Posted: March 19, 2008, 6:03 PM
There remains trouble in Toryland over finance minister Jim Flaherty’s non-sensical tax on energy trusts and the income trust debacle cost the party a byelection in B.C. this week. Its candidate cited income trusts as the major concern in the election. It is an issue that simply will not go away because it should not. Prime Minister Stephen Harper, at Flaherty's urging, reneged on a firm promise which is good leadership.
The issue is the single biggest reason why the Tories have not, and cannot, get a majority in the polls. Their foolish and flawed flip flop against trusts devastated and alienated their base. Some $35 billion in value disappeared overnight, affecting two million Canadian investors.
Taxing the energy trusts too, when other countries do not, has been a major policy blunder and Albertans are determined to prove how foolish it all has been with an initiative announced last week.
Energy trusts have joined the Liberals who have asked the Auditor General of Canada to investigate Flaherty’s claims that taxing the trusts was necessary to staunch tax leakage.
It was nonsense then and still is.
“$110 a barrel oil prices have camouflaged what is a big mistake in policy,” said Sue Riddell Rose in a phone interview with me last week. She is CEO of Paramount Energy Trust and the Coalition for Energy Trusts spokesperson.
Trusts used everywhere else
Trust structures are used, and recognized, around the world as a more efficient means of managing commodity companies which find planning difficult due to price fluctuations. Flaherty exempted real estate trusts but not energy trusts, a damaging inconsistency.
About 20% of the country’s 33 energy trusts (which pay considerably more taxes than all the foreign-owned oil companies combined) have been swallowed up by foreigners or other entities.
Ottawa’s attack has ruined the junior oil sector too since October 2006 despite soaring oil prices, she said.
“The junior oil sector is no longer vibrant. There is no exit strategy which was to sell oil and gas assets to trusts,” she said. Put another way, if oil prices had remained the same as when Flaherty made his tax announcement on Oct. 31, 2006, the oil patch would be in “dire” straits.
“They did not do their homework. They did not understand the industry and they have deceived the Canadian public,” she said.
Trusts really dumb idea
Flaherty’s leakage excuse was debunked in a report by accounting giant Deloitte weeks ago in a study that showed that the reverse has happened: where there was no leakage there is not massive leakage.
The mistake, or omission, made by him and Mark Carney – author of the scheme and rewarded by becoming Governor of the Bank of Canada -- was to exclude the massive downstream income trusts flowed to unitholders who paid top taxation rates.
It was amateur hour and the harm has been ongoing and will worsen, Riddell explained.
“In 2006, there was no leakage at all and revenues were enhanced by the trust structure,” she said. “We’ve tried to get breakdowns from government as to the percentage of its cash surpluses that are coming from this but cannot get anywhere.”
She said a rough guess is that Flaherty’s folly has cost governments at least $1 billion in tax revenues, but only the Auditor General, with her special access, can do the analysis needed for taxpayers.
“It’s a big number,” she said. “There are two things we would like them to do: Go through their analysis re the actual, downstream revenue and then to analyze what has been foregone as a result of the changes.”
Why isn’t she and others giving up?
“We continue to believe a proper analysis was not done and that the wrong decision was made to enable the efficient recovery of resources for Canadians,” she said. “I personally feel deceived by them because they misrepresented information to Canadians. Something else is driving these decisions and I think Canadians should know. I don’t.”
Wednesday, March 19, 2008