Monday, June 14, 2010

Flaherty's mindblowing hypocrisy

Jim Flaherty wants to raise CPP premiums. He says Canadians aren't saving enough. Ironic that it's Flaherty himself who caused pensioners to lose $35 Billion in savings, by killing income trusts in a surprise announcement on October 31, 2006. Less than a year before, the Conservatives had run on a platform that included a promise never to tax income trusts. It took them mere months to break that promise and send the sector into a tailspin.

Income trust investors were villified as the "wealthy" few, making use of a "tax loophole" to justify the move. Nothing could be further from the truth.

An income trust is like a corporation with one major difference. Instead of paying dividends to shareholders once a year, trusts pay out all of their profits to the unit holders on a monthly basis. The rate of return is much higher with trusts, with 10 - 20 percent being the norm. If that sounds like profit sharing, that's exactly what it is.

But Flaherty claimed there was "tax leakage", because the trusts' profits were not taxed. Again, that's not true*. The profits were taxed as income to those who actually received them, ie the unit holders. Taxed at the personal rate, which is higher than the corporate rate. So in fact, Revenue Canada was actually netting more from income trusts than it was from regular corporations.

So what's not to like? Ordinary people get to participate in profit sharing. Pensioners receive a monthly income in the form of distributions. More taxes are collected. Everybody's happy.

Well no, not everybody. The big life insurance companies were upset. Retirees were becoming more and more enthusiastic about income trusts, and less so about the Lifecos' products, namely income annuities. I worked briefly selling life insurance. Annuities suck.

But the Lifecos launched a very successful lobbying campaign, easy to do when your CEO's are on the board of the Security and Prosperity Partnership and planning strategy with the Finance Minister.

In the wake of the announcement that trusts would be effectively double-taxed, the sector plummeted overnight, and $35 Billion went up in smoke. There was also a rash of foreign takeovers, predatory leveraged buy-outs by Goldman Sachs and the like, layoffs and the impoverishment of many ordinary Canadians who took the government at their word. So much for trying to provide for your own retirement.

Flaherty's justification was that he didn't want a nation of coupon clippers. No, a nation of Walmart greeters is so much better.
* Requests for proof of tax leakage were fulfilled by the now-familiar blacked-out documents.

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  1. Not only Flaherty -- in Jan 2007 every provincial finance minister sent a letter in support of the double taxation of retirement savings and the de facto destruction of $35 billion in retirement savings.

    There was a time when any finance minister had some finance background and knew how to work with his staff but these days most finance ministers are bimbos with Flaherty being the bimbo with the least.

  2. Do you not just love it when you catch the government working directly for business instead of the people?

    This reminds me of the upcoming fight in Alberta not to deregulate the power rates, because the private power companies are not making enough money so they want to scare Albertans off the regulated rate....not to mention that it is cheaper than their offers.

    Eddy Stelmach must be taking lessons from Jimbo on how to slime the public.

  3. I'd love it more if catching them made the slightest bit of difference.

  4. What a bunch of idiots. First they ruined our retirements in 2006 IT flip flop, now they are telling us, that we are not saving enough for retirement. Whoever believes these CROOKS deserves all he gets. Canadian government for a long time has been implementing big business driven policies at the public expense. Business elites collusion with political elites is rubbing us dry. MEDIA are their tool to spread fear, and propaganda. Here they have an expert like the jackass elitist prof Mintz, who is driving hard the government agenda, and there is nobody allowed to have a different opinion. What a joke.
    The same democracy they have in North Korea. Everybody agrees with their beloved LEADER.