Tuesday, May 12, 2009

“The greatest government theft of private wealth in history”

So says columnist Gerry Barker in this article in the Guelph Mercury.

alfred_e_neumanBarker aptly likens Jim Flaherty to MAD’s Alfred E. Neuman (“What, me worry?”) and proceeds to articulate just a few of the boneheaded moves of this ex-ambulance-chaser now Finance Minister that make his judgement highly suspect when it comes to getting Canada through this recession with as little long-term damage as possible.

But the main thrust of his piece is focused on the Cons lies about income trusts. According to Barker, Flaherty and Harper were acting under pressure from senior corporate and insurance industry lobbyists whose companies were being negatively impacted by the growing popularity of the income trust investment vehicle. And so, without a shred of hard evidence and using highly suspect tax calculations, Harper and Flaherty reneged on a major campaign promise a mere 9 months into their mandate. As a consequence $35 billion or so of wealth in the  Canadian markets was effectively vaporized overnight, affecting thousands upon thousands of seniors and RRSP holders.

And the pain continues.  Now, current projections are that the government will lose billions in tax revenues annually as trusts (which were taxed in the hands of the taxpayer at rates of 40% or so) convert to corporations (which are taxed under the corporate tax laws at a maximum of 15%). However Flaherty still insists he made the right decision, and still refuses to provide the financial analyses that supported the decision in the first place. But let’s face it, he will never provide those figures for the simple reason that as soon as he does, everyone will see just how incompetent he and his “economist” boss really are.

As Barker says (MAD meets Pogo), “Alfred E. Flaherty met the enemy and, guess what? They is us!”


rabbit said...

Income trusts had to be reined in. Very big companies were finding ways to have all or most of their operations put under income trusts. Telus, for example, had plans to become an income trust.

The consequence would have been plummeting corporate tax revenues.

This doesn't excuse the conservatives for making bad campaign promises, but Flaherty probably did the right thing when he cancelled income trusts.

So far as the title "The greatest government theft of private wealth in history", well that's idiotically overblown. In Canada alone, the National Energy Program was probably worse, and vastly more damaging.

Canajun said...

Rabbit - you're using the same logic that Flaherty et al used with respect to the "plummeting corporate tax revenues". Corporations pay tax on their income at a maximum rate of 15% in Canada - and very few corporations even pay that amount because of the myriad write-offs and exemptions they have. Those same profits, when distributed to shareholders under an income trust regime, are taxed at the personal tax rate which can be as high as 40+%. So how is the maximum possible collection of a 15% tax better for the federal treasury than a much more likely taxation at 40%. It makes no sense.

This link provides a good summary of the reality (as opposed to Flaherty's mythology) related to the tax implications of their income trust decision: http://www.caiti.info/resources_it_mythbusters.php

Truth in Trusts said...

Rabbit this is not that difficult. Who prints or talks about the truth? Where is the outrage? We are losing billions in tax dollars from this misguided and mathematically-flawed tax policy.

1)Income trusts do not pay tax
2)Income trust unitholders pay tax at up to 40% on distributions from the income trusts
3)Corporations forced to convert from income trusts pay tax at less than 10% (according to StatsCan)
4)Dividends from corporations are taxed at 20% for individual taxpayers ( formerly unitholders )
5)Revenue Canada will see a lot less tax revenue when income trusts convert to corporations

This loss in tax revenue does not include the 24 income trusts that have been taken over by non-taxable entities since October 31, 2006 (see attached file). Those 24 income trusts used to pay out $1.144 billion in distributions every year. The $450,000,000 in annual taxes from those distributions is now gone forever.

By the way Rabbit, as of close of business Tuesday May 12, 2009 the remaining income trusts are down $85,198,427,000 from the close on October 31, 2006. That is $85.198 billion with a "b".