Tuesday, February 13, 2007

Liberal income trusts proposal

This news this afternoon sounds very promising. It looks like what I've been hoping to see, a real, concrete proposal that appeals to Canadians, puts the Cons in a tough spot AND it's on an issue other than the environment:

Grits propose alternative to Tory trust tax
Canadian Press

OTTAWA — The Liberals say the government's plan to tax income trusts should be changed dramatically — and that their plan could save billions of dollars for ordinary investors.

They say the proposed tax on trusts should be reduced to 10 per cent from 31.5 per cent and that it should be made refundable to Canadian residents.

This, they say, could save two-thirds of the $25-billion that investors lost after the Conservatives announced last fall that they would tax income trusts.

They said the government should maintain a moratorium to prevent further expansion of income trusts.


There's more details on the Liberal Web site:
After hearing from numerous witnesses at the Standing Committee on Finance, the Liberal Opposition has a plan. It is proposing that the government repeal its planned 31.5 per cent tax regime and replace it with a modest 10 per cent tax, to be paid by the companies, that would be refundable to Canadian residents. The tax would be imposed immediately with the revenue shared equitably with provincial governments.

Underpinning the Liberal proposals are four main policy objectives that should have been considered by the government:

• minimizing the loss of savings for Canadians who invested in income trusts;

• preserving the strengths of the income trust sector, notably a high-yield instrument for savers and for the energy sector;

• creating tax fairness by eliminating any tax leakage caused by the income trust sector; and,

• creating tax neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes.
So, average Canadians screwed by the Harper flipflop get a break, the corporations pay their fair share and leakage is eliminated. The reaction from Harper's friends in the energy sector will be interesting. And Conservatives are put in the position of having to oppose a tax break for average Canadians.

Sounds good to me, but here's what some financial experts have to say about the Liberal proposal:
The proposal has already received support from Gordon Tait, an analyst with BMO Capital Markets, who had previously told members of the Finance Committee that extending the phase out period to ten years would likely return one-third of the investors lost savings.

“This new proposal would likely return at least of two-thirds of the losses experienced by the holders of income trusts after the October 31 announcement,” said Mr. Tait. “It would also ensure that Canadian investors continue to have a high-yield investment vehicle available to them.”

Dirk Lever, Managing Director for RBC Capital Markets, agreed with that assessment.

“I would concur with Gordon Tait’s view that at least two thirds of the lost value will be recovered,” said Mr. Lever. “It could be more.”

Yves Fortin, a noted economist who formerly worked for the Department of Finance, indicated that the proposal would put an end to any tax leakage alleged by the government.

“While I am not convinced that there is tax leakage, and expert opinions differ as to the existence or the extent of the tax leakage, this proposed 10 per cent tax would more than cover the problem,” said Mr. Fortin.
Over to you Steve.

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Anonymous said...

It was pointed out to Ralph Goodale on Duffy today (by an NDP MP no less) that the vast majority who spoke at the income trusts hearing agreed with the way Flaherty changed the trust.

Of course you, like the Libs quote only the very small percent who spoke on the subject with your point of view.

bigcitylib said...

Even a couple of my Con trolls agree with this change. By the way, the new Decima puts the Libs up by one.

As the Dixie Chicks say: He! He!

mecheng said...

In my opinion, the income trust issue is adequately solved. Last I had heard, these 25 billion in losses were mostly just paper losses, and the market has bounced back.

If you had losses selling at the low point, and it wiped out all of your savings (because you didn't have any diversification), sorry, but you are too stupid to be investing your own money.

If your financial advisor told you to put every penny into trusts, and you listened to them, sorry, but you are too stupid to be investing, and you should not be mad at the government, you should be mad at your financial advisor.

If you are afraid of losing money, or can't afford to lose it, put it in Canada Savings Bonds, a hgih interest bank account, or stash it under your mattress.

If you lost a little bit of money, suck it up, markets fluctuate. Companies and governments change policies every single day that cause your investments to go up and down.

The LAST thing we need, is a flavor of the week economic policy that causes instability and uncertainty in the market.

