Cameron Wigmore, Green Party Member: Harper Governments Income Trust Mess

April 9, 2007

Harper Governments Income Trust Mess

First this: (click this link for full story)

Excerpt:

Surprise move breaks major Conservative campaign promise to avoid taxing trusts

Finance Minister Jim Flaherty said he had no choice because he feared that increasing numbers of corporations were preparing to convert to trusts — a trend he said threatened Ottawa's tax base.


Then this: (click here for full story)

Excerpt:
There have been 12 takeovers of trusts announced or proposed in the five months since the Harper government announced a surprise 31.5-per-cent tax on income trusts, according to Deloitte & Touche...

...Finance Minister Jim Flaherty sold the trust tax as a way to recoup tax revenue that these corporate structures were not paying, but critics say the measure will ultimately cost Ottawa money as takeovers put trusts in the hands of entities, including foreign private equity funds, that won't pay Canadian federal taxes.

New foreign owners of trusts would pay less Canadian tax, says Ogilvy Renault LLP's Leonard Farber, a former Finance official. "Foreign takeover will result in less tax at both the federal and provincial levels," he said yesterday.


Now this: (full article here)

Excerpt:
The rash of recent income trust takeovers that critics blame on the Harper government's trust levy will cost Ottawa tens of millions of dollars in annual lost tax revenue, Bay Street investment experts say.

That's tax revenue that would have been paid by trust unitholders and will now be lost to tax avoidance by predominantly foreign entities that have snapped up most of the trusts in the last five months.


It's a sign of how misguided the income trust tax was, critics say, arguing that the levy sold by Ottawa as a solution to tax leakage is actually causing its own bleed of revenue from federal coffers...


...“If so-called tax fairness was intended to accelerate the sale of Canadian companies to foreign entities, then it is a success,” Mr. McIntyre said. “If it was intended to increase Canadian tax revenues, it is a failure.”


Mr. Flaherty justified the 31.5-per-cent trust tax by saying it was necessary to stem tax avoidance by trust investors that the Finance Department had estimated was at least $500-million a year.


It would only take slightly more than 15 per cent of the trust sector to be bought out by foreign private equity, and non-Canadian firms before Ottawa was losing annual tax revenue equivalent to what it said eluded its grasp before the trust tax.


What a mess.

Was this simply a big mistake made by a party unable to govern, or was this done on purpose?

I know a great number of ex-PCers who absolutely will not place their vote with the Harper Conservatives. This party is failing to represent their voter base. The Harper government has taken Alberta's oil&gas revenues and used the cash in the spring budget to buy votes in Quebec. They have not demonstrated transparency or accountability.

So where does a Canadian, who wants to see the power to make choices concerning their land and municipalities actually put back in the hands of the land owners and municipal representatives, where does a Canadian concerned with fiscal responsibility, social justice, and ecological sustainability place their political support?

Edited to Update: Green Party Income Trusts Media Release Here.

10 comments:

Alberta Report said...

Flaherty ran Ontario into the ground, now he's performing in his usual fashion with the rest of the country. Does this really come as any surprise?

Cameron W said...

It's not a surprise to me, but to some estranged PC voters who've been watching the Harper government, this is a really big let down.

I have a friend and colleague who lost a lot of money when the Harper government flip flopped on this subject. They broke a major campaign promise, and they shouldn't be let off the hook for it.

The Anonymous Green said...

Cam,

You're pandering on this issue. Not a very principled stand, in my opinion.

Brian C. said...

I, for one, am happy for getting rid of the income trust loophole on taxes. The real answer is lowering taxes on dividends. Corporations need to be on a level playing field. I could not believe that the govt would allow BCE to become a trust. (that was before they acted)

From a green perspective, I can't tolerate the fact that trusts like Canadian Oil Sands and other heavy oil trusts are essentially getting a tax break on top of the $1.5B subsidies. At least I see that the CPC is laying out a timetable to stop the subsidies in this area.

I don't think that this decision was made to make any environmental improvements but hey, if it slows down the oil sands expansion even a little bit, I'm happy. That's more than we got under the Libs. Keep in mind that a LOT of the trusts are oil and gas trusts. Do you want them to have their tax breaks back?

Cameron W said...

anonymous green, I am not pandering, although I can see why you might misinterpret my coverage of the article as being so.

I live in a very conservative riding, where the media can be very biased, and I do my best to share news relevant to the riding with the people who live here.

As I said above, I have a good number of friends - many of them now former conservative supporters - who've been hurt financially by the income trusts flop.

They deserve to know that fiscal responsibility is something that the Harper government left at the door when they formed a minority government and started down the path to the political center riding on a vote-buying strategy that will likely backfire on them.

Cameron W said...

brian, the last article linked to from the original post above observes how the government may now lose even more money because trusts are being sold to foreign investors, allowing them to escape being taxed anyway.

The government does need to stop subsidizing the worlds most profitable product with Canadian taxpayer dollars. Let the oil&gas industry stand on it's own without the help of cash handouts.

Anonymous said...

The Anonymous Green (sorry, can't seem to sign in)

Cam,

A couple of examples of arguments you've picked up. "The Harper government has taken Alberta's oil&gas revenues and used the cash in the spring budget to buy votes in Quebec."

