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 ( 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.


Anonymous said...

This post is Brent Fullard at the top of his game.

A point I especially agree with is "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."

It's true: most Canadians, like most Americans, can be sold a lie for not much money, if the lie is told by a smile and a blue suit.

Anonymous said...

And in other news that the MSM tries to bury well off of the front page;

With two months left to report for the 2009-10 fiscal year, the federal government has a budget deficit of $39.6 billion, whereas Finance forecast a $53.8-billion shortfall for the entire fiscal year. Should the momentum continue, it is possible the federal deficit for this fiscal year could be quite a bit smaller than projected.

Anonymous said...


Calgary SW
Pinocchio Harper's Riding

Anonymous said...

Well expressed and argued... superb!


Dr Mike said...

The two biggest arguments about income trusts were that they caused a tax loss to governments & that they were a bane to the Canadian economy as they were a cross between junk & Ponzi.

The failure of this argument becomes noteworthy when we look at pension funds ---- they are allowed to own these devoid of the trust tax ---- also , would pension funds buy such issues if they were not money generating dynamos --- so much for ponzi schemes.

It sickens me to think that a gov`t here in Canada could get away with this in the first place.

They didn`t give a flying hoot about the people hurt---what a shame since we bought these with their recommendation.

As many of the trusts convert to corporate structure , we are being squeezed a second time as now we own dividend producers in RRSP accounts designed to accommodate interest bearing entities---now thru no fault of our own , we will now be double taxed---they refused to look at the obvious solution , the Marshall Plan.

These people are inept at best & deceitful at worst.

Either they didn`t know what the consequences would be or they didn`t care.

Either way , they deserve to be booted the the curb.

Dr Mike Popovich

Anonymous said...

Brent is right. Why doesn't the government give him a hearing? Who is threatening the government? Who has the power? Senior citizens are suffering and no one seems to care. God knows who they are. Truth will win out in the end.

Anonymous said...

The MSP = $6 Billion plus !
Why do you need Dr Dodge?

75% of Canadians with no public or private pensions need our pensions back, and we are not asking for a bailout, just give us the MSP Plan !
Why do we need the expensive
Flaherty Pension circus road show?


Dr Mike said...


The problem here is that these guys like Flaherty will never admit they were wrong & acceptance of the Marshall Plan would be an admission of guilt.

They would rather lose billions & have us old geezers starve to death rather than admit to anything.

Besides they are greedy for cash & they are looking forward to the double taxation within our retirement accounts.

Dr mike Popovich