Monday, December 7, 2009

Jim Flaherty and the Conservative Cover Up on Income Trusts

CAITI - The Canadian Association of Income Trust Investors, has been sounding the alarm on the deception by the Harper government, after promising as you hear on the video, that he would never touch seniors nest eggs.

Their decision to abruptly reverse this campaign promise, was a lethal blow to the savings of many Canadians.

W.T. Stanbury, professor emeritus at the University of B.C. wrote a very good piece on the this: Secrecy and cover-ups: the case of the income trust tax Canada's 'new government' made a fetish of secrecy from the start.

In this piece, I examine an earlier cover-up by the Harper government to keep secret the analysis it employed to support its claims of "tax leakage"—the main stated rationale used to justify the punitive tax imposed on income trusts on Oct. 31, 2006. Given this tax represented the reversal of an explicit promise by Harper in the 2006 election campaign that he would not tax income trusts (see Stanbury, The Hill Times, Jan. 26, 2009), the government would have been well served by releasing the proof of tax leakage.

Instead, no proof of tax leakage was ever presented by the Harper government. Without the NDP's support the tax would never have passed in the Commons. Yet it accepted the leakage argument without any proof whatsoever. The new tax, a major change in policy, was developed and legislated under a shroud of secrecy. It caused an estimated loss of $35-billion in Canadians' retirement savings.

So what was this really about?

Diane Francis in the National Post, suggested that Jim Flaherty should:

...go to school on the economics, taxation, forex, stock market and investor implications which he obvious did not do before making two egregious errors ... First and foremost, the income trust fiasco (which wasn't necessary and damaged 2.5 million Conservatives who invest in the stock market; damaged the junior oil sector by eliminating an important player and damaged Canada's taxpayers by sparking a leveraged buyout mania of income trusts.

Damage will be long-lasting because the buyers are private equity and foreigners which have borrowed heavily and will write off all the cash flow against debt service costs, thus avoiding taxes for decades.

Francis has actually written extensively on the subject, and you can link to those here.

And this site gives you some idea of who cashed in on Flaherty's swindle.

Canadian taxpayers, who to date have lost over $1.5 billion in annual tax revenue from the takeover of artificially devalued income trusts, by foreign entities, non taxable entities, state owned enterprise and through private equity buyouts. To date there have been 51 such takeovers totaling $59 billion.

Be sure to some time on the CAITI webste. There is a lot of information there that will really open your eyes to what went on here. It was not just the income trust investors, but all Canadian taxpayers.

Maybe it really is time for a version of the Marshall Plan

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