From: Tom Flanagan
Date: Wed, 23 Dec 2009 11:30:19 -0700
Cc. BRENT FULLARD
Subject: Re: It is the opposition to blame that we are now living in Tom Flanagan's neo-conservative dream. Flaherty's deficit plan: Take an axe and cut deep 'I've done it before,' in Harris-era Ontario
tom flanagan wrote:
To quote the lovely and talented Tina Fey, "Suck it, nerds!"
michael popovich wrote:
I hear that Mahmoud Ahmadinejad is looking for a good used reactor -- the last bid for Chalk River was $1.37
On Dec 23, 2009, at 12:26 PM, Geoffrey Laxton wrote:
*/ It is the opposition to blame that we are now living in Tom Flanagan's neo-conservative dream. /*
“I'm hopeful there will be some ideologically-driven, neo-conservative cuts to government,'' political scientist Tom Flanagan, a former chief of staff to Harper, said in an interview. “I think that's always been sort of the long-term plan, the way that Stephen was going about it of first depriving the government of surpluses through cutting taxes . . . You get rid of the surpluses and then it makes it easier to make some expenditure reductions.'' /*
Flaherty's deficit plan: Take an axe and cut deep
'I've done it before,' in Harris-era Ontario
Les Whittington Ottawa Bureau
December, 23 2009
OTTAWA–Faced with the largest federal deficit in history, Finance Minister Jim Flaherty says he will start looking for programs to axe and government assets to sell off as soon as the economy recovers.
"It's necessary for restraint to happen" to rein in Ottawa's spending, Flaherty told the Toronto Star in a year-end interview.
"We get hundreds and hundreds of programs that just trundle along, growing at 3 or 4 per cent a year or more – ahead of the rate of inflation – and it takes some resolve to restrain that spending growth."
With a chuckle, he admitted that slashing government programs can prompt public outrage. "Every program has a group of people who believe strongly in that program," he said.
But "some programs should end," Flaherty insisted. "This assumption in government – that every time a program is created, the program should go on indefinitely – is mistaken. So some programs should just end because their usefulness has ended."
Flaherty, who carried the provincial finance portfolio with the Mike Harris government in 2001-2002, said clamping down on spending "doesn't make one popular as a finance minister.
"I've done it before. I did it in Ontario."
Flaherty was a key figure all through the Harris years, when under the banner of the Common Sense Revolution Ontario's Progressive Conservatives elevated chopping government programs and reducing taxes to articles of faith.
In his 2001 Ontario budget, Flaherty handed $2.4 billion in tax cuts to the province's corporations, promised personal tax breaks and paid down $3 billion in provincial debt – all while balancing the books by holding down badly needed expenditures for universities, hospitals and infrastructure projects.
Praising the tax reductions of the Harris era, Flaherty told MPPs at the time: "Ontario paved the way for tax cuts in this country. I am proud that every province in Canada is following our lead."
Five years later, Prime Minister Stephen Harper's Conservatives came to power in Ottawa preaching tax cuts and smaller government in the same vein as Harris's Ontario Tories.
In one of his earliest acts as federal finance minister, Flaherty on Sept. 25, 2006, trimmed $1 billion from programs for human rights, women's issues, museums, youth employment and other initiatives. At the same time, he announced that a $13.2 billion budget surplus would be used to pay down the country's $481 billion debt.
Today, hamstrung by $33.9 billion a year in federal tax cuts and a $28 billion economic stimulus program, Flaherty is contending with the most bloated budget deficits ever recorded in Ottawa. The cumulative total of budget shortfalls will hit $164 billion by 2014.
The finance minister says he will continue with stimulative spending in 2010 to ensure the fragile economy makes a full recovery. But after that, the government will usher in a period of frugality intended to balance Ottawa's books again.
Because higher taxes have been ruled out, Flaherty will have to find the savings by getting tough on government spending. Some antiquated programs could be axed, he said, "but the more important thing is to just watch the rate of growth" of spending.
Most economists say this will be a daunting task. About half of the $241 billion in Ottawa's annual program expenses are for major social programs and cash transfers to the provinces – all of which grow automatically each year.
So in September, when the finance department laid out a rough program for bringing the deficit near zero by 2014, officials said doing so would require keeping the annual growth in the other $120 billion in annual federal program spending to 3.3 per cent.
While that might sound easy, analysts point out that doing so would mean significant reductions in the programs and services many Canadians count on.
The Harper Conservatives have so far shown little stomach for unpopular belt-tightening measures. Despite talking about government restraint, the government has allowed its spending since 2006 to climb by a hefty 7 per cent a year.
Flaherty also said he hopes to realize savings in operational costs by letting the federal public service shrink as employees retire over several years.
"We will have some natural attrition, too, in the federal public service over the next while because of demographics and we can look at that, too, as: Do we need to replace each person who retires?" he said.
Over the next four or five years, the government also hopes to drum up large chunks of cash by selling off billions of dollars in federal lands, buildings and Crown corporations, including possibly the Royal Canadian Mint, Via Rail and Atomic Energy Canada Ltd.
Governments have generally been lax when it comes to examining the need to own assets, Flaherty said.
Wednesday, December 23, 2009
Wasn’t Flaherty the guy who justified leaving out the taxes paid on the 38% of income trusts to arrive at his fallacious “tax leakage” conclusion by saying:
“Well, as Minister of Finance, I have a fiduciary obligation to the taxpayers of Canada today, not tomorrow, an obligation to pay for needed social, environmental and economic programs today, not tomorrow. I cannot, and I will not, fund today's programs from tomorrow's revenues.”
And now this very same person is running a $56 billion budget deficit. What is that, if not: “funding today's programs from tomorrow's revenues.”?
Meanwhile, what happened to Jim’s fiduciary obligation to the taxpayers of today and tomorrow? Jim’s actions are an admission that he has abandoned his fiduciary obligation. Is that not grounds for dismissal?
Flaherty is the biggest hypocrite of a politician this country has ever known. It’s a shame the press never catches on or connects the obvious dots.
Posted by Fillibluster at 11:31 AM
This week we learned that Dalton McGuinty retained CIBC and Goldman Sachs to explore the possibility of selling a number of prime Ontario Government holdings to help pay down the province's massive budgetary shortfall. Possible assets on the block include, the LCBO, Hydro One, and the Ontario Lottery and Gaming Corporation (OLG). The common feature being that these are all are cash flow rich companies and operate pretty much like the equivalent of toll roads, reaching into the pocjet books of Ontario residents on a daily and weekly basis.
Apart from maximizing the value form the sale of these businesses, Dalton McGuinty should be sensitive to maximizing the opportunity for Ontario residents to participate in these businesses future ownership as well.
It is in both of these senses that Dalton McGuinty has shot himself in the foot. Had Dalton McGuinty not been so quick to jump on Jim Flaherty’s tax leakage bandwagon, as the false rationale for Flaherty’s knee jerk income trust tax, he would have been able to accomplish both of these goals at the same time, through an IPO of these businesses via income trusts. Now that option is gone. Gone for reasons that were completely false and erroneous. Gone through the direct involvement of the McGuinty government
Back in 2001, when I worked at BMO Capital Markets as the head of Equity Capital Markets, I was involved in the aborted sale of Hydro One, attempted by Ernie Eves. BMO was one of three co-leads who were mandated to execute the sale of Hydro One, the other two being RBC and Goldman Sachs. That’s where I first met Mark Carney. You should have seen how ballistic the guys from Goldman went, when there was a move made suggesting Ontario Hydro be sold by way of an income trust. An Income trust of Ontario Hydro would have meant the whole company likely would be sold to residents of Ontario, as there probably wouldn’t have been enough to go around, even with a deal of $2-3 billion in size.
Now that exit option is gone, and so too, the benefits it carries for Ontario in terms of maximizing proceeds and maximizing the ongoing ownership of these businesses by (taxpaying) residents of Ontario. Dalton has only himself to blame.
This is exactly the approach that I advocated within BMO Capital Markets and how we at BMO Capital Markets pitched the IPO of Hydro One to the Ontario Government, all under the banner of an “Ontario First” logo, lapel pins and all. We even produced a 60 second commercial that was ready to be aired at a moments notice. I recall telling the senior people at the Ontario Government at the time that they should not be at all concerned about whether we, as underwriters, could sell Hydro One to investors successfully, but whether they, as the government, could sell the idea of privatizing Hydro One to the voting public. My advice to them in addressing this matter, was for them to tell the public from the very outset in a highly visible way, that Ontario residents would be given a priority option to invest in the Hydro One IPO, hence the Ontario First branding and messaging.
This is not the route the Government chose to adopt, and indeed it was public backlash and backlash from the union that prevented the deal from proceeding. much as I had cautioned them about.
