Harper's Promises Yield $0.00

Opinion seems divided on the appropriateness of Conservative Finance Minister Jim Flaherty’s 180 degree flip flop on income trusts, but regardless of where one stands on the policy itself, there is no doubt: the Conservative Party broke a key election promise.

Days before the 2006 election Harper said that he and his party would not monkey around with their income trusts.¹ Then Finance critic Monte Solberg, gaining political ground over alleged income trust leaks from government reiterated that Harper and his party would protect investors.² Solberg also stated that only the Conservative party would leave income trusts alone; that investors could depend on the Liberals to tax trusts.³ Stephen Harper in a November 2005 op/ed piece in the National Post again reiterated his position that taxing trusts is not what he would do if he were Prime Minister.⁴

Investors small and large, from individuals to mutual funds and public pension plans, continued to invest in the booming trust sector based on those promises, because Harper had in fact given a green light to do so. Repeatedly.

But more importantly, whether individual and institutional investors voted Conservative or not, they took Harper’s promises to heart as a green light to keep pouring money into income trusts. Many individual investors, lured by yields of 8 – 12 percent or more when banks are paying just a couple points, lapped up income trusts and their monthly payouts.

This week Jim Flaherty and Stephen Harper broke every one of those promises.

Making The Street mad at you is one thing, but angering thousands of individual investors is another. Their votes do count.

Its not just the well-heeled who are affected – almost anyone that has a few dollars in mutual funds, or access to a pension fund of any sort – saw its value hit hard this week. Yet as bad as the financial harm inflicted by Harper and Flaherty is, the damage to political confidence, and investor confidence in Canada, is more severe and long lasting.

Is the income trust debacle this government’s “Joe Clark moment”?

Footnotes

¹ January 13, 2006—Stephen Harper

It is why we will preserve the public pensions programs that sustain so many of our parents, grandparents, and senior citizens, as well as help them benefit from their own savings and not monkey around with their income trusts. Stephen Harper, days before the 2006 election, http://www.conservative.ca/1004/39934/

² January 2, 2006—Finance Critic Monte Solberg

Stephen Harper and the Conservative Party of Canada believe that a government must always place the protection of the investing public and the integrity of public office ahead of any political considerations. then Conservative Party of Canada finance critic Monte Solberg, http://www.conservative.ca/EN/1091/37497

³ November 24, 2005—Liberals Choose Conservative Plan on Income Trusts – For Now

Parliamentary Secretary to the Minister of Finance reveals Liberal hidden agenda

Ottawa – Conservative Finance Critic Monte Solberg said that on the eve of an election, the Liberals have signed onto the Conservative plan on income trusts for now, but comments made by the Minister of Finance’s Parliamentary Secretary suggest there is a Liberal hidden agenda to tax income trusts in the future.

The Conservative party has been calling on the Finance Minister for months to leave income trusts alone and, instead, to level the playing field between trusts and dividend-paying companies by reducing the double-taxation of dividends.

“After dithering for months on income trusts and fostering uncertainty which has caused seniors and small investors to lose a portion of their savings, on the eve of an election, the Liberals have signed onto the Conservative income trust plan, for now,” said Solberg. “If a ways and means motion on this income trust proposal is brought to a vote, the Conservative party will support it. After all, it is our plan.”

However, the comments of John McKay, Parliamentary Secretary to the Minister of Finance, on CBC Newsworld yesterday revealed the Liberals are planning to slap a new tax on income trusts. Solberg voiced strong concerns about whether the Liberals would maintain the Conservative plan on income trusts if re-elected.

“The Parliamentary Secretary revealed the Liberals’ hidden agenda for Canada’s seniors who hold income trusts. Clearly, taxing trusts is not out of the question if the Liberals are re-elected,” said Solberg. “Only the Conservative party has been clear and consistent about its position on income trusts.” Link no longer valid, obtained from Google’s cache (original URL)

⁴ October 26, 2005—Questioning income trusts puts seniors at risk

Publication: National Post
Section: Editorials
Page: A20
Byline: Stephen Harper

On September 19, the Prime Minister acted recklessly when he ordered his Finance Minister, Ralph Goodale, to wade into the income-trust market like a proverbial bull in a china shop. On that day, investors were put on notice that their popular income trusts were going to be targeted by a Liberal government seeking higher tax revenues from companies and investors.

Martin’s reckless action has caused uncertainty over the future of income trusts, and so has wiped out billions of dollars in market capitalization from Canadian companies and tens of thousands of dollars from the retirement nest eggs of individual investors. Most notable was the damage done to Canadian seniors who may not have the time to recoup their losses.

One couple e-mailed my party to complain that the uncertainty around income trusts caused by the Liberals’ announcement trimmed $30,000 from their retirement portfolio in a single day. Another man wrote to tell us that he had lost 15% from his his portfolio.

Many seniors feel the government is putting their retirement at risk and have let Ottawa know. In a letter to the Finance Minister, the Canadian Association of Retired Persons said, “Seniors are actually enraged, frightened and panicked about potentially losing retirement savings that they count on for the essentials of daily living. ?

Income trusts are popular with seniors because they provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine. They also provide tax relief from a government that is addicted to taking too much money from their pockets and spending it without care, and very often without meaningful results.

So one must ask, why is the government clamping down on the retirement savings of seniors and investors?

But it gets worse. Instead of immediately moving to assure markets that income trusts are here to stay, the Liberals are justifying their actions in the coldest political terms. As one government member was quoted in the media as saying about income trust investors, “They have no constituency. They don’t count politically. ?

That kind of arrogance cannot go unanswered. There is just no justification for what amounts to a Liberal government attack on investors, and especially on seniors.

The government continues to overtax Canadians and run multi-billion dollar surpluses, yet their first instinct is to attack an investment vehicle that can make the difference between bare survival and a dignified retirement for millions of Canadians.

The government claims that income trusts enjoy an unfair tax advantage over corporate dividends. If they believe this, then the answer is not to shut down a valuable investment vehicle, but to cut the double taxation of dividends. In short, level the playing field and let the market decide between income trusts and dividend-paying companies.

As my party’s finance critic, Monte Solberg, says, the success of income trusts represents a rare triumph for investors over the tax man. Let’s not be so naive as to assume that the Liberals will do the right thing to protect taxpayers. We’ll need to fight hard to keep what we have, and even harder to gain ground.

It’s time to stand up to Paul Martin and stop his attack on seniors and investors.

Stephen Harper is an economist by training. In 2006 and 2005 when these comments were made by him and his party, he would have been fully cognizant that the imbalance of taxation between income trusts and corporations would cause more and more corporations to consider the income trust model. No one with a financial or economic background was under any illusions then, as now. Why then was Harper a shameless promoter, mere months ago, of a tax structure which he now claims is a sudden problem, a crisis in fact? The answer of course is simple: Harper was buying votes without regard to policy and what was best for Canada.

There's a stink in Vancouver--Kingsway

2006–11-02 (Mike Watkins, Common Ground)
Ten months of undemocratic misrepresentation

One of the interesting questions now is whether former Liberal, turned Conservative, David Emerson, will run for office in the next federal election. We won’t have long to wait for an answer – his new Conservative party will force him to make a declaration within the next few months. Almost no one expects Emerson to run (and be slaughtered) in Vancouver – Kingsway. And few expect him to run at all, in any riding.

David Emerson and Stephen Harper will come and go, but what they did brought the issue of our fragile democracy into sharp relief, and galvanized public opinion on the issue of floor crossing. Who will mark their X on future ballots, without first considering how meaningless some of our politicians consider our votes?