investors will likely focus on the first question, watching for news of what today’s income trusts plan to pay out in 2011 when their distributions are no longer tax-deductible at the corporate level. The other changes may be more subtle but will add up over time.

To be clear, income trusts aren’t necessarily going away. The tax-law change, announced in October of 2006 to stop purported “tax leakage," was also intended to level the playing field and make trusts subject to the same income tax as standard corporations.

It’s not a given that an income trust will convert, says John Krukowski, the income-trust tax practice leader at KPMG in Toronto. Some may have significant streams of income that won’t be subject to the new tax rules, and other small income trusts may find the costs of converting to a corporation cost-prohibitive. And real estate investment trusts (REITs) can continue to “flow through" their income to shareholders even under the new rules.

“It’s fair to say making the change isn’t generally tax-driven; it’s more capital-markets driven – the ability to borrow, to issue equity, to attract non-Canadian investors on a greater scale," Mr. Krukowski said. (Income trusts must maintain a majority of Canadian unitholders to preserve their status; there is no similar requirement for a stock corporation.)

That suggests, however, that some of the biggest income trusts may be the most likely candidates for conversion. While some trusts have already made their announcements, Mr. Krukowski notes “many are seeking to delay the change to the end of 2010 in order to maintain the existing benefits."

Since a trust will need to hold a shareholder meeting and go through other legal formalities that can take several months, the wave of conversion announcements should crest in late summer.

To Brent Fullard, the founder of the Canadian Association of Income Trust Investors, the income trust structure was itself a “governance overlay" that investors favoured because the payout requirements imposed discipline.

“Management had to pay out the earnings" rather than spend excess cash on big acquisitions or other risky projects, Mr. Fullard said. The trust structure was a way of investors saying, “Hey, instead of you blowing up this excess cash, why don’t you deliver it to me?"

Adds James A. “Sandy" McIntyre, the chief investment officer of the Toronto-based fund company Sentry Select Capital, “The excess capital and income was returned to the owners of the business: not management, not shareholders of some other company that management bought, but the equity investors whose capital was at risk. Strange that a structure that rewards shareholders is eliminated while structures that reward entrenched management are supported."

Mr. Fullard notes that a trust that moves into the world of stock corporations may revise its executive compensation programs. Trust executives are typically measured by the ability to deliver cash, and their compensation often reflects that. Mr. Fullard notes a corporation that delivers returns to shareholders through gains in stock price often uses stock options as a significant component of executive pay.

A change in growth strategy or a shift in compensation may only become evident over time, however. More pressing is whether an income trust will maintain its significant yield in 2011.

The equity analysts at Canaccord Adams have looked at trusts in each industry sector, trying to forecast which will maintain their payouts and which will cut them.

REITs will overwhelmingly retain their flow-through status, leaving them the least affected, Canaccord says. The firm doesn’t expect any distribution cuts in the power and pipeline trust and limited partnerships sector, even if the trusts convert to corporations.

“The groups which appear most exposed appear to be business trusts, which do not have any significant tax shelter," the Canaccord analysts wrote in a report earlier this month.

“We expect many will reduce their distributions by 20 to 30 per cent as they become taxable and are expected to convert to corporations."

That isn’t necessarily a problem for investors who hold their income trust shares in taxable accounts. If what’s now a trust distribution becomes a corporate dividend, the payment will be eligible for offsetting dividend tax credits. Notes Canaccord: “A taxable individual investor remains in the same position on an after-tax basis when it receives a $1 dividend from a corporation instead of a $1.22-to-$1.43 cash distribution from an income trust."

It’s investors who hold trusts in RRSPs who have the problem. They can’t utilize the tax credits since their RRSP account is not taxed. So if their distribution gets cut when a trust becomes a corporation, their take will decline.

Once investors get the tax ramifications sorted out, Anthony Scilipoti, executive vice-president at Toronto-based Veritas Investment Research Corp., suggests they focus on the basics.

“The sustainability of the cash flow of the underlying operation is what matters," he says. “Whether it’s a trust or corporation, all that does is add a layer of taxation. The key is the health of the underlying operation."

Wednesday, March 17, 2010

Another seedy Harper appointment

I guess a BA degree with no experience or training in science makes a person a perfect candidate for this appointment, or did it have something to do with Harper’s income trust tax announced 48 hours prior to this hand out?

Margaret Lefebvre Appointed to the National Research Council of Canada

OTTAWA, November 2, 2006 — The Honourable Maxime Bernier, Minister of Industry and Minister responsible for the National Research Council of Canada (NRC), today appointed Ms. Margaret Lefebvre as a member of the Council.

"Ms. Lefebvre's experience and knowledge in science and research will bring rich and diverse contributions to the Council as it continues to further its work," said Minister Bernier.