The same dynamic for public backlash exists today, and more than ever, cash flow rich assets like the LCBO, OLG and Hydro One are sought after by investors. But will Ontario residents get a chance to own any of these provincial crown jewels or will groups like Ontario Teachers get a first crack at owning them as they are lobbying for? Meanwhile what possible purpose is served by Goldman Scahs advising the Ontario Government, as they wouldn’t know an Ontario retail investor if they saw one. No doubt the advice coming from Goldman Sachs this time will be no different than the advice rendered by Goldman Sachs the last time, which was for the Ontario Government to turns their back on Ontario residents and make a bee line to Wall Street. Mark Carney’s adverse and self serving reaction to the idea of selling Hydro One via an income trust offering was just a preview of the infamous role he was to play in Ottawa to shut down the income trust concept, except this time across the board.
Shortly after the Hydro One deal went no where, Mark Carney found himself out of a job at Goldman Sachs and wound up in Ottawa. I actually felt some pity for the guy when I learned of his fate, But pity turned to disdain when I learned it was Mark Carney who was the architect of Jim Flaherty’s income trust Halloween Massacre and the incredibly dishonest person in Ottawa responsible for Flaherty’s bogus tax leakage argument, that was completely fictitious, and which formed the fraudulent basis on which Mark Carney, Jim Flaherty, Stephen Harper et al, destroyed $35 billion in Canadian’s investment savings and took from them an essential investment option.
And to think, Flaherty’s income trust prohibition would never have happened without the letters of support sent in from the 10 dutiful Provincial Ministers of Finance, one of whom was Greg Sorbara of Ontario, Dalton McGuinty’s hand picked Minister of Finance. Little did Dalton even know about the falsehood behind tax leakage and little did Dalton realize that he would be shooting himself in the foot some three years later when it came time to sell assets like the LCBO, OLG and Hydro One, in the same way that Ontario was able to sell Teranet.
So I guess this is a case of what goes around, comes around. Dalton McGuinty has seen to it that whatever option he pursues with respect to the sale of the LCBO, OLG or Hydro One, will be options that fall short of what could have been achieved under the income trust option, in terms of maximizing value and maximizing the ongoing ownership of Ontario businesses by Ontario residents.
Maybe Dalton will have now have some inkling what it means to have one’s investment options limited by the tax leakage falsehoods of Jim Flaherty, or to be one of the 1 million Ontario residents who lost $15 billion of their hard earned retirement savings, because of a government policy that whose very foundations were never proven, but just taken for granted. 40% of all income trust investors reside in Ontario and 40% of trust businesses are headquartered in Ontario.
Way to go Dalton! You have only succeeded in shooting yourself in the foot, along with all Ontario taxpayers.
Tuesday, December 22, 2009
Today we learn that the banks get hit with measly fines of some $134 million for their role as the masterminds of the ABCP house of cards/elaborate cheque kiting scheme of a product offering.
Meanwhile taxpayers get stuck with a potential loss of over $1 billion from the ABCP fiasco these banks created. What’s wrong with this picture? Why are taxpayers left holding the bag for the bank’s gross mistakes and misrepresentations to investors, and the Banks get off at 10 cents on the dollar? Where is the justice in that?
Meanwhile Flaherty's resolution of this ABCP matter via a taxpayer bailout also means that the banks gain immunity from civil prosecution and civil lawsuits?
These banks could get away with murder, the way this country is run.
CIBC, Brokerages, to Pay C$134 Million Sanctions in ABCP Probe
By Doug Alexander and Joe Schneider
Dec. 22 (Bloomberg) -- Canadian Imperial Bank of Commerce, National Bank of Canada and brokerages agreed to pay a total of C$134 million ($126 million) in fines and penalties to settle regulators’ claims they improperly sold asset-backed commercial paper in Canada just before the market collapsed in 2007.
National Bank was fined C$70 million by Quebec regulators and will pay C$1 million for the cost of the investigation, while CIBC, Canada’s fifth biggest bank, was fined by Ontario regulators C$21.7 million and will pay C$300,000 in costs.
Bank of Nova Scotia’s Scotia Capital unit will pay a total of C$29.3 million, according to an agreement approved by the Investment Industry Regulatory Organization of Canada. Laurentian Bank will pay C$3.2 million.
The banks agreed to settle for their roles in selling commercial paper in late July and early August of 2007, before the market collapsed on concern about ties to U.S. subprime mortgages. About C$32 billion of the debt became insolvent, leading to a court-ordered plan in which the short-term debt was swapped for longer-term notes in Canada’s biggest restructuring.
“CIBC engaged in conduct contrary to the public interest by failing to adequately respond to emerging issues” in the ABCP market, Ontario Securities Commission Vice Chairman James Turner said, following a hearing in Toronto yesterday.
Rob McLeod, a spokesman at CIBC, declined to comment.
The settlement “reflects the failure of a small number of employees, handling a small number of large trades,” Scotiabank said in an e-mailed statement. The bank is “taking additional measures to prevent this from happening again.”
Securities regulators in Ontario, Quebec and British Columbia have been collaborating on a probe with the Investment Industry Regulatory Organization of Canada, OSC spokeswoman Carolyn Shaw-Rimmington said in July. The investigation focused on the actions of firms selling the debt after Coventree Inc., Canada’s biggest commercial paper administrator at the time, warned bank-owned dealers of ties to risky U.S. loans.
The OSC also approved a settlement with HSBC Bank of Canada under which the bank agreed to pay a fine of C$5.925 million and C$75,000 in costs. Canaccord Financial Ltd., a brokerage based in Vancouver, agreed to pay IIROC a fine and costs of C$3.1 million and Credential Securities Inc. will pay C$200,000 in fines and costs.
In a July 2007 e-mail, Coventree alerted the dealers that some of its debt funds had ties to U.S. subprime mortgages, according to court filings. The market collapsed three weeks later, leaving at least 100 companies and institutional investors, and more than 1,750 individuals, with notes that couldn’t be traded.
CIBC kept selling the paper until Aug. 3, when it became concerned over its liquidity, according to the settlement.
The OSC settlements relate only to the sale of the paper to institutional investors, not retail clients, Turner said.
The OSC set a Jan. 14 hearing for Toronto-based Coventree and its executives. Deutsche Bank AG, Germany’s biggest bank, also faces a hearing on Jan. 6 related to its role in the commercial-paper market.
To contact the reporters on this story: Joe Schneider in Toronto at email@example.com; Doug Alexander in Toronto at firstname.lastname@example.org
Last Updated: December 22, 2009 00:01 EST
Monday, December 21, 2009
The Toronto Star are nothing more than complete hypocrites when it comes to their opportunistically jumping on the bandwagon of public opinion in opposing Harper’s use of blacked out documents as the means to hide the real truth about possible abuse of Afghan detainees. Ditto for the Toronto’ Star’s feigned concern over the retirement savings of Canadians and what many call the pension crisis. More utter hypocrisy on the part of the Toronto Star.
I can make this statement based on my first hand experience in meeting with the Toronto Star Editorial Board on April 12, 2007. Here is an account of that meeting that I posted to my blog on June 26, 2008, in which the Toronto Star had the audacity to support Harper’s use of blacked out documents in order to hide the truth about whether income trusts actually cause tax leakage, as the sole justification for a policy that caused Canadians to lose $35 billion of their hard earned retirement savings.
Principles like the need for transparency can not be espoused on a selective basis as the Toronto Star is doing, otherwise they are merely artifices and excuses, arbitrary whims and caprices and most certainly not PRINCIPLES. As such the Toronto Star has NO PRINCIPLES, as follows:
My meeting with the Toronto Star Editorial Board of April 12, 2007
Thursday, June 26, 2008
Bob Hepburn (pictured here) has an editorial piece in today’s Toronto Star in defense of Louise Arbor and her work at the UN on human rights.
I met with Bob Hepburn and the Toronto Star Editorial Board on April 12,2007, at which time he was the Editor of the Editorial Page of the Toronto Star. If you can believe this, Hepburn and his colleagues were actually DEFENDING the 18 pages of blacked out documents used by Flaherty as ”proof” of alleged tax leakage from income trusts. They agreed with Harper that this information should not be disclosed and agreed with Harper that it was a matter of National Security for this information not to be disclosed. I was totally dumbfounded. I thought I must have been meeting with the Editorial Board of Pravda and not the Toronto Star.
As such, Bob Hepburn is a total hypocrite. What about human rights here at home? Defending blacked out documents? Puhlease.
Hepburn demanded to know my explanation for why Harper would have done something if it weren't to solve tax leakage?
I told him that was his job as a reporter to figure out. Furthermore, since when do I speak for Stephen Harper? He then threatened to end the meeting, unless I gave my explanation.
I said that I did so only reluctantly, since that was the reporters job, not mine. Half way through explaining that the many groups who benefited from this policy had lobbied the government, for example lifecos like Power Corp and Manulife, he stopped me before I could finish, and dismissed what I was saying with the comment "That's just a conspiracy theory".
