MP GARTH TURNER TELLS IT LIKE IT IS!

Unethical Stand Of The Harper/Flaherty Duo On Income Trusts

Excerpts from MP Garth Turner's online blog:

"Just a few more words on income trusts.

Jim Flaherty is going to have to compromise on this. Stephen Harper will have to do for trust investors what he did for the environment. Take the ethical position.

The compromise is this: Prevent any more trust conversions – which is already done. Now, find a way to level out the playing field on taxing the trust income streams, so all taxpayers are treated equally, and all corporate entities pay a similar amount.

There are a few very creative and smart ideas for achieving this floating around Bay Street right now, and Flaherty should get off his ideological high horse, stop listening to the purists in the Department of Finance, and pay attention. There is nothing – repeat, nothing – inherently wrong with income trusts. They are not the tax evasion machines Ottawa has made them out to be, nor does the income they throw off end up in the pockets of greedy investors.

I used to admire Flaherty. A lot, actually. But that vaporized when I watched him in the House of Commons accuse people who questioned his trust tax as being “friends of big corporations.” If the minister of finance does not know better, he’s miles out of his depth.

The ethical position is this: Income trust investors who lost money because the prime minister lied to them must be compensated. They should be allowed to deduct trust unit capital losses suffered between October 31 and December 31, 2006 from taxable income in that year, with an unlimited carryforward until it is exhausted.

The coming hearings in Ottawa into the trust affair, although a mere six hours long, will surely uncover the untruths perpetrated by the Finance Department, and broadcast by the minister. For example, it is untrue that Canada is the only place in the civilized world with income trusts. A vast regime exists in the US.

It is untrue that trust money flowing into retirement accounts and RRSP is untaxed, costing Ottawa billions. As every retiree knows, money taken from an RRIF or an RRSP is fully taxable at that moment, regardless of where it originated.

Finally, it will remain forever untrue, or at least unbelieved, that income trusts hurt the economy, wound national competitiveness and rob the treasury of revenues, so long as Ottawa fails to give us the facts. The release this week to a financial analyst of 13 pages of documents under the Freedom of Information Act, which were blacked out and unreadable, only fuels our suspicion. The trust tax was imposed without reasons overwhelming enough to erase tens of billions of dollars in Canadians’ savings.

I think we’d understand the need to do something big to save the country. We’d go along even if a lie was involved. Even if the prime minister said it.

But in the absence of credible information, what are we to think? Especially when we see arrogance, where compromise, and ethics should be." -- Garth Turner, MP

Tax Leakage, Mr. Flaherty? There Is NO Tax Leakage!

“The notion of tax leakage has achieved the status of an urban legend in the press and public. The absence of any transparency by the Department of Finance (DoF) on this issue contributes to the myth of tax leakage. Exacerbating this absence of transparency is the equally glaring absence of competent methodology and analysis by the DoF. Their deeply flawed methodology means the government¹s assertion of tax leakage is indeed a myth: a dangerous and very costly myth that ill serves the public and degrades the government.

HLB Decision Economics prepared an authoritative analysis of alleged income trust tax leakage in the fall of 2005. HLB is economic consulting group based in Ottawa that does work for many departments of the federal government. HLB and DoF worked closely together. The government never released the analysis conducted by HLB. The final analysis of HLB and DoF diverged on the critical issue of revenue from Retirement accounts. HLB correctly considers these accounts as tax-deferred. DoF erroneously considers these accounts to be tax exempt. In fact retirement income is the second largest source of taxable income for the federal government. In 2004 Canadians paid $9 billion in retirement taxes on $52 billion in retirement income.

Erroneously characterizing retirement accounts as tax exempt instead of tax-deferred is a major cause underlying the myth of tax leakage. The Plan and all of its accompanying objectives are based on a foundation of sand. The mirage of tax leakage stems from the deeply flawed analysis and methodology of the DoF. Absent tax leakage there is no unfairness; absent unfairness the Plan is pointless.

In actuality the Plan is far worse than pointless: it is catastrophic. Announcement of the Plan instantly destroyed $30-35 billion in capital. A disproportionate number of investors harmed by this mammoth loss of capital are senior citizens and retirees. The Plan will also destroy a vibrant section of Canada¹s free market economy.

Virtually every study and report published after the Plan¹s announcement criticizes the Plan. Respected financial analysts and economists such as Gordon Tait and Yves Fortin are among those who have strongly criticized the Plan in their published reports.

Income trusts deserve to be preserved. These securities are an important investment choice for Canadians, many of whom are either saving for retirement or are retired." -- Garth Turner, MP