Government data belongs to taxpayers

By Stuart Thomson
The Whitecourt Star


Journalists, politicians, and communications people all have a common fascination with information.

For all the talk of Stephen Harper's controlling ways, you only have to look back a few years to see that Jean Chretien did the exact same thing. I think they both tried desperately to control information, both in and out of their government, most of the time successfully.


When Harper boasted to Peter Mansbridge last week that his government had gone five years without any scandals, he was correct. It probably has a lot to do with the tight reigns he holds on information, especially when it comes to the government's sprawling stimulus program.

Journalists have access to information laws on their side, but they don't always work as they're supposed to.

It seems obvious to me that information should belong to the taxpayer by default. The burden should be on the government to prove why certain things shouldn't be released, rather than the other way around.

Advice to cabinet ministers is not released, which makes sense. You want advisors to feel empowered to offer bold suggestions without fear of it being released.

Advertisement

Personal information is generally held back and this one is obvious.

Any requests about the Economic Action Plan seemed to get stalled interminably, and data about the costs of individual projects and geographical points were never allowed to intersect. It was very hard to figure out where all the money was going. That information is too powerful for taxpayers to know, apparently.

A wise person once told me, though, that a bureaucrat is never going to be condemned by his bosses for not releasing enough information. It's an unfortunate fact, and anyone requesting information at the federal level will have experienced this.

Once again, the benefits of a small town become clear, even on issues like this. I've been looking for information on collisions in the area since I moved here. It's just one of those interesting little data snacks that tells you a lot about a town or a county.

Now, requesting a similar kind of document at the federal level would probably take a few months, a few testy conversations with data coordinators and bureaucrats, and eventually a file that doesn't even contain what I was asking for in the first place.

In a Town? Well, you simply ask someone at a committee and then it shows up in your inbox in less than a week.

Just that little bit of easy-going transparency is a very good thing for a government, at any level, to make a habit.

And it may be true that, at the federal level, the more you keep from the taxpayers the less likely to feel a scandal rumbling beneath your government but I would suggest that maybe it's smarter just to avoid scandalous activity in the first place. Then you don't have to worry about hiding it.

People are entitled to the information that is collected and generated by their tax dollars and it's nice to see some folks, at the Town of Whitecourt, agree.

Globe: Trust tax tilts the balance to foreign takeovers

Boyd Erman in today’s Globe writes:

"Houston-based Magnum is buying NuLoch Resources for $327-million, in a deal announced last week. Since then, some bankers report heightened interest from more mid-tier American buyers.

One perceived advantage for American oil and gas companies looking at buying in Canada is that they can get more leverage than Canadian acquirers, giving them a cost of capital advantage. American banks are willing to lend smaller oil companies more, with as much as twice as much debt per dollar of cash flow on offer. They also have access to more financing in other areas of the capital structure such as bond debt and preferred shares, bankers say.

The disappearance of the trust structure, which allowed many Canadian producers to trade at high multiples, is also tilting the balance back toward American buyers."

Two CEOs slam Flaherty’s trust decision as a blunder and a mistake

Today BNN spoke with Rebecca Macdonald, CEO of Just Energy Trust, and Don Gray, CEO of Peyto Energy Trust about Flaherty’s trust decision:

See the 7:00 mark here

Freedom FROM information

Image: One of the recalled documents that Flaherty did not want to be in the hands of Canadians. Click on image to enlarge

Too much information in the hands of the people is a dangerous thing....even blacked out documents. The Liberals could have had a field day over this, but did not. Why not?

Ottawa seeks return of trust tax documents
STEVEN CHASE

Globe and Mail
April 20, 2007

OTTAWA — The Harper government is asking a Calgary income trust analyst to give back heavily censored documents Ottawa sent him that detail calculations used to justify last fall's controversial trust tax.

Warning that its lawyers have decided the information is top secret, Ottawa is also requesting that BMO Nesbitt Burns analyst Gordon Tait stop sharing this information with other Canadians.

It's hard to see how Ottawa benefits from recouping the documents, which summarize how it calculated that trusts are costing it hundreds of millions of dollars in annual lost tax revenue.

That's because nearly half of them are blacked out by a federal Finance Department censor's pen.
Related to this article

Mr. Tait made news headlines this year after he requested details from Finance Minister Jim Flaherty's department on how it determined that trusts were a drain on federal coffers.

