Income Trusts touch on many other broken promises and as events unfold its turning out to be a first class policy disaster the sort of thing that would give most finance minister nightmares.
The Story so far
Stephen Harpers breaks a solemn promise not to tax income trusts when his Finance Minister Jim Flaherty celebrates Halloween by announcing the “Tax Fairness Plan” a heavy tax on income trusts packaged with income splitting for retired pensioners a move which reduces the tax burden on high income seniors. The government claims it is losing $164 million a year in tax revenue due to income trusts.
The move shocks the markets and produces widespread condemnation in Canadian and Foreign press
Over the next week Income trust investors who “play by the rules” loss 35 Billion dollars, most have not recovered from these losses a year later.
Over the next months 10 reports by separate experts’ dispute that government is losing any tax revenue from income trusts, many show that trusts are net tax revenue positive.
Before a parliamentary committee Jim Flaherty once again claims that the government is losing significant tax revenue, the figure magically increases to at least 500 million a year.
When asked to show how he came up with these figures he produces 18 pages of blacked out information.
An Angus Reid poll indicates that 92% of Canadians think the government should reveal the blacked out information and explain its analyst.
A parliamentary committee recommends the Income Trust tax be reduced to 10% and be made refundable to Canadians, further study and separate legislation.
The government ignores Canadians and the parliamentary committee representing the majority of Canadians and limits discussion of the issue by incorporating the proposal unchanged into the budget
With enthusiastic support from the NDP the government omits to extend its rules changes to all forms of trusts including private equity trusts and large pension plans. What is left of the Governments "Tax Fairness" argument is shattered
In the following months enough Income Trusts are converted to these other structures to produce a $500 million a year loss in tax revenue to the government.
Bell Canada with its plans to convert to an income trust blocked is taken over by a combination of private (foreign) equity and Canadian pension plans, the government losses a further $800 million a year in tax revenue that income trust investors would have paid on there distributions.
The finance minister Jim Flaherty says, “It’s not my fault”
He does acknowledge that some tax will be paid on pensioners income although he didn’t include the taxes paid by income trust investors in the same way from their RRSPs, which way is it Jim?
The conversion of income trusts to other structures continue at an accelerated pace, if the present trend continues the tax revenue loss will reach $7.5 Billion a year by the time it ends. Equivalent to a 1.5% increase in the GST.
The Harper government continues to refuse to acknowledge or fix the problem it has created, this task will undoubtedly be left to the next “New Government”
Over 2.5 million angry income trust investors show no sign of forgiving and forgetting.
Private equity trusts and pension plans including those of government employees that “make up the rules” benefit.
The average Canadian who “plays by the rules” is left with the multi Billion dollar bill.
Don’t expect a thank you note