At which point I told him that he was the one who wanted my answer and then he cuts me off before allowing me to finish. I told him the only conspiracy theory was the one being advanced by his paper, namely the conspiracy theory of tax leakage caused by income trusts and Harper’s use of blacked out documents as supposed ”proof” of alleged tax leakage.
This hypocrisy on the part of Bob Hepburn and the entire Editorial Board of the Toronto Star with whom I met, is easily explained, once you realize that the Toronto Star has a commercial vested interest in the outcome of killing income trusts, and hence that means, in their incredibly narrow minds, that the end justifies the means, including the use of blacked out documents.
The Star is owned by Torstar Inc. Torstar has two classes of shares. Voting and non-voting. The voting shares are the corporate abuse by which the Honderich and Atkinson families control the company. This control in turn assures the Star of its editorial freedom under the Atkinson Principles.
Many newspapers had converted into trusts to achieve higher valuations through appealing to income oriented investors, who pay taxes of 38% on these distributions. These income oriented investors are not interested in investing in the "crap shoot" known as the stock market to fund their retirement income needs. Nor do they want to own GICs that pay 2.00%. Income trusts emerged to fill their needs, on which they happily paid taxes, without the benefit of the tax benefits associated with dividends.
Torstar was being pressured to convert to a trust. The Board of Tortsar had a duty to maximize shareholder value, much like was argued with BCE before the Supreme Court.
Converting to a trust would have meant abandoning the Voting/Non voting share structure. This would have meant these Atkinson Principles would be in jeopardy. So too the Star's "Editorial Freedom".
Hence the Toronto Star's editorial stance on trusts is to kill them........and support the government's lies for doing so......like the conspiracy theory known as tax leakage etc etc.
The Toronto Star is a joke. They value their so called editorial freedom, more than they do the truth. The Star needs to learn about Maslow’s Hierarchy of Needs. The Star has no business spouting off about human rights abroad if it is a willing participant in truth suppression here at home and the resultant $35 billion raiding of seniors nest eggs. In so doing the Toronto Star is helping to aid and foster an intellectually corrupt regime known as the Harper CONs
Here was my follow up email after the meeting:
From: Brent Fullard email@example.com
Date: Thu, 12 Apr 2007 20:17:23 -0400
Subject: Jack Mintz Quote
Thank you for the opportunity of meeting with the Editorial Board of the Toronto Star. In our meeting today and in response to a question that you raised with me, I made reference to correspondence I received from Jack Mintz that directly contradicts what he is saying in the public and the basis upon which the tax leakage numbers he has been advancing in the public have been based. Here is what he confided to me in an e-mail dated November 28, 2006:
"I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact is [sic] zero."
As I pointed out to you, this is the very basis upon which “tax leakage” turns. Wrongly excluding these taxes results in tax leakage. Correctly including them results in tax neutrality. Below is a press release issued by Dennis Bruce of HLB Decision Economics following the testimony he gave at the Public Hearings. The operative phrase is: "While federal budgeting is done on a current basis, federal policy analysis is done on a life-cycle basis. Accounting for the life-cycle effects of tax changes, namely deferred taxes, is appropriate in the consideration of tax policy."
President and CEO
Canadian Association of Income Trust Investors
647 505-2224 (cell)
Independent economists discredit govt tax leakage claims - 10 year phase-in of tax to have minimal costs
OTTAWA, Feb. 1, 2007 /CNW Telbec/ - In remarks delivered to the House of Commons Finance Committee Thursday, Dennis Bruce, Vice President of HLB Decision Economics Inc., provided data and supporting documentation to discredit the Department of Finance's tax leakage claims.
"The department is sharply overstating tax leakage," said Mr. Bruce, who added that there would be minimal costs associated with a 10 year phase-in of the new tax on income trust distribution payments.
HLB Decision Economics, an Ottawa-based independent consulting firm that provides analytical consulting services to industry and governments worldwide, has been working on behalf of the income trust sector to develop a comparative analysis of taxes generated under the income trust structure versus the corporate structure.
Mr. Bruce told committee members that his firm worked with the Department of Finance as it prepared the federal government's 2005 consultation paper on the tax effects of income trusts. Specifically, HLB was asked by the department to develop a common methodology and assumptions for deriving tax leakage estimates.
Mr. Bruce said that HLB and the Finance Department achieved consensus on the methodology with one exception - they disagreed on whether to include deferred taxes. Deferred taxes are derived from distributions, capital gains, and dividends received in tax exempt accounts. While they are not immediately taxable, they are taxable upon withdrawal from such accounts.
"The discussions that you are hearing about deferred taxes reflect confusion about budgeting convention versus policy analysis," said Mr. Bruce."While federal budgeting is done on a current basis, federal policy analysis is done on a life-cycle basis. Accounting for the life-cycle effects of tax changes, namely deferred taxes, is appropriate in the consideration of tax policy."
Mr. Bruce went on to outline the factors that resulted in the differences between HLB's tax leakage estimates and the tax leakage figures put forward by Finance Minister Jim Flaherty. These factors include:
1) The Department's assumed effective corporate tax rate for energy
trusts fails to reflect the reductions in the tax rates for resource
corporations from 2004 through 2006, from 27.12% to 24.12%. This
results in an overstatement of tax leakage of $84 million;
2) The Department's figure for income trust units held in tax exempt
accounts is overstated. Derived from data from surveys, Statistics
Canada, interviews and Scotia Capital Markets data, the percentage of
units held in tax exempt accounts is 31 percent, less than the
Department's 38 percent estimate. This results in an overstatement of
tax leakage of $125 million;
3) The value of deferred taxes is excluded from the Department of Finance
analysis. This results in an overstatement of tax leakage of
$80 million; and,
4) The Finance Department's atypical inclusion of the impact of limited
partnerships, which reduces the tax leakage to $45 million.
5) The impact of future legislated tax changes post 2010 has not been
accounted for. Doing so reduces the ongoing federal tax leakage after
2010 by $232 million.
Mr. Bruce stressed that the discrepancies between HLB and the Finance Department led his firm to conclude that the Finance Department is "sharply overstating tax leakage."
Specifically, HLB concluded that:
- Federal tax leakage for 2006 was $164 million, not the
half billion dollars stated by the Department; and,
- Ongoing tax leakage, post 2010, after taking into account legislated
tax changes, is $32 million per year, about five percent of the
For further information: Dennis Bruce, Vice President, HDR - HLB Decision Economics Inc. (613) 234-0080; Cell: (709) 632-1708
Management of errors
Why do governments engage in secrecy and cover-ups rather than admit errors and accept responsibility for them?
By W.T. STANBURY
The Hill Times
December 21, 2009
To err is human. To admit errors is rare. However, it seems impossible for a Prime Minister or a Cabinet minister to admit an error and accept responsibility.
From a moderately serious error in the context of war in Afghanistan in 2006, to the stonewalling of a public inquiry in 2009, to the public excoriation of the messenger who had repeatedly warned of the problem( in Nov. 2009) to a massive effort to cover-up what happened to the continued denial of now publicly-documented facts, the Harper government continues to dig a bigger hole for itself in a collapsing sandpit of public opinion.
Why has it done this? Is it due to the particular personality of the PM? Is it because the government believed that its cover-up would continue to work—as it had for some time? In this, as with many similar errors by the PM and/or his ministers, the idea of promptly admitting the error, launching corrective action, and accepting responsibility/apologizing for the error is simply not done. Yet, many would agree with columnist Susan Riley (Ottawa Citizen, Dec. 11, 2009) that a prompt apology and explanation by the Minister of Defence, Peter MacKay, when diplomat Richard Colvin's testimony became public, would have diffused the threat to the government.
The purpose of this piece is to try to explain why it seems nearly impossible for the government of the day to admit errors promptly and to accept responsibility for them. My tentative explanation is conducted under four headings:
(i) Ego, power, and desire to "save face";
(ii) The capacity of governments to create an alternative reality;
(iii) The design of the Westminster model; and
(iv) Public scrutiny: opposition parties, access to information legislation, and the news media. In summary terms, the context within which the PM and ministers function is one that is strongly biased in favour of their never admitting errors.
(As this column was being put to bed, I found two instances where Prime Minister Harper issued an apology. Both involved the errors of others. See CBC News, Sept. 9, 2008 regarding the pooping puffin ads; and The Globe and Mail, July 10, 2009 regarding his apology to Michael Ignatieff based on erroneous information from an aide.)
Ego, Power, and Saving Face
It appears the most politicians have large egos. Those who become a PM or a minister have even larger egos, and in high office such egos are unlikely to be curbed. The inability to admit error is apparently part of having a very large ego. In their high office, ministers gain access to many tools that can be employed to avoid admitting errors. Hence, we see cover-ups, the disappearance of records, senior personnel saying they never got the warning memos, the dutiful corroboration by underlings, and so on.
