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Flaherty stands by broken trust promise 

[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 Christmas break. 

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 changes. 

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 trust economy."

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 said. 

"The information from the department has been constant. The same information you're relying on today was available to the Liberal government." 

But Flaherty had a message for the opposition parties who he later suggested were playing political games for holding the hearings. 

"It's time we all move on in the interests of Canadians," Flaherty said. 

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 reversal. 

"Some in the energy sector have called for special rules based on the sector's history with these tax vehicles," he said. 

"I don't agree, and I don't believe most Canadians do either."
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 legislation. 

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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