Finance Minister Jim Flaherty Receiving Death Threats
Income trust changes level the playing field, says Dodge
OTTAWA – Bank of Canada governor David Dodge, and a group
of seniors, may finally have deep-sixed any chance the
Conservative government will be forced to retreat from its
tax on trusts.
Dodge delivered the first blow Thursday, undermining the
official Opposition, by not only endorsing the government
decision but also suggesting it’s something that should have
been done years ago by the former Liberal government.
”The changes proposed by the government last October
would appear to at least substantially level the playing
field,” Dodge told the Commons finance committee on the
second day of two-days of hearings into Finance Minister Jim
Flaherty’s stunning announcement last Halloween that the
government would tax trusts like corporations after
promising not to during the election campaign.
Perhaps even more surprising, Global National learned
Thursday that Flaherty has been issued a protective detail
after receiving death threats.
The minister has been assigned a protective detail, but
the government is providing little information into
Flaherty’s new arrangements, and refuses to offer specifics
as to when the MP began receiving the threats.
Dodge, when asked directly if Flaherty did the right
thing, answered: ”I think so. I guess from a strict point
of view … the right thing is to have a tax system with low
rates and a broad base and as neutral as possible.
”And probably years ago we should have recognized that
we had a bias here that could lead to problems – but better
late than never,” Dodge said.
Another blow to critics of the tax on trusts came from an
organization of elderly pensioners, who as a group are
generally viewed as the real victims of income trust
meltdown that followed the announcement of the tax.
”The federal government should not be giving tax
incentives for seniors to purchase an investment that is
risky and does not have a proper investor protection regime
in place,” the National Pensioners and Senior Citizens
Federations said in its brief to the committee.
President Art Field noted that even before Flaherty
announced the tax on trusts, the federation had passed a
motion expressing concern seniors were being urged to invest
money in what it called ”unsuitable” and ”questionable”
income trust investments.
Liberal finance critic John McCallum later dismissed
Dodge’s endorsement of the tax on trusts as ”qualified”
noting the central bank boss admitted income trusts
”enhance” financial markets by allowing investors to
diversify their portfolios and by allowing some firms to
access financing.
”I’ve never heard a less qualified endorsement of a
government by a central bank governor,” McCallum said.
”The central bank governor works for the government, he
cannot possibly say the government is wrong.”
McCallum, meanwhile, defended the former Liberal
government, noting it had moved to level the playing field
between trusts and corporations, but by reducing the tax on
corporate dividends rather than putting a tax on trusts.
”It’s difficult to say what else we would have done had
we stayed in government,” McCallum added. ”But our
government solved a major part of the problem … and
certainly without enacting the $25 billion meltdown in the
savings of Canadians.”
Dodge, however, said the tax-free status of income trusts
may have been prompting some firms to convert themselves
into trusts for the wrong reasons, and in doing so were
damaging the Canadian economy. “I can say that while the
income trust structure may be very appropriate where firms
need only to manage existing assets efficiently, it is
definitely not appropriate in cases where innovation and new
investment are key,” Dodge said.
A concern was that to attract investment, trusts were
distributing earnings which a taxable corporation would have
reinvested in new machinery and equipment or technology to
make themselves more productive.
Dodge has long argued that innovation and new investment
are needed to boost Canada’s lagging productivity and in
turn living standards.
Income trusts do not pay tax on their earnings which are
distributed to investors, where it is taxed as income.
Flaherty, however, has said federal and provincial
governments were losing more than $1 billion a year in
revenue because many of investors in rapidly expanding
income trust field were tax-sheltered pension funds or
foreigners who pay only a 15-per-cent withholding tax on the
distributions.
But McCallum, as did some other witnesses, argued the
Conservative government could have taken less drastic action
than imposing a tax without warning which overnight wiped
out some $25 billion worth of income trust wealth.
Several financial analysts at the hearing also disputed
Flaherty’s tax loss estimate, with some even going so far as
to argue the tax on trusts will cost governments because
there will be fewer elderly paying tax on what will be
reduced income trust distributions.
CanWest News Service/with a file from Hannah Boudreau at
Global National
CanWest News Service
© CanWest News Service 2007
Share ThisNo related posts.
Filed under: (DRIPS) Canadian Dividend Reinvestment Plans, Canadian Income Trust, Finance, Financial News, Global Economy, High Dividend Stocks, Income Trust, Investing, Need to know Information, Stocks Tagged: (DRIPS) Canadian Dividend Reinvestment Plans, Canadian Income Trust, Finance, Financial News, Global Economy, High Dividend Stocks, Income Trust, Investing, Need to know Information, Stocks