Otherwise reasonable men and women who become Cabinet ministers, or achieve the ultimate goal of becoming PM, soon come to believe they are infallible—despite the torrent of criticism they receive in the news media and from the opposition parties. They have armies of public servants to do their bidding and oceans of taxpayers' money to effect their will and safeguard their egos. Officials who speak truth to power are often ignored, and marginalized.
In rare cases, the admission of errors (and the publicity accorded to cover-ups which may have preceded them) may lead to the loss of office for a minister—but only in the rarest of cases for a government. For almost all politicians, loss of office is a traumatic event. The incentives to avoid that fate are simply enormous. The extensive efforts often employed to avoid admitting error (no matter how evident to objective observers) must be understood in this context (see Stanbury, The Hill Times, Nov. 30, 2009).
The tendency to deny, defend and cover-up errors seems to be very strong in all societies. The "loss of face" usually involves the puncturing of a person's public façade. The pain is two-fold: being seen as making an error, and the fact that public knowledge of the error strips away at least part of the façade of competency.
The reasons for saving face are various: to preserve reputation (and with it status); to protect one's career; to avoid embarrassment (and this may involve no more than an act of hypocrisy—very common in politics); to protect another person we hold dear; to avoid being held accountable; to avoid having to do a mea culpa; and to satisfy institutional demands (discussed below).
"Loss of face" follows from the widespread perception that an error has occurred—even if the person deemed culpable always denies he has erred. Thus if the error is not made public, or if a serious error can be reduced to a trifle, "face" can be "saved." However, the "cover-up" of an error can itself result in more serious errors. Watergate is the classic example.
The greatest potential "loss of face" is created when a person cultivates an image of infallibility and/or righteousness on matters of public honesty. (Recall the Tories' claims prior to the 2006 election that new transparency and accountability rules would make the scandals under the Liberals impossible.) Then an error may well be seen as catastrophic, even if it has modest adverse consequences by objective standards. The stage is set for massive efforts to protect the false front when organizational resources can be deployed to do so.
Capacity to 'Create Reality'
In politics, reality is what people believe it to be. Their perceptions depend heavily on what they get from the news media, and—increasingly from the new media related to the Net. The Harper Government has harnessed and expanded the massive communications machinery of government departments, and has coordinated it with the well-funded communications operations of the Conservative Party, to create a huge propaganda machine. The taxpayer-financed communications efforts now include a unit producing photos and video clips for distribution to the news media. (The PMO has just increased its funding by $1.7-million to provide for 6.5 new positions.)
This machine is run in a famously disciplined fashion (see Stanbury, The Hill Times, Nov. 23, 2009). Its purpose is to try to get voters to perceive the government's actions the way the PM wants them to do so—to "create the reality" most beneficial to his party.
The combination of tight message control, efforts to bypass the major news outlets to reach voters—the base in particular), aggressive secrecy, extensive polling, and the use of cover-ups are all about creating the PM's version of reality. They are also the means for never having to admit error, and accept responsibility. The doctrine of infallibility has found a home in Ottawa.
Canada's version of the Westminster model of government creates incentives to save face and to avoid the admission of error. First, it focuses a huge amount of power in the hands of the Prime Minister, so when he fouls up it threatens the whole government. Saving his face is Job 1 for the entire federal government.
Second, the model makes almost every bill in Parliament a matter of confidence—hence to continue in office the government of the day, must overtly reject changes put forward by opposition members that would correct errors. During a minority government, the problem is exacerbated because an opposition party may put forward a non-confidence motion with a real chance of defeating the government (as Stephen Harper did successfully in 2004). However, there is the opportunity for opposition parties to negotiate changes as their price for supporting the government.
Third, the Westminster model is based on the doctrine of individual and collective responsibility. That means the "screw-ups" in the bowels of the system for which it is hard to identify individual culpable are, nevertheless, laid at the feet of the minister. If she did not know, she should have. The minister had all to tools to ensure that qualified people were in the jobs, and to monitor their performance. The minister is responsible at all times for the performance of the department, and so is to be held accountable. The reality is, however, that very few ministers are held accountable for errors committed in their department—aside from the flak from newspapers and opposition MPs. Such flak can inflict some scars, of course. But it is not accountability as implied by the theory of the Westminster model.
Fourth, the Westminster model forces all ministers to defend even the most egregious errors of colleagues (short of what appear to be crimes) in the name of Cabinet solidarity. The alternative is resignation—a non-option in practice. Only the Prime Minister can sack a minister. But this is rare even for quite large errors. Instead the offending minister may be given another Cabinet post in the next "shuffle."
Fifth, the Westminster model makes one of the key roles of the public service providing assistance for the defence of a minister's errors. This may include those based on defective advice which the officials gave to the minister.
Sixth, the Westminster model creates a "culture of secrecy" which makes the detection of errors by "outsiders" far more difficult. Even many "insiders" can't get the necessary information to expose errors (see Stanbury, The Hill Times, June 15, 2009).
Public Scrutiny: Opposition Parties, ATI Act, News Media
The federal government is subject to far more public scrutiny than are most businesses and other organizations in the private sector. The government side faces one or more opposition parties devoted to finding errors, pointing fingers, and publicizing them as loudly as possible. The Official Opposition is funded by taxpayers and, it's institutional role includes supplanting the government. More generally, the basic intent of democratic governments is to hold elected representatives accountable to electors.
A considerable part of the government's business is conducted in public, most notably in Parliament. The daily Question Period holds the prospect of quickly challenging the PM and ministers with alleged errors. However, as a means of holding the government to account, it is severely limited (see Stanbury, The Hill Times, Feb. 2, 2009).
No modern democratic government is without a freedom of information act which provides a legal means to try to pry a great deal of information out of government—much of which the current office holders do not want revealed. At the same time, it is clear that all federal governments make a major effort to undermine the Access to Information Act. Delay, and redaction are the tools of choice.
Much more of the resources of the omnipresent news media are devoted to politics and government than to covering the private sector, including the nefarious activities in it. Politicians justifiably fear "gotcha journalism." Some journalists go so far as to assume the role of the "unofficial opposition." But one-shot blows from the news media seldom have much impact. Only well-documented criticism for a sustained period is likely to move a government. The Harper government has treated the major news outlets with thinly-veiled contempt since taking office. As noted above, it has been engaged in a vast effort to "create reality" by means of a taxpayer-funded propaganda machine. So far, it has been quite successful. The acid test will be the next election.
For a variety of reasons, Prime Minister Harper and his ministers have been acting on the principle that being in power means never having to admit error and accept responsibility. It does mean, however, much effort and many taxpayer dollars to defend the indefensible.
W.T. Stanbury is professor emeritus, University of British Columbia.
Posted by Fillibluster at 11:23 AM
Subtitle: My best advice for Michael Ignatieff
Canadian democracy has been on a steady decline long before this recent incident involving Stephen Harper’s refusal to release the truth to Canadians about the possible torture of Afghan detainees. This is but the latest example of Canadian politicians using the power of their office to deny Canadians their basic democratic rights as voting citizens.
The real question is who is going to fix it?
All we have witnessed in the past, in situations similar to this, are politicians who position themselves to exploit these circumstances for their own political advantage, rather than correct them, only to constrain their power in office?
This is exactly what happened in the 2006 election in the aftermath of the Liberal Sponsorship Scandal. Seeking an opportunity to exploit, rather than correct, Stephen Harper wrapped himself in a holier than thou robe, and proclaimed that if elected he would usher in a whole new era of government accountability and transparency. It worked. Harper rode that wave of self righteousness right into office.. He even went so far as to pass legislation known as the Accountability Act, which was only meant to placate the voting public with the false aura of a new regime of greater accountability, but has provided nothing of the sort at the point where the tire actually hits the road.
What “Accountability Act” would allow a government to constantly hide behind blacked out documents, be it in the case of income trusts and “proof” of alleged tax leakage or knowing the truth about the conditions that were faced by Afghan detainees? Whose idea of accountability is that? Government accountability under the Harper government is at its lowest level ever, as witnessed by a multitude of things, too numerous to mention. Meanwhile Harper has rendered the civil servants more emasculated than ever, each fearing that they will become the next Linda Keen or Richard Colvin if they dare do their job properly and as called upon.
So the real question is who is going to fix it?
My greatest concern is that the opposing political parties will exploit the circumstances and the fall out of this Afghan detainee matter, as the means for their own political ascension and then do nothing thereafter to usher in the fundamental reforms that are required to restore democracy to Canada and its citizens.
What assurances are there that a Liberal government under Michael Ignatieff believes in democracy any more than Stephen Harper himself? I have no such evidence, do you? Rather than relying on wishful thinking, let’s call a spade a spade. For example, Michael Ignatieff was not elected as leader of the Liberal Party, but rather was anointed. The President of the Liberal Party, Alf Apps, was not elected as the President of the Liberal Party, but was acclaimed the President of the Party, after the other candidates on the ballot were strong-armed into dropping out in favour of Ignatieff’s “guy”. Does this sound like a party that has a fundamental belief in the underpinnings of a true democratic process, or a party that will happily bend those rules, as suits the purposes of the moment?