Margaret Lefebvre has had the opportunity to serve on several boards, including the working group to create a national science organization, the Council of Canadian Academies. Ms. Lefebvre is currently the Executive Director of the Canadian Association of Income Funds.

Recognized globally for research and innovation, the NRC is a leader in the development of an innovative, knowledge-based economy for Canada through science and technology.

More BS on income trusts, this time from Canaccord

Note this advice is coming from someone who works at Canaccord whose CEO Peter Brown sold himself out to the Harper CONs for a seat on the VANOC Board back on November 2, 2006, two day after Flaherty's trust tax was announced as follows:

Article: New Members Appointed to Vancouver 2010 Organizing Committee Board of Directors

Article from: CCNMatthews Newswire
Article date: November 2, 2006

OTTAWA, ONTARIO--(CCNMatthews - Nov. 2, 2006) - The Honourable David Emerson, Minister of International Trade and Minister for the Pacific Gateway and the Vancouver-Whistler Olympics, today announced three new Government of Canada appointments to volunteer positions on the board of directors of the Vancouver Organizing Committee for the 2010 Olympic and Paralympic Winter Games.

Peter Brown, of Vancouver, British Columbia; Jacques Gauthier, of Montreal, Quebec; and Carol Stephenson, of London, Ontario, will join the 20-member board of directors committee as federal representatives. These new board members will bring a wealth of valuable expertise in leading and managing …

On 3/17/10 10:13 AM, "michael popovich"

Here is another writer that misses the fact that many [38% to be precise) trust units are held within RRSPs & double taxation will occur.

Either these people are stupid or they are trying to make the trust tax look more harmless than it its.


Dr Mike

Financial Matters
Income trusts and 2011
MARCH 17,2010


As we approach 2011, many investors are thinking about the federal government’s tax fairness plan, first announced in October 2006.

They are concerned about how their income trust holdings will fare when faced with pending changes. Income-oriented investors worry about having a shortfall in retirement funding.

Effective Jan. 1, 2011, income trusts that are classified as specified investment flow-through trusts (SIFTs) will become liable to pay distribution taxes, known as the SIFT tax. All sectors of the income trust realm are subject to the SIFT tax, but the level to which they will be affected depends on the type of trust.

According to Canaccord Adams analyst Kyle Preston of Calgary, energy trusts appear to be the best positioned of all sectors for a successful conversion to dividend-paying corporations.

Several have already converted and have held their distributions/dividends flat.

Crescent Point Energy Corp. (TSX: CPG) is a good example. On conversion, the company’s monthly dividend per share was equal to its monthly distribution per unit.

The company has since maintained the $2.76 dividend, indicating consistency for income-oriented investors.

Engineering and construction income trusts are largely expected to cut distributions on conversion. Since October 2007, 29 have completed conversions, but only four have been able to maintain distributions without having to purchase tax assets.

Decisions to cut distributions appear to be based on the relative health of the balance sheet. Since engineering and construction firms tend to be acquisitive by nature, they need to be able to finance acquisitions, and large dividends may not be sustainable post-conversion.

Power and pipeline income trusts are a bit more varied. While most have stated plans to convert by 2011, those that are classified as limited partnerships (LPs) can hold off and convert at a later date with no tax consequences.

Delaying conversion gives LPs the ability to maintain a higher distribution and thus the potential to be rewarded by the markets as income-investors hunt for yield.

Business trusts are expected to have the most difficulties when making the conversion to corporations because most do not have any significant tax shelters to offset the rollover. As they become taxable, the majority of business trusts are expected to reduce distributions by as much as 20-30 per cent.

Regardless of the income trust sector, most individual taxable investors should not experience a significant decrease in the income stream they earn from these investments.

The Canadian source portion of the distribution will be taxed as a dividend and thus will be eligible for the dividend tax credit.

For example, a taxable individual investor remains in the same position on an after-tax basis when receiving a $1 dividend from a corporation instead of a $1.22-$1.43 cash distribution from an income trust.

This is beneficial since investors in most provinces can earn up to $30,000 to $40,000 in dividends without paying any material taxes, assuming no other income is earned, and investors in the lowest tax bracket often realize more than the dividend due to the tax credit mechanism.

Even when factoring in a distribution cut, it’s estimated that, due to the benefits associated with the dividend tax credit, taxable individual investors can withstand up to a 29 per cent cut before being negatively affected.

In assessing the impact of SIFT taxation, investors need to pay close attention to their individual tax situation and should consult with their tax advisors as there is a wide discrepancy between provinces and at different levels of income.

Kim Inglis is an investment advisor, CIM with Canaccord Wealth Management, a division of Canaccord Financial Ltd. Member CIPF. Find out more at www.kiminglis.ca .

The views in this column are solely those of the author.