Flaherty stands by broken trust
[PoliticsWatch updated 1:30 p.m., January 30, 2007]
OTTAWA — Finance
Minister Jim Flaherty is standing by the government's decision to
reverse an election promise not to tax income trusts.
Flaherty spent an hour on Tuesday morning before the Commons
finance committee, which is holding hearings this week to look at
the income trust decision.
The hearings were pushed for by the opposition parties over the
Flaherty made the decision to place a
moratorium on new trusts and phase out existing trusts over four
years in October and in the fall the NDP and the Bloc both backed
the government's ways and means motion to implement the tax
Flaherty said he acted because of concerns about the fairness of the
tax system because trusts pay little or no corporate tax.
"This represented a clear and present danger to our tax system
and our economic structure," he said. "Evidence was
mounting that we were running a real risk of turning into an income
But NDP MP Judy Wasylycia-Leis reminded Flaherty that similar
concerns about companies converting to income trusts were widely
known in the year before the election campaign.
"I think Mr. Minister that if you would simply say that your
party made a stupid election promise in the last federal election,
we'd be able to clear the air and get on with this," she
"The information from the department has been constant. The
same information you're relying on today was available to the
But Flaherty had a message for the opposition parties who he later
suggested were playing political games for holding the
"It's time we all move on in the interests of Canadians,"
Flaherty appeared before the committee with an array of charts and
graphs, which he said backed up his sudden decision to reverse a
Tory election promise.
He noted that in the first 10 months of 2006, $70 billion in new
income trust conversions took place or were announced, including
corporate giants Telus and BCE.
Flaherty called the rush for companies to move to or consider
becoming trusts was "a disturbing trend," that would have
cost all levels of government $1 billion a year in tax losses.
In addition, Flaherty said had the government not acted on
controlling income trusts that it would have put at risk any
government plans to offer tax cuts in future budgets.
Although he's not a member of the committee, former Tory MP Garth
Turner sat at the committee table in a seat adjacent to Flaherty
during the finance minister's appearance.
Turner has been trying to put a human face on the individual
investors whose investments lost billions of dollars in paper value
following Flaherty's sudden decision in October.
On Monday, Turner arranged a meeting between Flaherty and one
investor, Bill Barrowclough of Peterborough, a retired
widower whose wife died in a car crash six years ago.
"He had invested the insurance money in income trusts for his
grandchildren," Turner wrote in his blog. "Then the Conservative government reversed its commitment, taxed trusts, and half Bill’s money was gone."
The finance minister also emphasized that the government was not
about to introduce any special measures to help Canada's energy
sector, which has been among the hardest hit by the income trust
"Some in the energy sector have called for special rules based
on the sector's history with these tax vehicles," he
"I don't agree, and I don't believe most Canadians do
The impact of the income trust decision on the energy sector makes
it more difficult for the government to act to eliminate special tax
incentives for oil sands development, something the NDP and the
Green party have been calling for in new environmental
Prime Minister Stephen Harper himself has sounded reluctant
to make any such changes.
"(The income trust decision) obviously had a significant impact on the energy sector," Harper told reporters before Christmas. "I think it would be asking a bit much to target the energy sector for tax hikes in that manner."
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