Therefore, it would be wrong for Canadians to blithely assume that the election of a Liberal party would lead to an outcome concerning democracy, that is any better than which exists under Stephen Harper today. I am no Pollyanna, are you?
What we need as Canadians is fundamental reform concerning the re-establishment and enforcement of the institution of democracies in this country. Things like the establishment of a Parliamentary Budget Officer with the powers and resources to match the Government Accounting Office in the US. The obligatory calling of public hearings and public consultation whenever new tax measures are being considered that place citizens on an equal footing with paid lobbyists. The full release of public documents in real time to citizens who request them, except in the most extreme cases of true National Emergency, where such invocations of National Security could be challenged by citizens in court under a process similar to the Court Challenges program. I do not profess to know all the measures that would need to be undertaken in this country to restore Canada to the democracy that many think that it is, but that it clearly is not. But I do know that such fundamental reform is urgently needed will not occur through a process as simple and unreliable as voting a new party into office. That is as unlikely an outcome as winning the lottery.
If political parties want to exploit the electorate’s concern of the day about the need for a democracy with real teeth and real checks and balances on the abuse of power and privilege, then they are going to have to do something a lot more convincing than simply saying “I am not Stephen Harper”, and thinking they can assume power through the process of default. Nor will it be acceptable to simply promise to usher in a new era of accountability, as Harper did in the after-math of the Sponsorship Scandal. We’ve seen that movie before and it had a very bad ending. Promises amount to nothing.
We need fundamental democratic reform in this country and the re-establishment of the institutions of democracy. If politicians in this country want my vote and the vote of millions upon millions of like minded Canadians across this country, then they are going to have to come up with something better than what we have seen to date and show some real back bone and conviction. The prize will no longer go to politicians that proclaims the greatest outrage, but rather to the one who firmly commits to fundamental democratic reform on terms previously defined and in a fully binding fashion.
As for Michael Ignatieff, this upcoming Liberal gathering in Montreal in the new year, of what Ignatieff calls the “best and brightest minds in the country’ (whatever that means?), provides the perfect forum for hashing out precisely what needs to be done in order to re-establish true democracy in Canada. Everything else is secondary in importance to that. The best advice I can give the Liberals. is to wipe the slate clean on the planned agenda for that gathering, and focus on the single most important issue of the day, namely democracy.
Ignatieff should tell Canadians that he wants to be the leader of a true democracy, rather than merely the Prime Minister of Canada, like those before him, by campaigning on a binding set of democratic reforms, decided upon through major public input.
Sunday, December 20, 2009
The textbook, Financial Accounting, that is in widespread use in Universities and Colleges across Canada informs students about the "Accrual accounting" method versus the "Cash Accounting" method of accounting, by stating on page 107:
"Cash Basis Accounting records revenue when cash is received and expenses when cash is paid.
Accrual Accounting Basis records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments."
The significance of this basic difference in accounting methods to the issue of income trusts is that Flaherty's argument of tax leakage only has any validity if he uses the Cash Method of Accounting and IGNORES the deferred taxes paid on the 38% of income trusts held in RRSPs, and gets "tax leakage", by ignoring all of the 38% of the taxes actually collected by the government from income trusts, whereas if Flaherty uses Accrual Accounting then these deferred taxes get included, and there is NO tax leakage.
Eventhough this presents a choice, in theory, about which approach is best, Flaherty had no choice, since the Auditor General called upon the Government of Canada to adopt Accrual Accounting a long time before Flaherty showed up on the scene, and yet he went ahead and used the wrong Accounting standard.
In the world of law that Flaherty comes from, this is called jurisdiction shopping, where you seek out the jurisdiction that is most favorable to the point you want to make/defend/promote.
Except this isn’t the world of law, but rather the world of accounting and the rules of the Government of Canada and the Auditor General.
Meanwhile the textbook goes on to conclude: "Therefore, generally accepted accounting principles (GAAP) require the accrual basis accounting for financial reporting purposes."
No wonder that Flaherty is hiding his analysis of alleged tax leakage behind 18 pages of blacked out documents....because of this GAAPing hole in his logic.
And to think, this is the same clown who preaches that we need greater financial literacy in this country? Perhaps that could begin with a few reporters in the media poiting out the Finance Minister’ own misunderstanding and misuse of some of the most rudimentary concepts of Finance and Financial Accounting, himself?
Saturday, December 19, 2009
Dr. Maureen Gowing
Assistant Professor, Accounting
Odette School of Business
University of Windsor
Dr. George Kanaan
Associate Dean, Associate Professor
Department of Accountancy
John Molson School of Business
Robert Libby, Cornell University
Patricia Libby, Ithaca College
Daniel Short, Texas Christian University
David Swail, President and CEO. McGraw-Hill Ryerson Canada
Dear Dr. Gowing and Dr Kanaan:
The third edition of the textbook that you co-authored along with Libby, Libby, and Short (you being the two additional Canadian co-authors) entitled “Financial Accounting” (published by McGraw Hill Ryerson) that is in widespread use in colleges and universities across Canada contains three very significant errors/omission in the section entitled “Accounting and Reporting for Income Trusts” that I call upon you to correct, in the name of academic accuracy, and for the sake of properly educating its student readers, as follows:
(1) You state: “By distributing most of the cash received [from the equity and debt held by the trust] to unitholders, income trusts avoid paying income taxes”.
Nowhere do you go on to say that the unitholders, in turn, are the ones who pay the income tax on the earnings of these businesses that are paid directly to them? Therefore, your depiction of the tax treatment of income trusts, as some “tax avoidance” mechanism, provides the students with an incomplete and inaccurate understanding of what is actually going on here, from a financial and taxation point of view. Nowhere do you paint the larger picture by informing the students that income trusts are merely one form of a much broader classification of business structures known as “tax flow through entities”, or “FTEs” and that FTEs are in widespread use throughout Canada and elsewhere in the world and include businesses as common as law firms and all other forms of partnerships as well as mutual funds etc. The important distinction and common attribute of FTE’s being that they themselves do not pay tax, but are obligated to pay out their earnings to their owners, who in turn are the ones who pay the tax. To mention one aspect of income trusts tax treatment (that is negative) and not the other (that is positive) is both incomplete and misleading on your part.
In contrast, I notice that in your section devoted to partnerships you fail to make a similar observation that partnerships “avoid paying income taxes”. Why are income trusts the target of such a distinction, when partnerships are not, and yet both are identical to one another in that fundamental respect? This again is inherently misleading to the student readers and represents a clear form of editorial bias that does not belong in any academic text book.
(2) You state: “The potential loss of sizable amounts of taxes prompted the Canadian government to introduce in late 2006 a new form of tax on cash distributions by income trusts to their unitholders”.
This statement of yours only has the semblance of being true, since you inserted the word “potential”, however I believe the context in which this statement appears would suggest that the word “potential” was meant to address the “potential” of whether companies would convert to income trusts, rather than to suggest to the students that there was any doubt about whether “loss of sizable amount of taxes” would occur or not.
This notion that taxes were being lost by the Canadian government from the conversion of businesses to income trusts formed the central rationale for this government policy of taxing income trusts in the first place. It just happens to be patently false. This so called “tax leakage” argument was completely debunked during the formal public consultation process that took place in the fall of 2005, under then Finance Minister Ralph Goodale. A highly reputable and independent economics consulting firm, HLB Decision Economics was retained to work collaboratively with the Department of Finance to answer this question about whether tax leakage is real or simply a myth. HLB concluded that tax leakage is a myth and that the government collects as much tax revenue from a business formed as a corporation as it does upon conversion to a trust. I suggest you read HLB’s attached report entitled “The tax revenue implications of income trusts”. These findings of no tax leakage ,conducted in 2005, would be different today, in light of the fact that corporate tax rates have been reduced at both the federal and provincial level since 2005 whereas personal income tax rates have not, meaning that conversion of a business from a corporation to an income trust, that shifts tax collection away from the corporations (taxed at a lower rate today than in 2005) to an individual (taxed no less than in 2005) would actually be revenue POSITIVE for the Canadian Government and NOT revenue NEUTRAL as concluded by HLB in 2005 and certainly NOT revenue NEGATIVE, as students of your text book are being misled into believing in 2009.
