Harperland: Lawrence Martin's cursory take on Harper's income trust betrayal

Are all Canadian reporters incapable of getting to the hard truth, even when it involves numbers and hard constructs, such as alleged tax leakage?

Here’s Lawrence Martin’s lame attempt to uncover the truth about the biggest fraud (ie tax leakage) in Canadian history.

Harperland: the politics of control
Lawrence Martin
pp. 88-90

Harper's Quebec decision was the second stunner of that month. It had been preceded by Jim Flaherty's announcement that the Conservatives were reversing a campaign promise to leave income trusts-tax shelters used by investors both large and small-intact because of their importance to small investors and retirees. Now, just eight months later, the finance minister announced that income trusts would be taxed. It was a bid to stop the increasing number of companies from converting to trusts, an act that Flaherty argued was costing the economy hundreds of millions in tax revenue. Only three weeks earlier, Bell Canada Enterprises had proposed the biggest trust conversion in Canadian history. Turning its Bell Canada subsidiary into a trust would cost Ottawa, according to defenders of the Flaherty move, an estimated $800 million in taxes over the next few years.

Critics wondered why a government that was in favour of trusts just a short time earlier was so opposed to them now. It had been evident during the election campaign that the trusts were a revenue-draining problem. Could it be that the Harper team waited until after the election to announce the policy to avoid antagonizing Conservative voters, many of whom were seniors voters who had come to rely on income from the trusts?

In fact, the government's rationale for the flip-flop-the lost tax revenues was not the real reason for it. When the announcement came, Tom Flanagan, still in Harper's good graces at the time, asked him the reason for the reversal. "Well, when I was in opposition," Harper replied, "no one told me that all the big corporations were about to convert to the income trust form of organization." He wasn't as worried about tax leakage, he explained to Flanagan, as he was about corporate governance. The income trust concept was fine, he believed when used in a limited sphere. But when it was beginning to be adopted by big manufacturers and service corporations, he was persuaded that it was the wrong way to go. James Rajotte, who served as chair of the industry committee, was of the same impression. But it was not the case Harper and Flaherty put to the public because corporate governance was too complex an issue.

As in the case of the Quebec surprise, Harper's cabinet was not informed of the decision until after the fact. It was taken with only four people in the room-Harper, Kevin Lynch, Jim Flaherty, and Flaherty's deputy minister. Owing to the sensitivity of the issue, Harper opted for even tighter secrecy than usual.

Initially the response was measured. The government was taken to task for the flip-flop, but many people agreed that something had to be done about the lost tax revenue. Before long, however, the evidence began to mount that the tax implications were significantly overstated. Revenue calculations by federal officials, it appeared, had been distorted to make the loss appear far more serious than it was. The Canadian Association of Income Trust Investors launched a ferocious campaign against Flaherty, arguing that the tax change had cost Canadians $35 billion in retirement savings. William Stanbury of the University of British Columbia initiated an in-depth study of the matter for a book he was preparing. He found that faulty work by finance department officials and pressure on Harper by big-time CEOs were likely the real reasons for the new policy. The shroud of secrecy over the issue was inexcusable, he added. The government "did not hold any form of consultation process in 2006, as the previous government did in 2005. Then, because of the controversy the policy switch engendered, the Harper team went into information-denial mode." The government, said Stanbury, interpreted the Access to Information Act in the most restrictive way possible. Many documents released under the act were completely blacked out.

There were defensible reasons in some cases for the government's furtive way of operating, but there was no good reasons in others. On the question of Quebec nation status, it had cost Harper a promising young cabinet minister. In the environment file, it had created, as Mark Cameron suggested, confusion and doubt. On income trusts, it would become more of a problem. And there were other issues, not the least of which was the Afghan detainee affair, for which the price paid for stealth would be steep.