House of Commons Hansard #168 of the 39th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was budget.

Topics

The House resumed from May 16 consideration of the motion.

Income Trusts
Private Members' Business

11 a.m.

Liberal

Paul Szabo Mississauga South, ON

Mr. Speaker, it is a pleasure to speak to this motion, a motion relating to a matter that would be a significant issue in the next election. The motion basically reads that the government should repeal its 31.5% tax regime on income trusts and replace it with a 10% tax to be paid only by foreigners. It proposes a refundable tax credit to Canadian residents.

The reason for changing the tax on income trusts from 31.5% to 10% is that it would result in about two-thirds recovery of the $25 billion that were wiped out in the investment value of those saving for their retirement, particularly retired seniors. Its consequences would be to minimize the loss to Canadians who did invest in trusts, to preserve the strengths of the income trust sector, to create tax fairness by eliminating any tax leakage caused by the income trust sector and, finally, to create a neutrality by eliminating any incentive to convert from a corporation to an income trust purely for tax purposes. Tax avoidance is the issue.

Are income trusts bad? If we look at the proposal of the government we see that real estate investment trusts are exempt from this 31.5% tax. The reason being is that they are mature businesses and passive businesses in the sense that they are not subject to the ebbs and flows of the marketplace. Companies that purchase strip malls and lease them out would be an example of a REIT.

Therefore, income trusts as an instrument are not a bad thing, notwithstanding what some members in the House have suggested. The issue has to do with tax leakage. It has to do with the differential between the taxes collected from both the corporation and an individual where someone had invested in a dividend paying corporation, compared to those who invest in income trusts. Income trusts themselves do not pay the tax directly. The amounts are fully taxable in the hands of the investor.

There is probably a big question mark here with regard to tax leakage. I had an opportunity to participate in the finance committee hearings where the finance minister appeared to present his calculations of how much this leakage was and how it was calculated. That did not exactly happen. The finance minister basically said that there was a $500 million leakage in 2006 and that the government was deferring the implementation of this tax until 2011. He said that if we were to multiply that by six years we would get $3 billion. All of a sudden the government will be out $3 billion.

That was not very much detail. However, the finance minister was the first to speak. We then had testimony from experts who came forward. HDR|HLB Decision Economics, Inc. probably raised the most questions which did not get answers. HDR had worked with the finance department to go over the elements of the so-called tax leakage. There was no disagreement in the vast majority of the elements that would be included in the computation of such a leakage.

However, there are at least four that are significant and substantial. First, in determining the $500 million a year loss of tax revenue to the government because of the existence of an income trust, the finance minister failed to take into account legislated tax changes passed by Parliament and coming into force in the year 2007. If there are changes in the tax code coming in 2007, we simply cannot take the estimated leakage of 2006 and multiply it by six. It is just absolutely wrong. The finance minister made a mistake.

The second item had to do with income trusts that were purchased through a pension plan, an RRSP or sitting in a registered retirement income fund. The finance minister and the Department of Finance decided to assume that the Government of Canada received absolutely no taxation revenue from pension plans, RRSPs and RRIFs who invested in income trusts.

What a foolish assumption. If every investment in income trusts were made through pension plans, RRSPs or RRIFs, that means the assumption of the finance minister of Canada is that income trusts generate no taxation revenue at all; it is totally zero this year, next year and for all time. The assumption is that there is no tax revenue. Obviously that is ludicrous.

HDR went on to describe how the estimate of the taxation burden by energy companies was much greater than it actually was. In fact, it was substantially lower.

There are a couple of other items that I will not go into because a 10 minute speech is not long enough to do the subject justice. The bottom line is that HDR concluded, based on the work it had done, that the actual tax leakage was only about 5% of what the finance minister had told Canadians in the finance committee. The annual leakage estimated by the finance minister was $500 million. Five per cent of that is a token amount, relatively speaking, and certainly not enough to have the consequences that the minister knew, or ought to have known, would occur should he move forward with this 31.5% tax.

As we know, within two days after the initial blip and everything had settled down, $25 billion of the investment value of investors was wiped out totally. As of today, instead of it being 11% of the loss of the value, it has recovered a little to 10% because the business continues to work and the value of the stock or the income trusts will go up. However, for all intents and purposes, the loss as a result of the proposed 31.5% tax is a permanent loss, a permanent impairment in the value of the investment.

