Why is the Canadian government persistent in trying to 'fix' the income trust sector?
Both the Liberals and Harper Convervatives have claimed that legislation is needed to stop the flow of all that lost tax revenue. "Lost tax revenues" may be the way they spin it, but I have to wonder: was this revenue ever theirs to begin with?
Sure the feds may have been licking their chops over the potential winfall in newly found tax revenue, but did they really need to slam the door shut on this efficient tax structure ?
I really have to question the current government's true motivation for taking such immediate and drastic steps last year, breaking a key election promise along the way. One only needs to look at the fall out from the legislation introduced last October to wonder "what was finance minister Jim Flaherty thinking?"
I love reading about conspiracy theories because they are basically a fun speculative game of "what are they thinking?" And so... let's speculate!
Fact: The day after Flaherty made his announcement, billions of dollars worth of trust units changed hands between spooked investors seeking shelter and opportunists seeking bargains. The spooked out investors were the of the individual/retail variety, while the opportunists were largely institutional types with sophisticated analyitical tools at their disposal.
Fact: In the days following Flaherty's announcement, market analysts across the country were releasing their take on the situation. The smartest money was saying there would be a rebound, but that's not the crux of this conspiracy. Analysts everywere were also saying that the big dip in trust values was going to make a good number of trusts ripe for takeover from big American investors with cash to spend.
Fact: As of today, 16 income trusts have been bought out by foreigners - 3 of them within a few hours yesterday!
And so within a period of less than six months, you have a large number of trust units flowing into the hands of large insitutions in Canada, and in turn those institutions are selling them to the Americans for a profit. How does Harper get his tax dollars again? He doesn't really, does he? Now that these trusts are in foreign hands, a good chunk of the profits will stay out of Canada. I'm no economist (although Harper is one), but surely Flaherty's team considered this scenario? Nobody is saying one way or another, but I bet without a doubt they forecasted the reprocussions.
This article in the globe seems to point to some emotional reaction by the government to the announcement by BCE that they were converting to an income trust. The article is titled "Income-trust crackdown: The inside story", but all the sources they quote are government officials, so I wouldn't say that's really "inside". Nonetheless, their explanation for the crackdown is weak. Nowhere in the article does it say how much tax revenue was at stake. It merely states that it was a "big problem" that they "just couldn't ignore".
When key decisions are made that could greatly impact financial markets, you can bet that the government puts the best minds on the case and spends a lot of time on analysis, and the abovementioned article substantiates this assumption. If this is true, then the government must have predicted the fall-out from their decision last October. How could they not?
And so if Flaherty and his team knew exactly what they were doing and how it was going to affect the trust sector, why on earth would they want to transfer such wealth to big banks and our American neighbours?
I ask again: Why would a Stephen Harper Conservative government want to transfer billions in wealth to big banks and the Americans?
Perhaps I'll phrase this in the form of a statement:
Our Conservative government was quite successful in transfering billions of dollars in wealth to big banks and American capitalists.
Still don't believe it? Just wait for the movie to come out :)