This week's Hill Times article: Harper and the taxation of income trusts

For the record: Harper and the taxation of income trust
A look at PM Stephen Harper’s defence of his reversal on income trusts.
THE HILL TIMES, MONDAY, JANUARY 26, 2009 15

By W.T. STANBURY

Politics is conducted in a dynamic world.Memories are imperfect—even for policy actions that resulted in a massive “train wreck,”( see The Hill Times, Sept. 22, 2008, p.12). My purpose is to provide a documented record of the Conservative Party’s promises concerning the taxation of income trusts prior to the Jan. 23, 2006 election, the reversal of its promises less than nine months after coming to power, and Stephen Harper’s defence of his reversal in Question Period.

The Conservatives’ promises:

Sept. 29, 2005: “Why does he [Liberal finance minister Ralph Goodale ] not stand in his place right now and say without equivocation that income trusts are here to stay and he will not implement taxes on them?” (Monte Solberg, Hansard, Sept. 29, 2005).

Oct. 3, 2005: “The feds are bent on raiding the nest eggs of seniors …. Changing the tax rules late in the game is mean, mean, mean. Our plans propose leaving seniors’ savings alone and helping thoseon fixed incomes.” (Stockwell Day, Penticton
Herald, Oct. 3, 2005).

Oct. 26, 2005: Opposition and Conservative Party leader Stephen Harper had an op-ed in the National Post, (p.A20). The key passages were as follows:

“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 [Liberal] 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.’...It’s time to stand up to Paul Martin and stop his attack on seniors and investors.”

Dec. 2, 2005: Less than a week into the general election campaign, and after the minister of finance had announced on Nov. 23, 2005, that he was suspending the public consultation process regarding income trusts, and had proposed an enriched tax credit for
dividends (as opposed to a tax on income trusts), Stephen Harper said the following on Global TV: “They [the Liberals] showed us about their attitudes towards raiding seniors’ hard-earned assets, and a Conservative government will never allow either of these parties [referring to the NDP which wanted to tax income trusts] to get away with that.”

Dec. 9, 2005: “Only the Conservatives will give seniors security by pledging to levy no new taxes on income trusts.” (Conservative Party of Canada, Issue Backgrounder, “Security for Seniors,” Dec. 9, 2005).

Jan.12, 2006: “A Conservative government will ... preserve income trusts by not imposing any new taxes on them,” (Conservative Party of Canada 2006 Platform: “Stand Up for Canada,” Jan 12. 2006, p. 32).Jan. 13, 2006: “… we will … help them [seniors] benefit from their own savingsand not monkey around with their income trusts,” (Stephen Harper, Campaign Speech in Oakville, Jan. 13, 2006).

The Actions:

On the evening of October 31, 2006—without any public consultation—Finance Minister Jim Flaherty announced a 31.5 per cent tax on the distributions of income trusts, effective in 2011 for existing trusts. Within a week, the market value of the income
trust index for the TSX fell by $35-billion. Harper’s justification: Prime Minister Stephen Harper’s personal defence or justification of his reversal of his promise on the taxation of income trusts in less than nine months—a promise that was said to have
contributed to his election as a minority government—had the following characteristics.

First, the PM responded to questions in the Commons on only two days, Nov. 1 and 2, 2006. Details are provided below. Thereafter, Harper left the task of responding to the opposition in Question Period to his Parliamentary secretary and the minister of finance.

Second, Harper’s defence of the new tax never mentioned the government’s assertion (later debunked) of “tax leakage” of $600-million in 2006—yet this was central in the justifications by Finance Minister Flaherty then and during the following year.

Third, Harper’s written public communications on the trust tax issue appear to have been limited to a generic email reply to persons who had emailed him criticizing his actions, and an email to all MPs in response to an email to all MPs by Brent Fullard, who later created and led the Canadian Association of Income Trust Investors. Mr. Fullard also ran unsuccessfully against Mr. Flaherty in the last election.

For the record, I quote the (edited) exchanges in Question Period involving the PM. Here are those on Nov. 1, 2006.

Liberal MP Bill Graham: “...in his election platform, the Prime Minister stated, ‘A Conservative government will preserve income trusts by not imposing any new taxes.’ Canadians who voted for the Prime Minister did so based on a deception... Why did he engage in a deception of such monumental and costly proportions to all Canadians?”