When the finance minister made that announcement on Halloween, the Halloween massacre as it is referred to, of last year, he also announced pension income splitting for pensioners. When a government makes a major decision on the taxation of investments, why would it also bring another change in the taxation of Canadians at the same time which are actually unrelated? I will demonstrate how.

Only 30% of seniors actually have pension plans, RRSPs or RRIFs, which means that 70% do not. Of the 30% of the seniors who receive a pension, about one-quarter are widows and single persons, which reduces the 30% down to 22.5%, and of those, because the other spouse may already be at the lowest possible rate, there is no benefit in transferring or splitting income. According to Yves Fortier, a former senior official with the Department of Finance, he said that would bring it down to only 16.7% of seniors receiving a pension who will benefit from pension income splitting. On top of that, if many of the remaining seniors receiving a pension were in low paying jobs they are at the lowest brackets, and those kinds of things bring it down.

Mr. Fortier's analysis, a reputable individual, not a political person, concludes that only 12% to 14% of all seniors would benefit.

It gets worse than that. Does anyone know why? It gets worse because the people who are investing in income trusts are people who have no pensions. Income trusts is an investment vehicle that provides a regular cash flow for seniors to pay their bills.

In a low interest rate scenario economy, people needed an instrument like income trusts to provide them with a cash flow that was not just equivalent to a dividend but a full distribution of the earnings of the entity, in this case being income trusts. Income trusts play a very important role in terms of retirement planning and operations of Canadians.

The bottom line is that pension income splitting really only benefits those who have pensions, not the ones who have income trusts. It is a non sequitur. The finance minister has made a grave mistake and he will pay for it in the election.

Income Trusts
Private Members' Business

11:10 a.m.

Conservative

Ed Fast Abbotsford, BC

Mr. Speaker, I am pleased to participate in the debate, which is an important one. The Liberal member for Scarborough Centre has proposed a motion regarding income trusts. The motion essentially demands that our government's decision on income trusts be reversed and replaced with a 10% tax.

Sadly, the motion is a misguided attempt by the Liberal Party to rewrite its own sorry history on this issue. In fact, the motion would be a huge step backward for Canada. It would make us the laughingstock of other nations that long ago eliminated tax free treatment of income trusts or in fact banned them outright.

Indeed, the Liberal motion contains recommendations that if adopted would again create an unlevel playing field between income trusts and corporations. It would again cause federal and provincial governments to lose significant tax revenues to highly profitable Canadian corporations. It would again reintroduce unfairness into the Canadian tax system.

Who would be left holding the bag again? Ordinary hard-working Canadian taxpayers and families.

Let me refresh my colleague's memory. On March 19, 2007, Canada's new Conservative government presented its second budget. The budget was aimed at helping hard-working Canadian families, families that for far too many years have borne the burden of excessive Liberal taxes.

Our budget also took significant steps forward in helping our country achieve its full potential so that the world will see an aggressive, competitive and re-energized Canadian economy.

In the budget, our new government proposed bold new measures to preserve our environment. We also committed to delivering on what is important to Canadians, things like the quality of our health care system, making our communities safer and more secure, and supporting the men and women of our armed forces, including our veterans.

Budget 2007 also will implement major elements of Canada's long term economic plan, entitled Advantage Canada. Our plan creates greater opportunities for Canadians to fulfill their dreams of a good job, a world class education for their children, a home of their own, and a retirement they can count on.

In Advantage Canada, our government committed to reducing taxes to give Canada the lowest overall tax rate among the G-7 countries on new business investment. Our new government recognizes that in a global economy we need to establish a tax advantage to attract and retain business investment in our country. That is why Advantage Canada also includes a plan to create an entrepreneurial advantage by reducing the unnecessary regulation and red tape and lowering corporate taxes to unlock business investment.

By the building of a more competitive business environment, consumers will have access to goods at lower prices and Canadian businesses will compete more effectively in the global market. Advantage Canada will build a strong economy that not only competes in the 21st century but is equipped to lead the world in the 21st century.

Most importantly, our budget promised to proceed with the tax fairness plan that we announced on October 31 of last year. Unlike the motion by the Liberal member for Scarborough Centre, our plan will restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations. There will be no more tax free treatment for wealthy corporations that earn millions and indeed billions of dollars in profits each year.

Under the old Liberal plan, more and more Canadian corporations were planning on converting to income trusts to avoid corporate tax. Let us consider this. At the time of our income trust announcement, Canada's well respected oil and gas company, EnCana, was considering a plan to convert to an income trust. We cannot blame it. Last year EnCana earned almost $7 billion in profits. As an income trust it could legally earn these profits without paying a penny of corporate tax on the portion paid out as distributions to unitholders.

