Fallout From Flaherty Trust Tax Never Seems To End!

THUNDER ENERGY TRUST: MORE FLAHERTY-ASSISTED TAX LEAKAGE

Hmmm. Tax fairness...is that how Canada's little Financial Napoleon (and Finance Minister) described his October "take no prisoners" assault on income trusts?

Fairness to whom, one would be inclined to ask -- after news of a private-equity/pension plan takeover of Thunder Energy Trust hit the business news the other day. A four dollar buyout price for an energy trust sporting a NAV (Net Asset Value) close to $5.00, and previously characterized as a projected $5.50 to $6.00 takeout candidate (according to several brokerage analysts).

A bargain for the buyers, but a disaster for ordinary income trust investors, it would seem.

Who else gains from this transaction? Well, Finance Minister Flaherty himself, for one, and all of the bungling Finance Department bureaucrats who instigated this whole mess. For you see, the main buyer will be the Ottawa public pension plan that represents public employees on Parliamentary Hill, including politicians and civil servants.

Thanks to the little Financial Napoleon's recent concerted attack on income trusts, the price of Thunder Energy Trust was pounded down to a bargain-basement price under $3.90. And now the the public pension plan (in cahoots with predatory private equity interests) has taken the opportunity to swoop down on poor Thunder, scoop it up at a ridiculously low premium (paying only $4.00), take it private, and then use tax loopholes -- provided by Mr. Flaherty to pension plans and private-equity interests in the new tax legislation -- to pay minimal or no tax on the company's revenues (cash flow which was previously paid out to individual trust investors who paid oodles of personal tax on the distribution of these trust revenues to them).

Of course, thanks to the bargain-basement buy-out price, and the Flaherty-created tax deductions on revenue generated by Thunder as a new privatized company, the Ottawa public pension plan (representing politicians like Mr. Flaherty and bureaucrats like the Finance gang that can't calculate straight) will be flush with new-found cash in coming years. And so the plan will be able to continue to pay out the obscenely-generous indexed pensions that go to our public "servants" (or pigs at the public trough, as it were), while ordinary Canadians struggle to barely survive economically in their senior years.

Advantage to Jim Flaherty and his bureaucratic minions, wouldn't you say? Disadvantage to Canada's tax coffers which will be short a few more million dollars in tax revenues lost to yet another trust privatization sparked by Mr. Flaherty's misguided (if not Machiavellian) trust tax policy.

Now that's real "tax leakage" (not the mythical kind talked about by the Finance Minister regarding trusts themselves). And it's tax leakage clumsily (if not purposefully) created by bungling (and perhaps self-interested) politicians and Finance bureaucrats in Ottawa.

Talk about "chutzpah". Another shameless implementation of the economic policy of 'Robbin The Hood' Harper's unprincipled regime -- take from the vulnerable (the rest of us) and transfer the spoils to the pockets of the privileged and affluent, the Ottawa, Bay Street and Wall Street establishments.

Yes, that right. Mr. Flaherty "steals" from struggling seniors who have no vested public or private pension plans (by destroying the income trust market) and then ends up filling the already brimming wallets of Ottawa politicians like himself, civil servants like the Finance bureaucrats who suggested the war on income trusts, and unprincipled Bay and Wall Street vulture capitalists.

Tax fairness indeed!

FURTHER READING ON FLAHERTY 'TAX UNFAIRNESS'

Canaccord Capital Newsletter
Februrary 25, 2007

Smart capitalists: 1; Flaherty's tax-grab: 0.

It has been a while since Thunder's data room was opened up and finally we have seen a bid, but this takeout bid will mark the first royalty trust to be taken down.

A consortium of pension, private money, and the publicly traded Overlord Financial (OFI) firm, has agreed to buy all of the issued and outstanding trust units of Thunder for $4 per unit as well as $101.00 for every $100 face value 7.25% convertible debenture.

As you well know, Canadian pension funds are exempt from paying taxes, while the private equity and corporate partners should enjoy at least a partial tax holiday as this deal is purchased with debt. [And after the deal closes, there will be no individual trust holders around to pay personal tax on distributions received from Thunder. That revenue will be converted into payouts that will go directly to the new buyers tax free.]

Despite Flaherty's public denials, his income trust tax proposal will usher in many more takeouts of Canadian oil and gas assets, most to be lost to pension and private-equity firms which will pay minimal or no tax to the Canadian government thanks to being able to write off the purchase costs.


HARPER WALKING A THIN LINE

By Tommy Schnurmacher,
The Montreal Suburban
April 25, 2007

As my loyal readers and listeners are undoubtedly aware, I am not generally in the habit of offering advice to the Liberal Party of Canada. However, if the Dion Liberals wish to prevent Stephen Harper from achieving his goal of obtaining a majority government, scary greenhouse gas, stats won’t do the trick. Environment Minister John Baird has warned all and sundry that full Kyoto compliance would result in a severe economic downturn.

That may well be true, but some of Finance Minister Jim Flaherty’s lame financial policies could land us all in hot water long before the melting of the polar ice caps. While Baird’s wondering about the weather, Flaherty is about to turn the country into one large garage sale.

As the left might put it, this is the hollowing out of Canada’s business and energy economy. Harper’s shameless about-face on income trusts is bad news not only for seniors but for every single Canadian taxpayer. By blatantly breaking his solemn promise to leave income trusts alone, Harper squandered his reputation for honesty and integrity.
Suggesting that Liberals didn’t mind raiding seniors’ assets, he did precisely that. Not only was the decision dishonest, it was ill-considered and dangerously short-sighted.

We already know that the seniors were very upset. But here’s the really worrisome part. They were not the only ones who noticed. Many of the well-heeled Bimmer-driving execs who burn the midnight oil at private equity firms and foreign-controlled companies have been also paying very close attention; and they like what they see.

Quietly and without much fanfare, they are slowly starting to pick up one good Canadian trust company after another at fire sale prices spurred by Mr. Flaherty’s new trust tax. They are about to drink Canada dry.

As they pick off our stronger companies — the ones with good assets and healthy cash flow — we lose out. We may very well end up with a sordid TSX filled with nothing but junior mines and oils.

What would that mean? It could send us hurtling back to the painful days of crippling deficits. Consider this: Our supposedly Conservative government has started spending money like water. As the crème de la crème of the income trusts are snapped up by foreign owners, this overspending government could soon find itself facing a substantial loss of tax revenue. Billions of dollars going out; billions less coming in. Not a pretty picture.

Many of the takeovers, it should be noted, will come in the form of leveraged buyouts, which is a fancy way of saying that savvy foreign investors will be buying us up on credit. They will pay off the debt using the company’s own money. You don’t have to be the finance minister to figure out that such companies won’t show much profit and won’t pay much tax to the Canadian government.

Liberal finance critic John McCallum and other senior Liberals like Ken Dryden and Bill Graham are smart enough to see that the income tax debacle will be a hot button issue during the next election campaign. If the public forgets, hundreds of ads in bus shelters and on billboards are about to remind them.

In 1992, political strategist James Carville coined the expression “It’s the economy, stupid.” The phrase helped Bill Clinton win against George Bush père. It was true then. It’s true now.

The Tommy Schnurmacher Show is heard weekdays 9 a.m. to noon on CJAD 800 Radio. His e-mail address is tommys@vdn.ca. 2007-04-25 10:22:14