This is something Ralph Klein used to argue. Revenue that the Feds collect in Alberta, as in all parts of Canada, are through sales taxes, and income taxes, persoanl and corporate. So, they are not taking "Alberta's oil and gas revenue" - this is just infamatory rhetoric.

Secondly, while I acknowledge some people did lose money on income trusts, rather than taking up their gripe, look into this issue: How did they do on the IT's over the long term (not just the past 6 months), and how have they performed in their whole portfolio? Funny, how they forget to include those parts.

I understand you support a moratorium on oilsands expansion and a transition to a non carbon based economy. That being the case, arguing for greater local returns of oil and gas revenues seems like having your cake and eating it too.

A widely held view within Alberta is that the previous Klein gov't has not been investing in infrastructure to support the unsustainable development in many regions of the province, and has been charging far too low royalties. It would seem to me this is where most of the funding for local municipalities etc.

Apart from the unit holders, who are the one's most effected by Flaherty's move? The heads of the ITs who made huge fees when a trust was converted, have stock options, as well as the Bay St. brokers who were looking to convert just about every corporation in Canada into an IT trust - and receive huge fees. So, keep that in mind when you read these types of articles - who is making the case.

Eric Reguly, a G&M business columnist had been arguing for quite some time before Flaherty's announcement that the train wreck of ITs needed to be stopped in its tracks. This is not some rogue columnist. He will be awarded the prestigious Hymon Solomon award later this month from the Public Policy Forum.
http://www.ppforum.ca/en/testimonialdinner/

Foreign takeovers were expected as a result of the change in tax status. This is nothing new - just the aggrieved continuing on with their neverending campaign.

The Anonymous Green

Cameron W said...

Great comments AG!

Upon review of this post it does seem that I was stricken with a case of inflammatory rhetoric.

Indeed, energy revenues from Alberta are not what was given to Quebec. The tax revenue gathered from the overheated economy in Alberta through all of the economic activity is however a very great contributor to federal revenue, and in the last budget the Harper government was anything but fiscally conservative with those revenues. I did frame it as a simple equation, but there is more to the situation.

The federal government has taken a lot of tax revenue out of Alberta where their seats are very secure, and the federal government has spent a lot of money in Quebec where they are trying to ensure their popularity and secure seats in parliament.

Tax revenues from all of the provinces should be distributed back to the provinces in a way that is not motivated by political gain.

I'm not arguing for greater local returns of oil & gas revenue in the above post, nor am I arguing for less. I am reminding everyone what the Harper government is doing with their funds. Let it be known that I do think the royalty scheme is bizarre, with taxpayer money subsidising the worlds most profitable substance. The oil & gas industry should be able to stand on it's own legs without government handouts, and the revenues should be better invested in infrastructure, social programs and whatnot.

It is interesting that, as you state, "foreign takeovers were expected as a result of the change in tax status." In the beginning, I would have been happier if there was never any promise that the federal Conservative party would not touch Income Trusts. They never should have offered to do that. It was a vote-buying campaign promise that they couldn't follow through on. Since they did get elected to a minority government, they should have kept their promise. While I'm glad they didn't keep their promise (because they never should have promised to not touch IT's) I'm also frustrated, like many of my friends who took a hit financially, that the Harper government went back on their promise. Even more frustrating is that many people in Alberta aren't even aware that this has happened, and I surely don't want to let this government get away with breaking campaign promises.

Anonymous said...

Cam,

Thanks for the clarifications on some of your points.

I'd like to respond to some, not all, as I've heard similar arguments elsewhere.

First off, I will agree that the Cons made an election promise that they should not have made - for political gain. Even though they never should have made it, they could have gotten away with it except for the direction that the IT folks were heading. Alberta's EnCana admitted they were going to spin off a portion of their assets into this loophole. Suncor and others were soon to follow. So, events did overtake the gov't.

Secondly, I don't agree with the minority gov't argument made by trust olders. As far as I can remember, while the Liberals were waffling on the IT issue, it was only the Cons who made the promise. Now, if you were an investor, arguing that this statement induced you into investing in ITs, surely you'd wait until the outcome of the election to find out who was in gov't before investing, n'est ce pas?

The most unstable gov't is a minority one. If the other parties were not making the similar promise, why would any serious investor consider the "promise" as 100% guaranteed? In a minority parliament, the gov't can fall at any time, or the opposition can gang up and pass resolutions negating the promise.

Finally, if Quebec qualified for increased equalization under whatever plan the Feds came up with (applied universally as I understand it), and if they want to offer their residents a tax cut, why is that of a concern to the rest of Canada? Quebec residents pay relatively high taxes. True, the optics are bad, and Charest was trying to buy votes with the windfall (or live up to a election promise he made 4 yrs earlier when Quebec was also a have not province) but objectively, it is a non issue to the ROC.

Gordon Campbell passed tax cuts in BC while they were a have not province receiving equalization to stimulate the economy. Where was the Alberta bitching then?

Perhaps paying down the debt, or reducing the deficit would have been a more responsible use of the money for Quebec, but that was Charest's choice, and he was re-elected partly on that basis.

Reasonably, who are we to criticize their choice? Had it not been used for a tax cut, would as many Albertans be bitching?

Probably not.

AG

Cameron W said...

Video links below should both open the same story. Internet Explorer browser is needed.

MP blasted over income trusts
Conservative MP Jason Kenney was berated by dozens of his Calgary constituents angry over Ottawa's new...

CTV video link #1

CTV video link #2