Alberta’s Finance Minister cites income trusts as Exhibit A in Flaherty’s incompetence

In yesterday’s Calgary Herald. Ted Morton writes:

“That [Flaherty] would be the same finance minister and same federal bureaucrats who decided without warning in 2006 to fully tax energy income trusts, wiping out an estimated $35 billion of market equity in mostly Alberta based energy companies.That experience is Exhibit A in the case against a single federal regulator."

Ted Morton: Messing with a very good thing Alberta's security regulator has served us well

By Ted Morton, For The Calgary Herald June 1, 2010



Re: "No more carrot," Letter, May 31, "Out of touch," Letter, May 29, "Alberta reveals parochial ways with challenge to watchdog," Deborah Yedlin, Opinion, May 27.

In their rush to support the federal government's scheme to take over securities regulation, commentators have so far failed to consider the one key question: exactly what is Ottawa trying to fix that hasn't already been addressed by, or couldn't be fixed within, the current passport system?

Proponents of the move continue to parrot the federal government's line that the current system is a patchwork of 13 regulators and 13 sets of rules and fees. These criticisms and others have been resolved through 10 years of harmonization efforts to create the passport system.

It is a system that works well both on a local and a national level. Internationally, Canada's passport system is recognized as among the best in the world, with the OECD and the World Bank Group rating it ahead of both the United States and the United Kingdom. And two years in a row the Milken Institute ranked Canada first as having the "best access to capital."

As good as the passport system is, Alberta is not opposed to improving it. This is not a mindless defence of the status quo, but rather a request to Ottawa to be specific about what needs fixing, and then work with provinces to do it. The federal government has yet to identify any needed improvement that could not be accommodated within the existing system.

Federal Finance Minister Jim Flaherty has suggested that a single national regulator might have prevented the Earl Jones Ponzi fraud. Perhaps. But a single national regulator in the U.S. -- the Securities and Exchange Commission -- certainly didn't stop Bernie Madoff's Ponzi scheme, which was many times larger in dollars and victims. Nor did the SEC prevent the meltdowns at Bear Stearns or Lehman Brothers in 2008, not to mention Enron or WorldCom earlier in the same decade. Indeed, Flaherty's endorsement of the SEC model for Canada is hardly self-evident.

But for the strongest supporters of Flaherty's project -- the Ontario government and Bay Street -- this dubious track record doesn't really matter. For them, the appeal of a national regulator is that it will be located -- where else? -- in Toronto. The proposed federal legislation is vague about the location issue, talking instead about "regional offices"-- as if those would last longer than the current government.

But even this suggestion is too much for Ontario. Ontario Finance Minister Dwight Duncan has said more than once that if the head office is not in Toronto, then Ontario is not interested. Of course, this explains why Ontario is the only province that has refused to participate in the passport system.

The Toronto-centric vision of this project is not its only problem. Regulation of securities has been a matter of provincial jurisdiction for more than 100 years. In the 1990s, when the Jean Chretien Liberals pursued this same idea, they conceded from the start that they lacked the constitutional authority to proceed unilaterally. They understood that any change would require provincial co-operation and consent.

Canada's Constitution does not change with the change of governments. What has changed is a new finance minister, who evidently is more interested in listening to his own federal bureaucrats (who have long lusted for SECtype power) than his constitutional lawyers. That would be the same finance minister and same federal bureaucrats who decided without warning in 2006 to fully tax energy income trusts, wiping out an estimated $35 billion of market equity in mostly Albertabased energy companies.

That experience is Exhibit A in the case against a single federal regulator. Notwithstanding all the pious assurances that the proposed new regulator would respect regional differences and provincial interests, when political push comes to shove in Ottawa -- when money and votes are on the table -- Alberta tends to get marginalized. And it doesn't much matter which political party is in power. It's the electoral math.

Since 1968 the Liberals neither won nor needed any of Alberta's 28 seats to form a government, while Conservative governments (both the Mulroney and Harper varieties) can and do take them all for granted. To advance our economic interests, Alberta needs a constitutionally guaranteed seat at the table. That's what the Constitution gives us, and that's what Flaherty proposes to take away.

Alberta will not cede this power to Ottawa. This is not just about securities, but all financial services that have been regulated by the provinces under their Section 92 jurisdiction over "property and civil rights"-- including pensions, credit unions and insurance.

When it comes to diversification of the Alberta economy, financial services is one of the fastest growing sectors -- with the potential for much greater growth. The job-multiplying effect of having a provincial-based securities commission has been well documented by Quebec. As Canada and the rest of the world emerges from the recession, Alberta will lead the way. If we let the Alberta Securities Commission get scooped up and transferred to Toronto, we can also say goodbye to thousands of spinoff jobs in investment banking, law, accounting and financial analysts.

Why would Albertans want to do this, especially when it is not even necessary?

Ted Morton is Alberta 's minister of finance and enterprise
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