I also suggest you acquaint yourself with what has now become of these income trusts following the Harper Government’s decision to double tax publicly traded income trusts (but not private income trusts) , and which caused them to become devalued and thereby the target of foreign takeovers and takeovers by the public sector pension funds, who were given a loophole by the Harper Government to avoid paying the new income trust tax, whereas RRSPs were not so lucky, despite the fact that RRSPs were created in the first place with the single policy intent of placing RRSPs on the same footing as pension funds? As noted above, HLB proved there was no tax leakage to begin with, but these subsequent takeovers of devalued trust caused by this policy, has led to real tax leakage. I refer you to the study by Deloitte at: http://www.deloitte.com/view/en_CA/ca/services/tax/article/ac0cf16bc31fb110VgnVCM100000ba42f00aRCRD.htm
(3) You state: “The tax savings that resulted from converting common shares to trust units prompted many companies to seek conversion of their businesses to income trusts simply to avoid paying income taxes”.
You have fallen victim to a common misperception in making such a claim and it only captures what is going on with the advent of income trusts at a very superficial level.
Ask yourself, would the conversion of a business from a corporation to a trust accomplish what you are alleging, if the taxes in question were simply borne by the owners rather than the business itself? As the HLB Decision Economics study referred to above concluded, the same amount of tax is collected by the government under trusts versus corporations, so clearly there is no tax incentive per se, that is motivating the conversion of businesses to trusts. You have come up with the wrong diagnosis for why these conversions to trusts were taking place, that you are presenting to students of finance as a statement of fact, even though it is the wrong diagnosis. The correct diagnosis concerning why businesses were converting to income trusts is that investors in the marketplace would and were assigning higher valuations to businesses that subjected themselves to the regime of income trusts versus corporations. This created the motivation to convert. The essential element of the income trust regime that investors valued more highly, was the LEGAL requirement that these businesses PAY OUT some 90% of their discretionary (i.e. after capital reinvestment) earnings to their owners, as distinct from corporations whose managers can do whatever they want to do with excess earnings of the business. The marketplace has come to mistrust managers of corporations to do what is in the owners best interest with excess earnings. BCE is the perfect example, as the managers of BCE had squandered the excess earnings of BCE on everything from Teleglobe (BCE wrote off their $5 billion in Teleglobe in less than 18 months) to Montreal Trust (another BCE write-off) to Daon Development (another BCE write-off). With a failed track record of earnings reinvestment like that, it’s obvious to understand why the value of BCE was enhanced by the announced conversion to an income trust, and it had nothing to do with what you are saying (tax treatment of income trust) and everything to do with what you are not saying (the legal requirement of income trusts to pay out excess earnings).
Apart from the above noted errors and omissions that appear in your textbook, there is also a general tone to the section devoted to income trusts that implies the government’s actions were appropriate and just. You have not taken the time or applied the appropriate academic rigor required of you to make any such conclusions or inferences. Use of terms like the “flurry of conversions” implies that something untoward was going on here, rather than investors (source of capital) gravitating businesses (users of capital) to adopt investor’s preferred means by which to own Canadian businesses, that are more consistent with investors’ investment objectives and bringing needed discipline to the Boardrooms of Canada, by transforming companies like BCE from being serial squanderors of their owners’ capital into more productive entities, better aligned to their owners’ wishes and the desires of the capital markets.
You have done a great disservice to this topic and to the student readers of your textbook that is in widespread use throughout Canadian universities and colleges, not unlike the disservice done to this topic by the Canadian main stream media. The newspapers in Canada who are commercially owned and motivated, like the Globe and Mail, National Post etc , as well as the news media at large , like CTVglobeMedia and CanWest Global have done a pathetic and grossly misleading job at reporting on this topic and its fundamental factual underpinnings. This is explained by the fact that Canadian media is owned by commercial interests and therefore motivated by commercial interests and too wiling to distort and misrepresent the true facts. I expect more from the academic community, such a people like yourself, than to simply parrot the nonsense that one reads in the press and the many wives’ tales that emanate from the Harper government, in the form of (false) post-action justification for their policy, that saw Canadians lose $35 billion of their hard earned life savings and left some $220 billion in market capitalization of Canadian businesses vulnerable to foreign takeover, causing the inevitable loss of $7.5 billion in annual tax revenue to the government and to all taxpayers, to solve an alleged $500 million in annual tax revenue, that never existed in the first place.
And finally, as a the co-authors of a textbook in Financial Accounting, and as Professors of Accounting, I challenge you to prove the existence of tax leakage, as you clearly imply in your text, on the basis of the only evidence provided to taxpayers, namely the 18 pages of blacked out documents, issued under the Access to Information Act, that are attached. This was the only proof of tax leakage provided by Canada’s Finance Minister, Jim Flaherty, who incredulously stated that it was a matter of National Security, that the true analysis not be revealed.
I would counter that absurd claim about invoking National Security, by stating that it is a matter of academic urgency and academic rigor that the truth about this topic be known and call upon you to bring that truth to light, in a way that is not occurring in your text book, and in a way that is consistent with the facts, rather than simply adopting a position that is consistent with the dogma coming out of Ottawa and in newspapers across this country.
Otherwise, what is the purpose of academia and textbooks in the first place if not to speak the truth and to base themselves on facts? We already have two other professions, that of politicians and the media, who have the market cornered on doing the exact opposite. There is no need for a third profession devoted to such pursuits.
Let me know if I can be of any further assistance. Others in the academic community you may wish to speak to include Professor William Stanbury of the University of British Columbia. His views have been guided by the facts, rather than guided by the press of the sound bites coming out of Ottawa. You might also like to contact Dennis Bruce, the lead author of the work conducted by HLB Decision Economics. Both of their emails appear above and have been copied on this email.
Thank you very much. I look forward to your reply.
Brent Fullard. B.Sc. (Toronto), M.B.A. (Queen's)
President and CEO
Canadian Association of Income Trust Investors
Posted by Fillibluster at 12:22 PM
Friday, December 18, 2009
When are you going to expose Harper's lies about tax leakage, that was his false justification for the income trust tax?
He only provided 18 pages of blacked out documents as his so called "proof" of tax leakage, just like he's trying to get away with on the Afghan detainee matter.
Are Afghan detainees more important to the NDP than Canadian seniors who lost $35 billion of their retirement savings for what may be NO GOOD REASON?
Why the double standard? Do you not want to be like Barack Obama who said he wants to be known as the Empirical President, a president whose decisions are based on facts and not just hollow dogma, like tax leakage with zero proof?
Please get us the facts upon which the NDP party supported Harper's income trust tax. Your party will be rewarded for asking. Punished in the polls for not.
It's your choice. Honesty in gov't or blacked out documents?
I await your response. OUR democracy turns on it.
President and CEO
Canadian Association of Income Trust Investors
647 505-2224 (cell)
On 12/18/09 12:15 PM, "LaytoJ@parl.gc.ca"
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> Leader, Canada's New Democrats
PM not on list as Obama meets with 19 leaders
Steve Rennie THE CANADIAN PRESS
Published 31 minutes ago
COPENHAGEN – Prime Minister Stephen Harper was left off the guest list for an emergency meeting of world leaders that included U.S. President Barack Obama in the final hours of the Copenhagen climate talks.
Posted by Fillibluster at 11:57 AM
No doubt there will be enormous satisfaction for all Canadians in knowing that Jeffrey Simpson has declared in today’s Globe that “It was a very good year for the Prime Minister”.
Really? Could Jeffrey Simpson be any more out of touch with reality if he tried? I doubt it
This completely myopic pronouncement just happens to totally ignore that this was one of the WORST years for Canadians. How many Canadians lost their job last year? 400,000 or was it 500,000?
What planet is Geoffrey Simpson on? Oh yeah, the Globe and Mail. Simpson writes, in total callous disregard for the plight of Canadians, but only the plight of the Prime Minister.
Simpson goes on to say: “The recession, far from harming his government, proved to be a godsend”
Godsend? WTF? Is this Jeffrey Simpson guy for real? Talk about navel gazing and a complete disconnect from reality. The Glib and Malice has outdone itself once again.
This reminds me of the time that the elitist Jeffrey Simpson wrote that the income trust policy was the “right policy”, but offered NO EXPLANATION whatsoever to back up such a position. I think this elitist Jeffrey Simpson comes from the “Let them eat cake" School of Journalism.
I’d hate to see what a bad year for Harper would mean for Canadians? Famine? Pestilence? Reporter who start reporting the truth? Now THAT would be a very bad year for Harper, reporters reporting the truth.. Just imagine that?
It was a very good year for the Prime Minister
The recession, far from harming his government, proved to be a godsend
Dec. 17, 2009
Globe and Mail
Roughly a year ago, Prime Minister Stephen Harper wobbled on the political ropes, or so his opponents believed, retreating in Parliament and forced to resort to a prorogation to save his hide. Today, Mr. Harper runs a stable government that operates almost as if it were a majority.
Mr. Harper's poll standings, for what they count, have improved a notch. He controls his caucus with a customary iron fist. The recession, far from harming his government, proved to be a godsend, allowing him to live out every politician's dream, sprinkling billions of dollars across the country without serious criticism.
Best of all, Mr. Harper's principal political adversaries made him look even better. A politician can't count on the stupidity of adversaries, but when stupidity arrived in the form of a hollow Liberal threat to bring down the government, what could have been better luck? As Frank Sinatra once crooned, Mr. Harper had a very good year.
