TheStar.com - comment - Liberals wrong on income trusts Page 1 of 2

Liberals wrong on income trusts

September 06, 2007

In politics, garnering votes is the name of the game. That is clearly why Liberal finance critic John McCallum and House leader went to Alberta this week to meet representatives of the oil and gas sector who are angry at Prime Minister Stephan Harper's government for taking away the tax advantages from income trusts.

The Liberals evidently believe they can make headway in the staunchly Conservative province, along with some investors elsewhere, if they open the door yet again to tax breaks for income trusts.

An is a type of company that distributes its earnings to its investor owners, and as consequence was not required under the former Liberal government to pay any corporate income tax.

Because an ever-increasing number of corporations found it advantageous to restructure themselves as trusts to avoid taxes, the Harper government quickly discovered it was losing significant revenues, and had good cause to fear the loss would keep growing.

For that reason, Finance Minister slapped a distribution tax on income trusts to level the playing field between them and traditional corporations that cannot escape tax. Although the move angered voters who had invested in income trusts, the Conservatives did the right thing and put sound public policy ahead of partisan gain.

The Liberals apparently see a chance to make political gains in reversing Flaherty's decision. But such cynical moves can backfire, especially when they favour certain groups at the expense of others.

And yet that is what Goodale and McCallum appear to be talking about. One idea they floated in Alberta was to allow firms in certain sectors, such as oil and gas, to operate as income trusts, but to deny companies in other sectors the same right.

http://www.thestar.com/printArticle/253578 9/7/2007 TheStar.com - comment - Liberals wrong on income trusts Page 2 of 2

While such a move would limit the loss of revenue to some degree, it makes no economic sense whatsoever in a competitive economy to treat the various industries differently from a tax point of view. At the same time, such a scheme would amount to having Ottawa select which industries would be winners, and which would be losers, in the rush for private investment money.

On top of that, Liberal Leader Stéphane Dion would lose credibility on global warming if he promised to favour the oil and gas industry with tax advantages that he denied to so-called green companies.

The alternative to the Liberal trial balloon on favouring some sectors at the expense of others would be to let any corporation change itself into an income trust. But that would put Ottawa right back where it started, bleeding a great deal of revenue from the corporate income tax. Even Goodale should realize that would be unacceptable, because he was on the verge of killing the tax breaks for income trusts when he was finance minister in the previous Liberal government.

If the Liberals hope to defeat the Tories in the next election, they must devise public policy that is fair and benefits all , instead of the cynical policy they are suggesting on income trusts.

http://www.thestar.com/printArticle/253578 9/7/2007