I am not one who considers profit a dirty word. Quite to the contrary, we want to see our Canadian companies being profitable, but it is difficult to find any Canadians who would agree that such wealthy companies should be able to avoid paying taxes, especially on millions and billions of dollars in profits.

Our Conservative government went even further to ensure tax fairness. We shut down certain offshore trusts, eliminated double-dipping investment writeoffs and closed other tax loopholes that have been used to shift the tax burden from wealthy corporations and individuals. Who was the burden being shifted to? We can guess: the Canadian moms and dads who work so hard to provide for their families, moms and dads who cannot take advantage of tax loopholes that are used by the wealthy corporations.

Those days of Liberal inaction and unfairness are over. From now on, all Canadian corporations again will pay their fair share of taxes.

Our tax fairness plan was the result of months of careful consideration and evaluation, and we came to the conclusion that the measures brought forth by our government are essential to ensure that our economy continues to grow and prosper. They bring Canada into line with other jurisdictions that have banned the tax free treatment of income trusts. Our Conservative government does not and will not support tax avoidance.

In short, our plan levels the playing field between corporations that pay their fair share of tax and those that do not.

Some members of the House, most notably the Liberals, cannot stand the thought of tax fairness. They cannot stand the thought of changing the rules so that Canadians are treated fairly and equally. In fact, the Liberal opposition has become vicious in its attack on our fairness plan.

I decided to look at what other people have to say about our plan. I looked at the words of the finance minister of British Columbia, Carole Taylor, who is very supportive of our plan. Then I looked to a person whom I admire very much, one of Canada's most successful business people, Jimmy Pattison, who has built a billion dollar empire, and did it the right way.

Apparently Mr. Pattison did have investments in income trusts. We would expect that he would be quite upset about our decision to again tax income trusts but we would be wrong. Here is what he said: “I think it was the right thing to do...fundamentally, it was the right thing for the country”.

The article I am quoting from continued:

How could he say such a thing? Easy. Over time, he created a $6-billion company by continually reinvesting its profits...But an income trust CEO [president] has no such option. “In my opinion, it's important to manage for the long term,” Mr. Pattison said.

“And when the pressure is on management for distributions all the time, there's a tendency by some to not put the money into [research and development] or spending capital...because the pressure is the distribution.”

The pressure is on distributing these tax free profits.

I have 10 pages of quotes from economists, business people, bankers and even Liberal politicians, and all of them support our tax fairness plan. I know time is short, Mr. Speaker, and I will have to forgo giving you some more quotes.

The motion before us does not in any way address the federal and provincial revenue losses caused by income trusts. We have estimated that the revenue loss to the federal government was about half a billion dollars in 2006 alone, and that was a conservative estimate. The same thing applies to the provinces across Canada. Some of the largest corporations in Canada were lining up to get similar tax free treatment. Failure to implement the tax fairness plan would harm our country's finances.

Sadly, the proposals in the Liberal motion before us would do nothing for those investors who have already sold their trust units. What the Liberals are doing is raising false hopes. Our government, on the other hand, is committed to levelling the playing field between corporations and income trusts. Our decision to tax income trusts is all about fairness, fairness for Canadian taxpayers and families, fairness within the corporate sector, and fairness for all Canadian governments, which includes the provinces.

As always, the proof is in the pudding. We, as a new Conservative government, are delivering for our taxpayers. We are delivering for Canadians.

In closing, I will say that the Liberals' position on income trusts, as reflected in the motion before us, has changed so many times that it is hard to keep up with it. First they wanted to shut down the tax free treatment. Then there was an RCMP investigation. Then they changed their minds and did not support taxation. Today the motion says they will support it but they only want a 10% tax.

This is all pure political posturing on the part of the Liberals. I would ask members of the House to do what is right for all Canadians and vote against this ill-advised motion.

Income Trusts
Private Members' Business

11:20 a.m.

Bloc

Jean-Yves Roy Haute-Gaspésie—La Mitis—Matane—Matapédia, QC

Mr. Speaker, it gives me great pleasure today to speak to the member for Scarborough Centre's motion M-321. I will not read the motion because it is nearly half a page long, which is extremely long.

At the outset, I must say that for at least three reasons, the Bloc Québécois will vote against the motion. First, I think that bringing back income trusts would endanger the productivity of our economy. Second, income trusts cause a great deal of lost revenue for the federal government and all other levels of government. Third, I think that passing this motion would have the same effect as the government's decision to eliminate income trusts. It would send another shock wave through the financial markets.