Once he survived the parliamentary crisis, Mr. Harper did two things that stabilized the government. First, he unveiled a huge stimulus program that, unlike his maladroit efforts in the fall of 2008, responded to the political requirement and economic need to inject public money into a tottering economy. Then, he reinforced discipline on himself and colleagues by handing out one song sheet – called the government's Economic Action Plan – and demanding that all Conservatives sing from it, often and always.
The message was reinforced with ads with blatantly political overtones, paid for by the taxpayers. Scarcely a week passed without Mr. Harper, or occasionally one of his ministers whom he allowed to speak, making one, two or three announcements of a spending project. When necessary, the Conservatives resorted to their advertising attack machine to frighten their opponents.
Nothing was to get in the way of the Action Plan message. Other subjects were banished from the government's agenda, or dealt with swiftly. Distressing files such as the Afghan detainee mess were blunted by partisan attacks, refusal to answer questions, and testimony that rebutted allegations. Ministers were told to put on hold other initiatives.
One file wouldn't go away, because it was an international one: climate change. This file the Prime Minister delegated to Environment Minister Jim Prentice, who essentially spent a year ragging the puck. Mr. Harper literally stayed away from the issue as much as possible, refusing to speak on the subject at home or at the United Nations or at the Copenhagen climate change conference.
Canada is the Bad Boy of the negotiations, and for good reason. But Mr. Harper doesn't care because within his coalition a whole lot of people don't believe the planet is warming, while others think sun spots are the cause, while still others want the least possible done. So the government's approach to climate change has been to tout targets that cannot be met, and tie everything to the U.S. position, knowing that it will weaken in Congress.
Climate change aside, little else diverted the government from its central economic message of spending to combat recession. Since the Liberals had voted for the 2009 budget, they could only chirp – until the foolhardy, empty threat to bring down the government. As for the NDP, fearing political losses, they conveniently switched from being against everything the government did to voting to sustain the government.
The result produced political stability that bids fair to endure well into 2010. The next budget will be a steady-as-she goes affair – more spending for a still-weakened economy – that the opposition might carp about but not enough to precipitate an election.
Moreover, Mr. Harper travelled a lot in the second half of 2009, including to China, which he had ignored, thereby shoring up a weak political flank. Next year, he will play host to the G8 and G20 summits, be seen at the Olympic Games, and escort the Queen around. It would be hard to squander those political opportunities for endless photo-ops and television visuals.
At some point, hard decisions will beckon. Spending will have to be curtailed and interest groups disappointed. None of that had to happen in 2009, which helped make it a very good political year of unexpected stability for Mr. Harper.
Thursday, December 17, 2009
Re: Pension Issue:
CBC’s Power and Politics
I just caught Mike Hornbrook on CBC talking about Canada’s looming pension problem.
I have some very interesting observations to share with you and your viewers, since I was last appeared on your show a year ago (when it was hosted by Don Newman). At that time, I was running as the Liberal candidate in the 2008 election against Jim Flaherty, hoping to extract some simple truths from Canada's Minister of Finance, and provide some better representation for the people of Whitby-Oshawa.
However, it is not in that capacity that I ask to be on your show, but rather as the head of CAITI, in which capacity I have also appeared on your (Don Newman's) show before.
You might recall that the Harper government destroyed $35 billion of Canadians’ retirement savings with their income trust policy in 2006, as well as eliminating an investment vehicle that had been widely embraced by Canadians as the means to provide themselves with retirement income, namely income trusts.
Meanwhile the government’s argument of “tax leakage” was false and their only proof took the form of 18 pages of blacked out documents. Remind you of the Afghan detainee matter at all?
Now all these trusts are being taken over by foreigners, like the recent purchase of Harvest Energy Trust for $4 billion by state owned Korean National Oil Company (KNOC). Canadians were paying taxes on Harvest’s earnings at the rate of 38%. Now KNOC will pay ZERO.
Please contact me, this is a story that needs to be told. It dramatically affects Canadians; ability to provide MUCH NEEDED retirement income, and tax revenue to an over-strapped government. The government's income trust policy was the sole result of extensive lobbying by the life insurance industry, who were intent on destroying their competition (ie income trusts) for Canadians much sought after retirement savings.
The irony of that, in retrospect, is that the products offered by the life insurance industry, unlike income trusts, divert much needed capital away from investment in Canada's real economy and only offer synthetic and/or derivatives type investments. Many of which Warren Buffett considers to be "crazy" offerings by the life insurance companies, from all vantage points.
And some of which, like Manulife's Income Plus, were improperly hedged and almost brought about the collapse of the entire company.
This is a fascinating topic on which your viewers need to be updated, in light of the major widespread concerns about pensions and retirement savings.
President and CEO
Canadian Association of Income Trust Investors
647 505-2224 (cell)
It’s hypocritical in the extreme for people like Lawrence Martin of the Globe to be speaking on behalf of democracy and how it has suffered immensely under Stephen Harper.
Well, Canadians heard SQUAT from Lawrence Martin, the latter day saviour of democracy, when it came to Harper using 18 pages of blacked out documents to justify his mythical tax leakage claims, in order to “justifying” destroying $35 billion of their life savings.
Where the hell was Lawrence Martin then, at the dawn of Canada’s entry into Harper’s New Blacked-Out Government?
No the problem is not Harper, as much as it is the PRESS and people like Lawrence Martin, who doesn’t know democracy from his paycheck. His paycheck being the thing he covets most, which is why he turned a blind eye to Harpers’ income trusts fraud, since it aligned with the commercial interests of the Globe’s owners. Tell me it isn’t so Lawrence Martin. Please justify your total non-actions of the past.
I’’d tell you to get down from your high horse, but you fell from your high horse a long long time ago. October 31, 2006 to be exact.
Democracy Canadian-style: How do you like it so far?
The Prime Minister is now in such command that he can get away with pretty much anything.
Globe and Mail
Dec. 17, 2009
When you think about it, the way to make governing easy is to dispense as much as is possible with the demands of democracy. The d-word is a drag. It gets in the way of the exercise of power. Ways need be found to circumvent it.
There are a variety of such ways. One is to limit the voice of the bureaucracy, the public service, making it more submissive and partisan. Ditto the foreign service. As well, you want to dispense with agency or commission heads who don't follow your thinking. If some agencies get particularly meddlesome, such as Elections Canada, take them to court.
There's an old-fashioned idea, once a Reform Party thing, that regular people – those grassroots folks – should have a sniff of the action. As nice as it sounds, don't go there. You need to amass unparalleled executive power so everything is top down and put through the filter of politics. For your own caucus, you enforce such tight discipline that no one dare cast an independent vote. You issue your members a secret handbook on how to disrupt parliamentary committees. For Question Period, you instruct your members to answer most queries with a putdown of the previous government's record.
A key facet of a downgrading democracy campaign has got to be cutting off access to information – so much so that you leave the Information Commissioner appalled, especially with the stonewalling at the Privy Council Office. Some sensitive documents are going to get out no matter how hard you try. So the strategy is to use national security as a cover to black out all potentially incriminating paragraphs. You may also wish to eliminate a huge government information registry (the Co-ordination of Access to Information Requests System) because the fewer the tracks, the better. You may also wish to prevent the publishing of departmental studies, especially ones that don't reflect well on your law-and-order proclivities.
It is said that a hallmark of democracy is the toleration of dissent. Best leave that one in the church pew. Exceptional measures need be used to crush the opposition. Stuff such as taking the unprecedented step of launching personal attack ads between election campaigns. Or trying to push through a measure that would effectively cut off financing to the opposition.
A heavy dose of demagoguery also can go a long way. Play on simple prejudices by accusing opponents of not supporting the troops or of being anti-Israel. If nothing's working, if the going gets really tough, don't hesitate to bring out the heavy timber. Just after Parliament has reopened, have it shut down.
If your campaign is waged effectively, you will enfeeble the checks and balances in the system and give the d-word a good clubbing, emerging very much in control.
That's effectively what's happened in Ottawa over the past four years. The Prime Minister is now in such command that he can get away with pretty much anything. And he is lauded for his conquests.
A test case of his powers is the re-emergence of the Afghan detainee controversy. The government is knee-deep in allegations of a cover-up, of obstruction of justice, of treating Parliament, as this newspaper said in an editorial, with contempt. The censoring of documents on the basis of national security – which also happened in the income trust controversy – is being met with great skepticism. The way the Military Police Complaints Commission has been blocked from probing the affair is unseemly. The treatment of diplomat Richard Colvin has spawned a letter of reproach from no fewer than 71 former ambassadors. William Johnson, a biographer of Stephen Harper, says flatly that “the government has subverted Canadian democracy.”
