Didn't See that Coming

Note: Updated below

From the Globe and Mail, Flaherty Drops Bomb on Income Trusts,

"The proposed rules would apply a new tax on the money distributed to shareholders by newly formed income trusts. Existing income trusts would be given a four-year transition period, ending in 2011, that would allow them to adjust to the new rules.

Meanwhile, corporate income taxes would be cut by 2011 to remove some of the market incentives to forming income trusts."

...

"'BCE and Telus will not be able to become income trusts and have the tax benefits that are currently available,' he [Flaherty] said. 'Does that make it clear?'"

I believe that Sir Humphrey would characterize this as a courageous decision¹. Although perhaps it will merely be controversial.

Probably the responsible thing to do in the long term, although after first announcing they would leave income trusts alone, and now reacting to the proposed conversion of the phone utilities into trusts with a sudden out-of-the-blue about face changing of the rules after the phone companies have made their announcement, it does all look a bit banana-republicesque.

In addition,

"Mr. Flaherty also announced that the government would:

— Increase the Age Credit Amount for seniors by $1,000, to $5,066 from $4,066, retroactive to Jan. 1, 2006, affecting low- and middle-income seniors.

— Allow income splitting among pensioners, giving tax relief to retired seniors and encouraging others to save for their retirement."

And you know, I don't have anything against old people, (excepting to some extent those who were so undertaxed/overspent in their working years that they left my generation a half a trillion deficit, and now are whining about the taxes they have to pay on their pension plans, pension plans so generous that for the most part they no longer even exist for young people today) but let me quote from the Canadian Fact Book on Poverty (from 2000 but nothing has changed since then):

"The success of income security programs in reducing seniors' poverty stands out as one of Canada's most notable achievements of the past quarter-century. Success in addressing seniors' poverty, however, serves to magnify the country's failure in addressing the problem of poverty among children and young families.

The age distribution of poverty has shifted markedly; in particular, poverty has increased among young households, that is, households where one or both adults are less than 25 years of age. In 1981, a young family faced a 21.7 per cent chance of being poor; by 1997, however, the rate among young families had more than doubled (46.1 per cent). The rate among young unattached individuals rose from 38.9 per cent in 1981 to 60.7 per cent in 1997. Among families in the next age group (those where the oldest member was between 25 and 34 years), poverty rates increased by 58 per cent - from 12.0 per cent in 1981 to 18.9 per cent in 1997."

Let me simplify: In Canada, Seniors are generally doing well, and poverty rates are low. Meanwhile, children are doing poorly, and poverty rates are high. So why is the government giving hundreds of millions of dollars to seniors and doing nothing for children? I know children can't vote, but come on, get your priorities straight.

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¹ See here for an explanation of what I'm talking about if you never watched 'Yes Minister',

Jim slowly comes to understand that "a controversial decision will merely lose you votes, a courageous decision will lose you the election."

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Update: Stephen Harper weighs in on the changes his government just made to income trusts:

"the Prime Minister acted recklessly when he ordered his Finance Minister ... to wade into the income-trust market like a proverbial bull in a china shop."

...

"[this] reckless action has caused uncertainty over the future of income trusts, and so has wiped out billions of dollars in market capitalization from Canadian companies and tens of thousands of dollars from the retirement nest eggs of individual investors. Most notable was the damage done to Canadian seniors who may not have the time to recoup their losses.

One couple e-mailed my party to complain that the uncertainty around income trusts caused by the Liberals' announcement trimmed $30,000 from their retirement portfolio in a single day. Another man wrote to tell us that he had lost 15% from his his portfolio.

Many seniors feel the government is putting their retirement at risk and have let Ottawa know. In a letter to the Finance Minister, the Canadian Association of Retired Persons said, "Seniors are actually enraged, frightened and panicked about potentially losing retirement savings that they count on for the essentials of daily living."

...

"one must ask, why is the government clamping down on the retirement savings of seniors and investors?"

...

"The government continues to overtax Canadians and run multi-billion dollar surpluses, yet their first instinct is to attack an investment vehicle that can make the difference between bare survival and a dignified retirement for millions of Canadians.

The government claims that income trusts enjoy an unfair tax advantage over corporate dividends. If they believe this, then the answer is not to shut down a valuable investment vehicle, but to cut the double taxation of dividends. In short, level the playing field and let the market decide between income trusts and dividend-paying companies."

"It's time to stand up to Paul Martin and stop his attack on seniors and investors."

Wait, Paul Martin? Oh I'm sorry, this column was from a year ago when Stephen Harper was writing about Paul Martin's 'attack on seniors and investors' - presumably he will be less harsh in assessing Stephen Harper's attack on seniors and investors.


via My Blagh