From the very beginning, the Bloc Québécois has supported the notice of ways and means and the federal budget, which modified the tax regime so that after a four-year transition period, existing income trusts would be taxed like corporations. It also cancelled the creation of any new income trusts. I think that is an important part of it. Existing income trusts will be given a four-year transition period, and no new income trusts will be allowed.

Not long ago, the Department of Finance estimated that the income trust structure was responsible for annual losses to all levels of government averaging $400 million. Before the Minister of Finance intervened, two big corporations, Bell and Telus, had announced their intention to convert to income trusts. These two corporations alone would have increased governments' loss of revenue significantly to $1 million per year. We felt that we had to put a stop to this measure, which would have enabled companies to keep huge sums of money out of government coffers.

Of course, government revenue losses are a very serious matter. Regarding income trusts, what was even more worrisome and objectionable, however, was that the income trust structure meant that companies were practically forced to pay 100% of their profits to shareholders at the end of the year. Indeed, if the company retained part of the profits for an investment project, for instance, it had to pay the maximum amount of taxes on that non-distributed revenue. As a result, most companies that converted to income trusts were investing less and less, especially in the development of new technologies and so on. This structure did not allow companies to invest where and when they needed to invest.

In addition to the tax losses associated with the conversion of a growing number of income trusts for strictly tax-motivated reasons, we must also look at the potential loss of productivity in our businesses, in the context of a serious productivity crisis in the manufacturing sector of Quebec and Canada. It is important to remember that, in order to remain productive, more money must be invested in research and development, especially in the manufacturing sector. In recent years, that sector has suffered considerable losses: job losses, company closures and plant relocations.

To remain competitive, businesses in this sector must continue to invest in research and development. The creation of income trusts no longer allowed businesses to invest more in R and D. I would remind the House that, according to a report published earlier this year, in terms of global competitiveness, Canada ranked seventh in the world in 2005—since the analysis was retroactive. Only a year later, in 2006, Canada dropped to tenth place. Our businesses are increasingly less competitive and increasingly less productive, and that means they must invest more in productivity, especially in research and development.

Had the government not stepped in—this is one of the reasons the Bloc Québécois was in favour of government measures, even if we did not completely agree with the way things were done and with the four-year transition period provided by the government—a company such as Bell, for example, would have been forced to distribute all profits to its shareholders or be subject to substantial financial penalties.

This means that the company would have had to turn over almost all of its profits to its shareholders, leaving little leeway to invest in research and development.

It makes no sense for this structure to be applied to a company such as Bell. Bell would have been forced to cancel its investments in order to ensure its growth and would have been condemned to die a slow death. We will remember that Bell and Telus are very large companies that must be constantly investing. They are in a sector—telecommunications and communications—where research, development and the application of new technologies are extremely important. So these companies must continue to invest in order to remain competitive globally.

Shareholders' desire to maximize profits in the short term could have forced segments of our industrial sector to convert to income trusts strictly for tax reasons, thereby sacrificing the long-term growth of the entire sector.

It is also important to remember that, when the Liberals are calling on the government to reverse its surprise decision to raise the tax rate on income trusts, arguing that this measure has cost taxpayers huge sums of money and that returning to the old structure will restore the value of investments to previous levels, they are forgetting an extremely important point.

Since the Conservatives had promised during the most recent election campaign that they would not touch income trusts, investors put their faith in the government. We agree with the Liberals on this: because the Conservatives had promised that they would not touch income trusts, taxpayers kept on investing in income trusts. Unfortunately, the government did not keep its promise. It is therefore true that many investors were duped by the government, which suddenly announced a change in the tax treatment of income trusts.

In promising what they did during the election campaign, the Conservatives eliminated a risk factor associated with these investments, making them more attractive and artificially inflating their price.

As soon as the government—I am referring to the “government” but the Conservatives had not yet formed the government—announced its intention during the election campaign, income trust prices became artificially inflated. When the government announced that it had changed its mind, the stock market dropped dramatically.

I see that I have only a minute left, so in closing, I want to say that if we adopted the measure the Liberals are proposing, the result would be largely the same. There would be another dramatic drop in the stock market. And what might be the impact of the government's proposed transition period, which I believe is too short? We would likely find ourselves in the same situation, with the same problem.

There is one main reason why we are obviously opposed to this measure: maintaining income trusts is making our economy less and less competitive.