In response, Finance sent him 28 pages, 13 of which were heavily blacked out. These appeared to detail the calculations and methodology used.

Now the Finance Department wants about 18 of those pages back.

“Subsequent to the Department of Finance's ... release of information to you, the Privy Council Office Counsel has confirmed that portions of the released information, namely 1-5 and 9-21, are confidences of the Queen's Privy Council for Canada,” a Finance official wrote in a letter to Mr. Tait this week.

“We would like to ask for your assistance in returning these pages and also that this information not be disseminated further.”

The letter has left Mr. Tait scratching his head because he and other trust advocates have already widely circulated the heavily excised documents.

“It's a bizarre situation. They're trying to put the toothpaste back into the tube,” he said, adding that he's learned that other Canadians are receiving similar letters asking them to relinquish documents.

Mr. Tait said he will return the original documents, but will warn Ottawa that “I and thousands of others have copies of this.”

He said most of the pages that Ottawa wants returned are heavily censored. “It's a request for information that was never divulged in the first place,” Mr. Tait said, however adding that the largely blacked-out pages nevertheless reveal some details of the methodology used in calculations.

The Finance Department did not immediately return phone calls.

Tax revenue losses were central to Mr. Flaherty's rationale for breaking a Conservative election promise and slapping a levy on trusts.

He justified the new levy last Halloween by saying that annual tax leakage was already $500-million and would have risen to $800-million had BCE Inc. and Telus Corp. converted to trusts.

Income trusts pay little or no corporate tax, instead shovelling out the bulk of earnings to investors, who are taxed individually. Ottawa says it never recoups all the tax these businesses would have paid had they been structured as corporations instead of trusts.

Trusts have produced experts to counter Ottawa's tax leakage estimates, but Mr. Flaherty has steadfastly defended his department's calculations, which suggested losses for the federal government and provinces could exceed $1-billion.

The Finance Minister had also warned that tax revenue hemorrhaging would only grow if left unchecked until it threatened the federal government's ability to fund priorities such as health care, education and infrastructure.

Why it makes sense for Liberals to attack Jim Flaherty

Globe and Mail Article of the same title here

My posted comment here:

Scott Brison failed to mention the $35 billion of Canadians' retirement savings that Jim Flaherty destroyed with his income trust tax that was predicated on the complete hoax argument of "tax leakage". The only tax leakage from income trusts was the one created by Jim Flaherty himself from the wave of takeovers of vulnerable and devalued trusts by foreigners who pay NO taxes, like the $5 billion takeover of Prime West Energy trust by Abu Dhabi Energy, to name but one of the 45 takeovers. Flaherty is inept and incompetent in the extreme, not to mention completely lacking in integrity.

"Canadians must trust" Stephen Harper in emails to trust investors November 21, 2006

Canada hits bottom on freedom-of-information ranking, new study finds
By: The Canadian Press
January 9, 2011


OTTAWA - A new study ranks Canada dead last when it comes to freedom of information.

Published research by a pair of British academics looking at how well freedom-of-information laws operate in Australia, New Zealand, Ireland, Great Britain and Canada — all of them parliamentary democracies — judged Canada the least open.

New Zealand topped the list, and Canada brought up the rear because its legislation is ineffective and archaic.

The findings published in the journal Government Information Quarterly echo a similar Canadian study from 1998 that showed Canada performs poorly when compared with freedom-of-information laws around the globe.

Critics say the findings are not a surprise, pointing to growing delays in responses to information requests from the public.

And they say it marks a reversal from a decade ago, when Canada was seen as a global leader in freedom of information.

Why did David Dodge stop speaking truth to power on income trusts?

By W.T. STANBURY
Published December 20, 2010
The Hill Times

Speaking truth to power is one of the highest ideals of public servants (see Aaron Wildavsky, Speaking Truth to Power, Little Brown, 1979). It is even more important in the case of appointees who have been given a great deal of independence such as officers of Parliament, and the governor of the Bank of Canada.

