Dear British Parliamentarian

Re: Disturbing Information regarding Mark Carney, Governor-elect of the Bank of England

I understand that British Parliamentarians will be holding a pre-appointment hearing for the proposed appointment of Mark Carney to Governor of the Bank of England. I have disturbing information concerning Mark Carney's past performance in public service that is highly relevant to those hearings.

Prior to his appointment as Governor of the Bank of Canada in October 2007, Mark Carney served for approximately four years in Canada's Department of Finance (Finance) and prior to that with Goldman Sachs.

During his time in Finance, Mark Carney was put in charge of the Income Trust file. Income Trusts were a form of investment vehicle that had become popular with Canadians seeking retirement income, during a period of protracted low interest rates which had made it difficult otherwise to generate retirement income. Think of income trusts as a form of profit sharing investment vehicle in which the profits from businesses are distributed monthly to investors, taxed in their hands and then immediately redeployed into the economy in a myriad of ways, principal of which are reinvestment and consumption.

The discipline of distributing business earnings in this fashion made income trusts popular with investors, however less popular with corporate CEOs, as the corporate governance of these businesses had now shifted away from CEOs to investors (as it should be) and served to eliminate  and/or lessen the abusive compensation practices adopted by CEOs under the traditional corporate model when converted to the new income trust model.

The conflict that arose in the Canadian capital marketplace between the interests of investors and the self interests of CEOs was something the CEOs sought the Government's assistance on, and the CEOs intense lobbying of Government found a willing accomplice in the form of the ambitious former Goldman Sachs employee within Finance, namely Mark Carney.

It is the primary responsibility of CEOs to maximize value for their shareholders in everything they do, and yet here we have a situation where these CEOs were banding together to lobby the Canadian government to shut down the income trust model, which had proven itself as the preferred means for shareholder to achieve maximum value.

To justify legislation to shut down income trusts required a form of rationale that made such action sound plausible and just to the Canadian public at large. Unfortunately there was no sound rationale to justify such action, so the devious public servants in Finance headed by Mark Carney fabricated a rationale. Mark Carney argued, falsely, that income trusts were causing a loss of tax revenue to the government and were damaging to the economy. Both of these claims are completely false and artificial, as refuted by every credible study that has been conducted on these matters by leading organizations like Price WaterhouseCoopers, The Royal Bank of Canada, Bank of Montreal, HLB Decision Economics, etc.

To make the false argument that income trusts cause tax leakage, Mark Carney resorted to quack economics in which he arbitrarily excluded the taxes that the government receives from income trusts held in deferred retirement savings accounts, an analytical framework that  is totally contrary to sound public policy analysis and against the Accrual Accounting Basis that the Government of Canada is required to perform by the Auditor General when preparing its financial records and statements.

Had Mark Carney properly included these taxes, rather than arbitrarily excluding them, then the conclusion of his tax analysis would have been the exact opposite of what he told the Canadian public. As such there would been no economic rationale for his policy, the sole purpose of which was to appease the CEOs who lobbied the Government against the interests of their shareholders and all Canadian taxpayers.

Mark Carney had argued (or used surrogates to make the point) that income trusts were causing the Government to lose billions in tax revenues, when in fact income trusts were enhancing the tax collection on business earnings. Mark Carney used this false and fabricated rationale to justify the imposition of a new 31.5% tax on income trusts, the sole purpose of which was to kill the investment vehicle, which it did. The new tax had an immediate impact of the market value of income trusts, which resulted in Canadians losing $35 billion (yes, billion) of their hard earned retirement savings.

Furthermore, these Canadian businesses that had formed themselves as income trusts (some $200 billion) immediately became highly vulnerable to foreign takeover, as their market valuations had plummeted, and Mark Carney's policy put foreign investors (like Goldman Sachs) at a distinct economic advantage to Canadians. As surely as water flows down hill, so too did the wave of foreign takeovers of Canadian income trusts, the net effect of which was a drain of over $1 billion in annual tax revenue to the Canadian government.

In summary, Mark Carney used his public office and the public trust that is esconced in such an office to personal advantage (i.e. career advancement)  by championing the selfish cause of Canadian CEOs (who were his former investment banking clients at Goldman Sachs) and to the economic advantage of his former employer, Goldman Sachs, and against the interests of Canadians at large by adopting a policy on the false premise that it would alleviate the alleged loss of tax revenue to the Canadian government (which was non-existent) only to create a loss of tax revenue that is real.

Such a public policy outcome is the product of either gross negligence or gross conflict of interest. Either way, it was the product of Mark Carney, Govenor-elect of the Bank of England.

Yours truly,

Brent Fullard
President
Canadian Association of Income Trust Investors
www.caiti.info