Income Trusts
Private Members' Business

11:30 a.m.

NDP

Judy Wasylycia-Leis Winnipeg North, MB

Mr. Speaker, it is my pleasure to join others in this debate on the private member's motion introduced by the member for Scarborough Centre. However, I regret that we are using more time in the House to have yet another debate on an issue that the Liberals will not let go. This is another attempt by Liberals to save face on a matter that has been thoroughly debated by the House and has reached a conclusion that the Liberals will not accept.

We all acknowledge the fact that the Conservatives made an election promise and broke it. As was acknowledged in all the hearings on this issue from beginning to end, that was a stupid election promise. It was a promise made out of political expediency in the same way that the Liberals are now tied up with this issue from which they cannot break loose.

This issue is about political expediency that goes back to the fall of 2005 when in fact Liberals decided that this issue of income trusts had to be studied. It was seen as a problem in terms of an investment vehicle in Canada that had to be addressed and they proceeded to put in place a task force to study the issue. They learned from that study that income trusts have no place in our investment field today. Yet, they refuse to let go because the political mileage they think they can gain from this still runs supreme.

Let us be clear about this motion. It is from the member for Scarborough Centre who wants very clearly to turn back the clock, just as the Liberals proposed on numerous occasions at the finance committee and in the House. It is a wrong headed initiative. It does not make sense and it is time for the member for Scarborough Centre and all of his Liberal colleagues to let go and say yes, it is time for us to clear the deck on this issue to allow for a level playing field in terms of income trusts and to ensure that taxpayers are protected from future tax leakage.

The members on that side of the House want to dismiss the notion of tax leakage. They refused to accept the fact that there was every possibility of more and more corporations joining the bandwagon in order to be able to use the income trust vehicle as a tax avoidance measure.

Some in the House may think it is okay to have tax avoidance measures and like to differentiate time and time again between tax avoidance and tax evasion. We in the New Democratic Party in this corner of the House believe that we should be doing everything possible to close tax loopholes, end tax havens, eliminate tax avoidance schemes and certainly to make illegal any tax evasion initiatives.

It is time to end this debate. We have already spent numerous days, hours, money and resources revisiting this issue time and time again. The problem is that back in the fall of 2005 the Liberals were headed on this path to try to phase out income trusts. They were inclined to look very seriously at the use of an income trust tax. In fact, when this issue first emerged on the front page of every media outlet across this country, because of the potential for a breach in security and the huge spike in the income trust investment field, the member for Scarborough—Guildwood actually suggested in a press conference that the announcement made by the then finance minister was about introducing a tax on income trusts. The Liberals were on that course.

In the last election the Conservatives foolishly promised not to move any such motion. They recognized the error of their ways and have returned to the House determined to actually level the playing field, which is the right thing to do. They made a mistake in making the promise, but it is the right thing to do in terms of Canadian public policy.

The motion of the member for Scarborough Centre is an attempt to turn back the clock. It is just not possible and it does not make any sense. Time and time again we have heard from witnesses at our committee. They have clearly indicated to us the problems with trying to turn back the clock on the income trust file.

On of our most respected and credible witnesses before our committee has been Dianne Urquhart, who is an independent consulting analyst. She reminds us time and time again that such a motion, if implemented, would revitalize the income trust market by fully restoring the tax advantage for income trusts over corporations. Maybe the Liberals have had a change of heart and they want that. She said it would provide an irresponsible combined federal and provincial tax incentive for seniors and other unsophisticated retail investors to purchase more income trusts.

It would provide a particularly irresponsible significant combined federal and provincial tax incentive within the tax deferred plan, and that is a point that is shared by many Canadians, except for Liberals, who are prepared to condone or allow for continued tax leakage.

The Liberals in this debate and the Bloc as well today have tried to suggest that we have to do this because the sky is falling. It is true that some investors lost considerable money by investing much more than they ought to have in the income trust deals, probably because of very bad advice from investors who had a lot of money to make by convincing seniors to go in this direction.

Some people lost money. For that, all of us in the House are deeply sorry. We regret that had to happen. We wish the Conservatives had not played this game of political expediency and during the election period of 2005-06 had actually said, “Look, we will review this area, and if we need to introduce a tax on income trusts, we will”. Unfortunately, they chose to go the other way, and as a result, some people were hurt very badly.

However, it is not correct to say that the sky is falling when in fact we have numerous reports showing how the value of income trusts has returned almost to where it was at the beginning.