Prior to Oct. 31, 2006, then-Bank of Canada governor David Dodge's statements about income trusts were carefully circumscribed by the limited research the Bank of Canada had done, and by Dodge's knowledge of other research. Then things changed dramatically. I try to determine why Dodge changed his views on income trusts after the huge tax on certain publicly-traded trusts was announced on Oct. 31, 2006. I omit his testimony before the Senate Banking Committee on Oct. 26, 2005 as much of the same ground was covered a year later.

Standing Senate Committee on Banking, Trade and Commerce, Oct. 25, 2006

Dodge's comments on income trusts are from the Q&A period. I focus on Dodge's statements and omit the questions for reasons of space. Note that he was speaking just five days before the new tax on trusts was announced on Oct. 31.

"[I]ncome trusts...have a risk return characteristic sufficiently different from either equities or bonds to allow investors to achieve portfolio risk-return combinations not otherwise available. ... They made markets more complete and, hence, were a good additional instrument for markets to have."

"[T]wo areas ... need improvement—those related to accounting and those related to corporate governance."

"We have not done work on how income trusts affect overall Canadian economic performance or productivity. We will not be doing that work. Indeed, that work is incredibly difficult to do...."

"Finally, none of the work we have done relates to the appropriateness of all of the tax system as it relates to the incentives to operate either in the form of an income trust or in the form of a corporation....None of what we have done should be taken to say that we think that the current tax system—taken in its entirety—is necessarily ideal."

"Turning to the two more difficult questions, the impact on research and development and the impact on machinery and equipment, we are not competent to talk about those, and in abstract, it is really not possible to talk about them."

"[I]t is true...that tax exempts [sic. trust units in tax deferral accounts ] and foreigners face a rather different set of incentives or net returns than does the individual Canadian investing outside of his or her RRSP. That is an obvious fact, but I cannot comment on what one might do about it."

Dodge Changes His Views

On Nov. 1, 2006, the day after the new high tax on distributions by income trusts was announced, Reuters quotes a statement by Dodge, distributed by email, saying: "The actions that the government took yesterday... would appear to eliminate the tax incentive to use one form of corporate organization over another. Businesses now face a level playing field in choosing the form of corporate organization that allows capital to be allocated to its most efficient use." The Reuters report also cited Dodge's statements on Oct. 25, 2006 quoted above.

Comments: Why would the then-governor of the Bank of Canada make any statement regarding the new tax—let alone such a bold and unqualified one? Dodge's Nov. 1, 2006, statement contradicts his October 2005 Senate testimony in which he said: "I think the idea of an income trust was a sensible one to try to have a level playing field." On Oct. 25, 2006, Dodge told the Senate that "none of the work we have done relates to the appropriateness of all the tax system as it relates to the incentives to operate either in the form of an income trust or in the form of a corporation." Dodge made no reference to any research in support of his new position. Gone also were the qualifiers Dodge used in the past such as "limited evidence suggests."

Was Dodge prompted to send out the e-mail as part of the larger effort mounted by the Harper Government to create allies and to undermine potential opponents? And if Dodge was prodded, why did he not assert his independence and refuse?

House of Commons Finance Committee, Feb.1, 2007

Dodge began with a statement to the committee (edited slightly). I have inserted some comments in bold.

"[In] our June 2006 Financial System Review... we noted that limited evidence suggests that income trusts can enhance market completeness in a number of ways. Income trusts can provide diversification benefits to investors because trusts can have different risk-return characteristics than either equities or bonds. Second, the income trust structure appears to allow some firms to improve access to market financing."

"... We note ...two areas... where improvement is clearly needed in standards related to accounting and distribution of revenue, and those related to governance. ..."
" Of course, there are very important public policy questions related to income trusts that fall outside the Bank's mandate. The Bank has done no specific research on how the income trust structure affects economic performance, or would affect future productivity in Canada."

"Based on general economic principles and our understanding of the structure of the Canadian economy, I can say that while the income trust structure may be very appropriate where firms need only to manage existing assets efficiently, it is definitely not appropriate in cases where innovation and new investment are key. [ No research cited, and contradicted by empirical research on trusts and the rate of investment.] To the extent that the system was favouring the use of the income trust structure in these cases, the incentives for innovation and investment were reduced, and the potential for future productivity growth was reduced." [ No research cited, and not supported by available research.]