I am a conservative supporter, and I wasn't happy with what Harper did. I understand it, I'll get over it.

What I was happy about, was that he made a decision, and announced the decision, end of story.

I DON'T LIKE endless speculation, studies, alternate policies, and rumors flying around for weeks and months before a decision is made. This completely opens the door to someone in the know tipping people off. I don't know if that happened or not with the Liberals, but that is really all that I care about. Do whatever you want, but make the playing field fair for everyone.

My vote would be, leave the trusts alone, or make small/minor changes in them over a large number of years.

Remember, people who (really) lost money are ones who panicked and sold. The only people who benefit by screwing around with the policies now are the people who maintained their position and still are owners of trusts, or bought when the market was low.

The losers already got out, so changing policies won't help them recover their money now. And furthermore, why should taxpayers have to subsidize idiotic investors and cover their losses?

Karen said...

Right anon. That paragon of virtue and impartiality, Judy Wasylycia-Leis. (Is it me or does she drive anyone else nuts?)

Her career hangs on nailing Goodale. What she twisted (and now you), is the fact that Income Trusts posed a problem, that the Lib's admit. However, their liabilty, (vis a vis leakage) increased with Harper giving them the green light, during the last election. No matter where you sit politically, that is just logic.

BTW, the rest of what she said was nonsense as well. Oh how I wish this would make her think and shut off her mouth for a bit, but I fear the worse, :).

I would agree Jeff, it looks like a good plan. Is there a number out there of how many people were affected. I know a good deal of them voted Conservative.

Walks With Coffee said...

Hey, making income trust benefits available to Canadians was my idea - at prog blog the day the story broke... do I get a commission on the $25 billion?

Olaf said...


This is the type of thing I was talking about regarding concrete, 5 priority style proposals. This is a very, very smart move, methinks.

Walks With Coffee said...

The income trust response is a way to demonstrate a responsible and thoughtful approach to issues in general. It can form part of a larger theme of responsible fiscal management... there are a couple million Cdn hurt by the CPoC lie on this issue. But, the issue must be part of an overall larger message of, say, responsible pension management - a message that everyone can understand.

Anonymous said...

That is an excellent proposal.

Scotian said...

From what I have seen so far this looks like an excellent idea from both political *and* policy perspectives. As you noted BCer this creates a very interesting political dynamic for the Harper CPC to have to deal with, although if the NDP is going to take the stance I saw from Judy W-L this afternoon on Newman's show it may not get done. If so though I think this will finally prove to me that there really is a de facto alliance between the Layton NDP and Harper CPC where the Liberals are concerned. Now, while the CPC were in opposition such a thing I could understand, but now that they are a government I find this something very disturbing indeed. In many ways this NDP has given Harper's CPC valuable cover, especially with their oft repeated mantra of Liberal Tory same old story perpetuating the notion that the CPC and Harper are just more traditional Canadian Conservatives no different than any previous versions when clearly they are not, as I have argued many times in many places.

From a fiscal policy POV it looks good, especially given the lack of solid leakage numbers from the CPC government itself that it used to justify this decision last Halloween. If this also restores confidence in that sector as it looks like it quite well could the idea that 2/3rds of the lost value could return in a reasonably short period of time seems entirely plausible to me. Harper's CPC botched this decision badly, I always agreed with the idea that some adjustments needed being done regarding IT's, but the method chosen by the government combined with the "things changed so much in 10 months that we had to do this" excuse despite this trend being patently obvious when the infamous no IT taxing promise was made by Harper in the election campaign was truly offensive for it's chutzpah.

Overall this looks really good, it will be interesting to watch how this shakes out over the next days and weeks and the positions taken by the respective parties. I will be paying especial attention to the NDP in all of this, I found Judy W-L to be very disturbing in the amount of CPC like sounding/premised spin I was hearing from her in regards to this issue, and more than a little surprised by it to tell you the truth. It leaves me very uncomfortable indeed.

Anonymous said...