If true, it likely won't matter. The key is that once you've established such a pronounced degree of control over the levers of power, you're in position to strong-arm your way past anything. And so the government has halted hearings on the detainee file by boycotting them. And so the government is threatening to prorogue Parliament again so it doesn't have to face more detainee music.
It's more evidence from a stockpile of how the system's been brought to heel. It's democracy Canadian-style.
I have grave concerns about the various solutions that are being touted by political parties and various commercial interests, such as the life insurance companies, to address this country’s pension savings deficit. All of these supposed solutions have problems in terms of creating embedded “too big to fail” risk, via the very nature of what is being proposed, and the notion that bigger is better.
In this context, bigger is not better, by virtue of the fact that bigger also means fewer and fewer means less diversity. To argue otherwise, is to argue that putting all your eggs in one basket is a good thing?
Just as diversity is strength in the natural world, so too is diversity a strength in the capital markets. A far more robust capital market will result in Canada for all participants if we have 1 million players investing $100,000 each on average, than if we have 100 players each investing $1 billion. This is irrefutable. Fewer larger players in the capital markets may give rise to efficiencies of one sort, like administration fees and trading fees, but they also give rise to other larger potential inefficiencies, like institutional biases and institutional mistakes , in whatever form these larger pools of capital take. The examples of this are all around us. Here are just two:
(1) Would the Global Financial Meltdown have treated Canada as well , if we had Caisse de Depot managing $500 billion going into the meltdown, instead of “just” $100 billion?
No, as the Caisse would have become an even larger more problematic “too big to fail” entity than it already was, and would have multiplied the incompetence that we only subsequently learned was rife within that organization.
Instead, Caisse would have required a massive taxpayer bail out, on the basis that it was “too big to fail.”
(2) Would the Global Financial Meltdown have treated Canada as well , if we had Manulife Financial issuing $100 billion of Income Plus variable rate annuity product instead of “just” $10 billion?
No, as Manulife would have been wiped off the face of the earth, as result of its gun slinging practice of not hedging the blind bets embedded into these risks which we only subsequently discovered was going on and which were not being adequately reported on by the company to the marketplace and to policy holders, which is at the heart of a pending multi-million dollar class action lawsuit.
Instaed, Manulife would have required a massive taxpayer bail out, on the basis that it was “too big to fail.”
Hard lessons learned, and near disasters should not be ignored:
So what would it really mean if the solution to the pension deficit problem merely entailed the creation of a few large entities, whose very scale and existence would introduce the risk that their failure might require they be bailed out some day, under the circumstances of being "too big to fail". This would simply become a form of vicious circle with no end, in which taxpayers are bailing out taxpayers. Risks like these can only be spread across large numbers of people (like taxpayers) if the scale of that risk is dramatically less that those who are being asked to bear it. This concept falls apart, once the risk in question becomes too large in scale. This would create the equivalent of chasing one's own tail, or cutting off one's nose to save one's face. It would be an exercise in self-cannibalism. So why create these circumstances of "too big to fail" in the first place, only begging for them to come true?
So rather than ignoring the recent hard lessons of the near disasters all around us from this recent Global Financial meltdown which is the very event that has brought this pension deficit issue to the fore, a better practice would be to heed these hard lessons and near death experiences of Caisse and Manulife and others, and seek solutions that chart a different path than we were previously wrongly headed down.
The public policy response to the looming pension savings “deficit” in this country is not to create a number of super funds, but rather to create new incentives and new vehicles (like income trusts) to allow INDIVIDUALS at large to make individual decisions about the industries and businesses that they wish to invest their savings in. These people should also be free to make their investments by way of vehicles that provide them with the form of return that best suits their investment objectives. Focusing on policies that will better enable large numbers of investors to provide for themselves is to the alternative of focusing on creating monolithic entities to do it for them, is what a deep gene pool in the natural world is to a shallow gene pool. Systems based on greater diversity like deep gene pools, are much better able to sustain the shocks caused by unpredicted adverse events.
So what needs to be done and understood by policy makers to create that more diverse and more shock-tolerant retirement savings solution?
First, it needs to understood that meeting one’s investment objectives is single most important guiding principle of the investment world. Here in Canada it is known as the “Know your client rule”, which is an awkward term used to define this concept. This concept is as simple as identifying what an investor’s risk tolerance is and defining the particular investment goals which he/she is seeking, be it income or capital appreciation. This is where the income trust policy of the Harper government and the inane dogmatic concepts like those espoused by people like John Manley who state that ownership of Canadian businesses by investors should only be allowed to take one form (ie common shares) and not competing forms (i.e. common shares and income trusts) is completely erroneous and misguided, when such is not the case in the US for example. Such a myopic belief that “one size fits all” is harmful to investors, the formation of capital in this country, the vibrancy and robustness of our capital markets and the competitiveness of Canada both in terms of the funding of business but also in terms of providing the means to address Canada’s pension deficit.
Misguided comments such as those of John Manley speak only to the desires of business managers and not to the NEEDS of their owners. DESIRES driven by managers who only seek to maximize their own obscene levels of compensation rather than maximize the value of their businesses for their owners and maximize their competitiveness through a lower cost of capital as the inverse outcome of that.
Ask yourself, if there was to be decision to be made between which is more important, the desires of business managers or the needs of the businesses’ owners, which should prevail? It would only be an anarchist that would side with business managers over the owners. It may not surprise you to know that Stephen Harper’s stated ambition in his year book upon graduating from Richview Collegiate in Toronto was to become an anarchist. He achieved that goal on October 31, 2006, when he destroyed $35 billion of Canadians savings AND destroyed the vastly preferred means by which Canadians had decided they wished to employ to make their investments in the Canadian capital markets. Harper made a completely unilateral and totally biased decision to favour the wishes and whims of corporate managers OVER the NEEDS of the investing public, who are the lifeblood of any capital market, as was described in the Globe and Mail in the piece that appears at the bottom of this page.
The main thought that I want to leave you with is that the solution to Canada’s pensions savings deficit DOES NOT LIE in solutions that would see more money held in fewer hands, but rather solutions that sees the same if not more money held in a greater number of hands and involving a broader array of PUBLIC markets choices. The public markets are what we should be expanding rather than retracting and investment vehicles like income which are better aligned to the investment needs of retirement savings, and which have EVOLVED as a direct consequence o better meeting the needs of the day, should not be taken behind the barn and shot dead, simply because of the false pretenses on which they were condemned to death, such as tax leakage or the fact that they represented a threat to the established (and outdated) order. This is like overturning the very dynamics of evolution itself and favoring the weak over the strong, through artificial and arbitrary means of culling and summary execution
Do people actually think this approach will lead to a better and more vibrant market? To take choice away? To have fewer larger players? To create more too big to fail” lurking disasters like Caisse de Depot and Manulife Financial? If so, then the advocates of such an approach are ignoring the very lessons of the last 12 months and the more universal lesson of life, that diversity is the strength of any large complex system, including the capital markets, in which we should encourage participation by a greater number of Canadians rather than fewer. 20 million Canadian investors are less likely to make monumental systemic mistakes than a few hundred Michael Sabia’s or Jim Leech’s running the pensions on behalf of 20 million Canadians, unless you really think any of these bureaucrats and public servants running these pension funds have any hope in hell of being the next Warren Buffett. Their dreadful performance in attempting to turn BCE into a junk bind basket case would indicate they are not.
These pension fund managers and life insurance CEOs are not the solution to our problem, but more likely they are the source of it. So too, is bending over to the whims and wishes of corporate managers, as occurred here, with great devastation to Canadians seeking solutions to Canada’s pension deficit, on an individual and self reliant basis, rather than through some mega-government means, a solution whose endemic problem in one of solving one problem (pension deficit) by potentially creating a larger one (too big to fail). Better if we create the means for individuals to make their own investment choices and allow individuals to have greater choice about the investment vehicles they wish to support in the market place, like income trusts, rather than adopting tax policies and tax distinctives that are solely designed to kowtow to the self interests of the most rich and powerful in this country.
Why were these “high-profile directors and CEO’s” so paranoid about income trusts and the democratization of Canada’s capital markets that income trusts ushered in? It certainly wasn’t tax leakage, since that is a complete myth of a concept. Was it because they abhor competition and the thought that their abusive means of gross over compensation was at risk? You decide, since nothing else can explain the following act of investor sabotage, and a major contributor to today’s pension deficit issue:
To quote Sandy McIntyre, Chief Investment Officer of Sentry Select Capital. “Income trusts were not the problem, they are the solution”.
Which can only mean that these people and these self interests are the REAL problem:
“High-profile directors and CEOs, meanwhile, had approached Mr. Flaherty personally to express their concerns: Many felt they were being pressed into trusts because of their duty to maximize shareholder value, despite their misgivings about the structure. Paul Desmarais Jr., the well-connected chairman of Power Corp. of Canada, even railed against trusts in a conversation with Prime Minister Stephen Harper during a trip to Mexico.”