Friday, November 03, 2006

Income Trusts - The Real Solution

Income Trusts could have been changed without radically and abruptly breaking a promise. Simply tearing down a house without warning is not responsible government – most agree. Income trusts could have been changed into a much more constructive investment vehicle.

For example, a simple change could have been to allow income distributed to Canadian individuals, RRSPs, and Pensions Funds to be eligible from the now-lost income Trust exemption. Income trusts were ideally set up to be another type of RRSP.

Steve Harper has broken a written promise on Income Trusts laws. Within 2 days, Trusts on stock markets dropped $32 billion. The average loss is $32,000 per invested person – and still counting. The devalued assets are now vulnerable to foreign takeover and control.

Finance Minster Flaherty claims the federal government is losing revenue so Trusts must be stopped and corporate taxes reduced. However, the government is experiencing record revenues and surpluses. The broken promise significantly harms pensioners to lower corporate taxes and to address a government-revenue non-issue.

The actual issues involved were not point-resolved; rather a tax change hammer was brought in and the CPoC threw the good out with the bad out.

What was Flaherty thing?

Addendum: Below From Partisan Conservative News (See comment below on their distribution)

Prime Minister Stephen Harper yesterday refused to apologize for breaking an election promise to avoid taxing income trusts. The PM said that to allow trusts to be untaxed would have shifted a heavier tax burden onto ordinary Canadians. Interim Liberal leader Bill Graham said the PM is the "author of their (investors') misfortune, yet refuses to admit it. It was the average person who was lured in. Will the Prime Minister at least admit that he misled Canadians and offer them an apology?" Mr. Harper said the alternative would have been to allow major firms to duck taxes, and said his government is determined to have a fair system of taxation. He added that the Liberal party can explain in the next election why it believes corporations should not pay any tax in this country. Finance Minister Jim Flaherty expressed regret that the move was necessary, but emphasized that it was necessary. MPs acknowledged that they received a number of complaints. Public Works Minister Michael Fortier advised investors to cool down, and look at where the markets are by the weekend (S. Chase/B. Laghi/G. Galloway: G&M A4; WFP B5 and CH A4, VTC A6 ; L.Whittington: TStar A6 ).

- Liberal leadership front-runner Michael Ignatieff said Canadian investors have become the victims of a "bait and switch" following the surprise Conservative government's decision to impose new taxes on income trusts. As he delivered an economic platform that took aim at Prime Minister Harper's "ideologically driven" cuts to the GST and social programs, Mr. Ignatieff conceded the income trust tax "advantage" had to be addressed, but was critical of the Tories for having changed "the rules of the game overnight..." (CP: CSun 7 and ESun 74, HCH A6; C. Wattie: NP A6 and WFP B5; R. Ferguson: TStar A6; G. Bonnell, CP: KWS 11).

- Finance Minister Jim Flaherty said the government is considering a second $5 billion GST cut as early as this spring's budget. He added that there are other priorities, as well, such as dealing with capital gains tax and the fiscal imbalance, and said no budget decisions have been taken to date. In a speech last week, the PM played down expectations of a GST cut. However, senior Conservatives said the decision to tax income trusts was taken, in part, because the flood of conversions imperilled the second one percent GST reduction (J. Ivison: NP A1).

- There was speculation that exploration money for Canada's oilpatch could be the main casualty as energy trusts spiralled downward, and suffered more than $17 billion in losses since the income trust announcement (J. Monchuk: WFP B4 and EJ D1, WFP B4, SJT D1, TStar F3; L. Schmidt: CH E1).

- Energy trust executives seethed over the PM's broken promise and said they plan to push Ottawa to exempt royalty trusts from the new tax (CH A1).

Walks Comments on Conservative Partisan News: Note the lobby within the conservative party is to have unique rules to exempt royalty trusts , which primarily benefits resource industries such as the Oil Patch.

(c) 2006 Victoria BC

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