Prime Minister Harper: “… let us be absolutely clear. The commitment of this party was not that we would have no taxes for Telus. It was not that we would have no taxes for BCE. [Recall that the announcement by Telus Corp. on Sept. 11, 2006 that it planned to convert to an income trust, and a similar announcement by BCE Inc. on Oct. 11, 2006 were repeatedly said by the finance minister to be important events precipitating the trust tax.] It was not that we would have no taxes for foreign investors, or no taxes for major corporations. It was a commitment to protect the income of seniors. The minister of finance has brought in an age credit [part of the so-called “tax fairness plan” of Oct. 31, 2006, but worth only $155 per year]. He has brought in pension-splitting [benefiting only 15 per cent of seniors—also announced on Oct. 31]. He is imposing fair taxes on the corporate community. I challenge the Liberal Party to support those things.”

Mr. Graham: “Mr. Speaker, that is not what he said in the election…..He gave his word, Canadians acted on his word. He then broke his word.”

Mr. Harper: “Contrary to what the leader of the opposition says, lots has changed with income trusts in the past year, including tax holidays for major corporations. [It is not clear to what the PM was referring], which this government does not and will not support.

Mr. Graham: “…The Prime Minister said…over and over again that he would preserve income trusts and that he would never impose new taxes on them... How can he justify the losses caused by his false promises?”

Mr. Harper: “... the Leader of the Opposition and his party have a choice. They should support income splitting for pensioners, they should support higher income for seniors and they should support fair taxes for large corporations. It is up to them.”

On Nov. 2, 2006, the PM was involved in the following exchanges:

Mr. Graham:…“Will the Prime Minister apologize to Canadians for the false promises he made during the election campaign?”

Mr. Harper: “The Government of Canada has responded to market changes that would have resulted in big corporations in this country paying no tax, while individuals paid more. ... I should add that I fail to understand why the Liberal Party of Canada supports a zero taxation rate for big corporations [this is not true] and is opposed to tax cuts for seniors.

Mr. Graham: “... This is not about corporations. It is about Canadians from all walks of life who have lost their savings....It is about Canadians on main street who feel cheated... Will the Prime Minister at least admit that he misled Canadians and
offer them an apology?”

Mr. Harper: “…everyone in this country knows that in the last few months what we have seen is the beginning of the conversion of major corporations to income trusts, which would have resulted in them paying no taxes whatsoever [this is simply not true] and which would have shifted the tax burden to ordinary Canadians. [This is also not true]. That is not fair. That is not what this government promised.”

Mr. Graham: “…We hear a lot from that party about accountability, but who over there is accountable to average Canadians who lost their money because of this Conservative double-cross? ...How does the Prime Minister explain his duplicity to those Canadians
who believed in him and have seen their money go up in smoke because he is now not willing to be accountable to them?”

Mr. Harper: “…if the Liberal Party had its way and corporate Canada paid no tax whatsoever, all of the tax burden would shift to ordinary people and senior citizens. That is why this government has acted... This government has given a four year window before these changes take effect so that people can make adjustment...”

Liberal MP Lucienne Robillard: “… the current circumstances are not any different from those of a year ago. The only thing that has changed is the minority Conservative government’s promises. The Prime Minister promised free rein to income trusts, and now
he acts surprised to see that so many companies availed themselves of it. Why does the Prime Minister not have the courage to say to Canadians that he made a promise, he broke it and he is sorry? It would be so easy to say.”

Mr. Harper: “… once again, this government will not apologize for trying to protect the interests of individuals and a tax system that makes big business pay its fair share.”

Conclusions:

One, Harper and other leaders of the Conservative Party very clearly and repeatedly, orally and in writing, promised Canadians that they would not tax income trusts.

Two, Harper’s defence of the huge trust tax involved a lie when he denied that that his party had promised not to tax income trusts.

Three, the PM made no substantive response to any of the questions posed to him. Instead, he attacked the Liberal Party and made false statements about its position on the taxation of corporations.

Four, Harper’s reversal of his promise and his defence of it are exactly this type of behaviour that leads citizens have such a poor opinion of politicians and accord them such a low level of trust (below that of car salespersons).

The Hill Times