Hmm, quite interesting. Addresses a number of the concerns raised by financial insiders and yet promises tax relief (and the sudden shock of Harpor's flip-flop) to Canadians.
While we can predict Harpor's reaction (Barrymore-esque disdain, coupled by a few weeks with focus groups and insider polls, than a press conference infront of the treasury building with a 3/4-copy of the same) I'm more curious to see how the NdP hug this. A lot of average Canadians, seniors -- many who are widowed and single who couldn't benefit from the income splitting bon mot offered as a life preserver -- took this hit. I've heard there are people like the Con trolls posting here, who blow it off as a 'tough decision that cost them money but, hey, I'm fine with doing the right thing!' Everyone I've talked with and everyone I've seen on TV and heard on the radio were damn angry. Pensioners, who vote across party lines. The NdP sticking closer to Con territory for the hope of becoming their stepford wife could be in line for a backlash, big time. In fact, if they can't get their principles in order and stand up for working class Canadians, the rumble on the ground is that a few BC mps are sniffing to bail, whether its to provincial politics or even, dread! cross to the Liberals. We've already got a past NdP candidate signed up in my riding and rumour has it another NdPer (both from past 2 federal elections) is coming over to be a candidate.
But back to the proposal -- we've got to keep this kind of stuff coming and get out and pitch it. It's a decent counter to the Cons' ad campaign (along with shouting loudly about Harpor's shiftiness and blatant lying) and a first step to controlling the message that Liberals are the financial storeminders, Cons are republican-like carpetbaggers who couldn't manage Peebles Pet Shop.

Anonymous said...

A couple friends and I were sitting around here around 6 and got into a discussion. Most of us have parents who got trapped by the Cons. This idea is the best thing they've heard. Something to console their parents with, a way to fairness, a reason not to blight Hallowe'en Night.
Harper and Flaherty are caught Flaherty-footed, and only the pensioners votes will say for sure.
At least a little coming back to the ordinary Canadians Harper touts from hill to hill would be a good thing. This is a good and fair idea. Now we're all watching what Harper does with the info.
Go Dion!
(We'll tell 3 friends, and they'll tell 3 friends and so on and so on...)
Soon, our grandparents and others who have saved for retirement and who believed Harper will have at least some of their stolen loot returned. Face it, the time the corporations have have what our new government described as "money on paper" on their books has brought them much interest. Time to pay back those who's "real paper money" was gambled to be paid back. Harper won, time to tip the dealer.
Dion's got the fairest plan for ordinary Canadians.

Anonymous said...

Well, what do you expect from the NDP - give your head a shake, they don't know anything about finance and are using every opportunity to bash liberals.

Their opinion on anything financial is null and void as far as I'm concerned and anyone who gets taken by their views on it are naive and unaware of their history.

Anonymous said...

Well, I have a girlfriend with MS and her husband made investments years ago when he was diagnosed with cancer in an attempt to protect her if anything should happen. Well, Russ died and she was quite comfortable until Flaherty did his thing.

Her MS is progressing and her investments have put her in a bad position right now. So, I guess taxpayers will have to help her. The money was to cover her needs as her condition progressed.

I worry about her.

Anonymous said...

Everyone is jumping all over this - we haven't even heard yet what economists and analysts say yet.\

I think Judy W-Lees must be going through menopause or something. She is the most miserable person I've seen so far in government.

Jeff said...

So basically, I see Conservatives saying if you were too stupid to believe Harper when he said he would never ever touch income trusts you're too stupid to deserve help. Nice.

I agree with those that say watching the NDP response will be interesting. So far they do seem to be working in lockstep with and providing cover to the Conservatives. I guess Jack and Judy don't believe in helping senior citizens that lost large chunks of their retirement savings.

Walks With Coffee said...

I was about the only one on the Internet calling (the day after the CPoC flip-flop lie) for Income Trust benefits to be available to Canadians. In response, CPoC members wrote hate mail to the Western Standard when the WS quoted me on this issue. Bottom line: the CPoC hurt pensioners in a major way, lied, and provided takeover targets for foreign companies when better options existed.

In contrast, my position (now similarly the LPoC position) is that foreign companies should pay some tax as they do receive government benefits and use Canadian resources, whereas Cdn citizens - particularly pensioners - should receive the benefits of income trusts.