Minister, you went from the universe of interest deductibility in a very broad budget statement down to a microdot of double deductibility on this concept of towering. You did it through a whole series of stages of clarifications after clarifications after clarifications. You went from two years to ten years, back to five years, and then you made your latest announcement last Monday.
Last Monday those who read your material and listened to your announcement said afterwards, and here I'm quoting from the Ernst & Young team: (a) “The Government has ignored the adverse macroeconomic impact of the proposals”; (b) “Minister Flaherty's revised proposal broadly strikes at tax planning arrangements that reduce foreign taxes--not Canadian taxes”; and (c) “The minister's anti-tax haven initiative is not restricted to arrangements involving tax havens”.
So I'd like your comments on those three criticisms by the Ernst & Young team.
I'd like to know, as well, why you didn't deal with the obvious one of debt dumping. This is a concept where a foreign company lends money to a Canadian affiliate. The Canadian affiliate then lends the money, in turn, to a third country affiliate, meanwhile ratcheting up its debt, the consequence of which is that it reduces its income tax, the consequence of which is that there is less revenue for the Canadian treasury and no discernible economic activity in this country.
Why in heaven's name would you pick this one, as opposed to one that's a bit more obvious? Wouldn't it have been better to have actually engaged the panel of experts first and then have decided from the panoply of choices that one might have available to choose what is most advantageous to the Canadian treasury and to Canadian companies and the least advantageous to foreign treasuries?
The second question has to do with the income trust rate. You've whacked them for 31.5%. You've said that you would share the revenues with the provinces. It's perfectly obvious that at the end of the four-year period the pension funds will unload them and that non-residents will not hold trusts. Therefore, the revenues will be reduced; and because the revenues are reduced, the provinces will have nothing to share in. If there's nothing to share, there are no tax revenues. You've snookered the provinces on this heavy-handed, dishonest proposal, which you put forward on Halloween.
I'd like your comments on both of those. I'd appreciate it if you'd minimize the rhetoric and stay with the specific questions.