"[D]ifferent risk-return characteristics of trusts may not enhance market completeness if they arise from differences in tax treatment. Clearly, there has been a very significant tax incentive to use the income trust form of organization in cases where this would not have been an appropriate form of organization from a business efficiency point of view."

"By giving incentives that led to the inappropriate use of the income trust form of organization, the tax system was actually creating inefficiencies in capital markets—inefficiencies that, over time, would lead to lower levels of investment, output, and productivity. [In his Senate testimony on Oct. 25, 2006, Dodge referred to the efficiency promoting nature of trusts, and refused to comment on their effect on investment etc., as the Bank had done no research on these matters.]

"We at the Bank have not done any research on how the rules of the tax system could or should be designed so that they do not give inappropriate incentives. [But on Nov. 1 Dodge endorsed the new tax.] The changes proposed by the government last October would appear to substantially level the playing field. [Contradicts Dodge's Senate testimony on Oct. 25, 2006.] For the income trust sector to deliver the efficiency benefits through its enhancement of market completeness, it is absolutely critical that the tax system provide a level playing field." [Dodge cites no research or studies to demonstrate that would be the actual outcome of new tax.]

In response to a question by the NDP finance critic, Dodge said, he had "reasonable faith, that ... a big chunk of that $20-billion to $25-billion [decline in the TSX trust index] has got to be the present value of tax losses to governments, federal and provincial." [Wrong: see below.]

Conservative MP Diane Ablonczy, then-Parliamentary secretary to the minister of finance, sought to get Dodge to endorse the government's action. After a very long and carefully-qualified response by Dodge, Ablonczy said: "So you're telling the committee that you believe what Mr. Flaherty, the finance minister, did, with this announcement, was the right thing to do."

Dodge said, "I think so, I guess from a strict point of view... the right thing is to have a tax system with low rates and a broad base and that is as neutral as possible..."

When asked to clarify his previous statement, Dodge said, "What I said was that a step was taken to levelling the playing field and it was a step absolutely in the right direction..."

Discussion and Conclusions

Why did Dodge so clearly change his position on the taxation of income trusts after Oct. 31, 2006? In his previous statements on income trusts in October 2005 and October 2006, Dodge emphasized the limited research the Bank of Canada had done, and he refused to make statements beyond its limited confines. In his Nov.1, 2006, and Feb. 1, 2007, statements that were supportive of the new tax, Dodge cited no research in support of his new position. Worse, the available research did not support Dodge's claims.

Dodge said he was using general economic principles and his general knowledge of the Canadian economy. But he then made remarks about the relationship of trusts to innovation, investment and productivity—and cited no evidence in support of his claims.

Worse, Dodge said that " a big chunk" of capital losses suffered by owners of trusts "has got to be the present value of tax losses to governments...." That was an elementary error—inexplicable for the governor of the Bank of Canada. The TD Bank Financial Group (news release, Nov. 1, 2006) explains: "Since the valuation of any stock is a reflection of the discounted present value of the future revenue stream, the imposition of the distribution taxes will lower the market assessment of valuations. And.. markets [being] forward looking and will factor in the changes immediately."

Dodge changed his views dramatically on aspects of the income trust issue for which he had previously said the Bank had done no research. Yet an hour on the internet would have revealed to Dodge the careful studies of consultant Dennis Bruce re: the claims of "tax leakage," and contrary evidence on the reinvestment, growth, and competitiveness argument that were available at the time cited in Stanbury, The Hill Times, Nov. 8, 2010).

During his Feb.1, 2007, testimony, Ablonczy refused to accept Dodge's carefully-framed answers even though they had gone far beyond anything he had said in the past. For all his record of bluntness, it is a mystery why Dodge did not tell Ablonczy to stop trying to put words in his mouth. He had a great deal of experience in testifying before Parliament. He would have won such a "face down," given his status in Ottawa was far greater than hers. But Ablonczy was able to "break the witness" as the lawyers say. Later, the Harper Government played up the fact that the governor of the Bank of Canada had endorsed its new tax, even though his comments only amounted to "I think so, I guess..."

When it really counted, Dodge failed to speak truth to power—which is the central justification of having a position of great independence as a public official.

W.T. Stanbury is professor emeritus, University of British Columbia. This column is drawn from his forthcoming book on income trusts which contains a longer discussion of the change in David Dodge's views.