I want to return to the report from Dianne Urquhart who told us at the finance committee that the income trust tax damage was relatively small. Upon announcement, the average capital loss in the 14 day post-announcement was 14%, or $24 billion. The capital loss as of last night, and the date she was using was just a week or two ago, the average capital loss as at that time was a negative 3% or $5 billion. She said that while income trusts have rallied from their worst prices they have, as she indicated earlier that morning, underperformed the common stock market, which has rallied 15% since October 31.

Those are the facts. Also, we have headlines from numerous newspapers saying “Trusts back from the Halloween Scare” and another, “Fury Over Tax Leakage Clouds Real Trust Issue”. The editorial in the Toronto Star condemns the position by the leader of the Liberals and the Liberal Party. An editorial in the Toronto Sun said that the Conservatives had clearly embarked upon a dangerous course of promising one thing during an election and doing something else, however, they were right to do what they did, in the end.

Finally, I want to say on behalf of seniors everywhere, there is a mandate on our part to ensure that we stand up for those millions of seniors who do not stand to benefit from income trusts and who have actually been taken advantage of by players in this field.

I want to refer to the National Pensioners and Senior Citizens Federation, which has 450 clubs and chapters with a million members, who has stood from the very beginning saying that the government was right, even though some people took losses, to bring in the income trust tax. The Small Investors Protection Association has joined with that federation in referencing this whole area and also calling for a national inquiry on the malfunctioning of Canada's securities and accounting regulations and white collar crime enforcement team.

As well, the United Senior Citizens of Ontario organization has joined in calling for an investigation into what it considers the largest alleged fraud in Canadian history, based on the deceptive yields in income trusts. This alleged fraud is anticipated to reach $40 billion, according to our volunteer consultants. This is an issue that must be dealt with. Income trusts must be phased out. The income trust tax issue must not be revisited.

Income Trusts
Private Members' Business

11:40 a.m.

Liberal

Anthony Rota Nipissing—Timiskaming, ON

Mr. Speaker, the NDP member said something that really disturbed me. She said to just let it go and let us get on with things.

I have seniors in my riding who invested money in income trusts, their savings, their retirement money. They were putting that money aside thinking they had the word of a party that was honourable and would keep its promise. They put their money into income trusts in good faith. The money is gone. They lost a big part of their retirement income.

It is hard for me to just say forget about it and get on with things. I find it very difficult to look a senior in the eye and say that the money is gone, it is over, that the Conservatives did not tell people what they were going to do that they said one thing and did another. It would be very difficult for me to say to a senior that it is time to get on with life. It is very difficult for me to just forget about it.

Seniors are a large part of our community. They contribute a lot. They saved for their retirement. They had banked on that income and they were hoping it would continue. That is the main issue I look at. I look at those seniors who were left out in the cold without the income they had planned on, especially after having been given a promise. The promise was broken and they did not have that money anymore. They had banked on sincerity.

What comes to mind is the credibility not only of the Government of Canada which says one thing and does another, but also of our financial sector. It has to be kept in mind that the financial system in any country is based on stability and a government keeping its word. When we look at what happened here, the government gave its word about what was going to happen, that it was not going to tax income trusts or change anything, but it suddenly changed. That really hurts the markets. How can we have a financial system that is very solid and sure when things keep changing all the time? It is very difficult.

When we look at what has been lost, $25 billion went out of people's savings overnight. When we look at the sector itself, what really worries me is Canadian ownership. We pride ourselves on being Canadians and owning our own resources. Suddenly we look at a market that fell down. The value fell out. It is more advantageous for international companies to come in and take over those companies. What was owned by Canadians is gone. It is now owned by foreign multinational companies. There was the concern of about $500 million in tax revenue being lost. That is a serious concern and it is something that had to be looked at. FIve hundred million dollars is a sizeable amount of money.

When we look at what happened in the income trust sector, there has been a takeover of 12 companies. Twelve income trusts are now held by foreign owners. They are no longer held by Canadians, no longer held by the Canadian people who owned income trust shares. Instead the companies were taken up by foreign companies and that $500 million meant about a $6 billion loss in tax revenue altogether.

We were worried about $500 million, half a billion dollars. That is a lot of money, no question, and we had to be concerned about it. What ended up happening is we are losing $6 billion in tax revenue because the companies that bought out the income trusts are foreign owned. They are paying taxes in their home countries. They are taking that from Canada and paying it in another jurisdiction. That is a nice gift to give to other countries, but I do not think it is really right and I do not think it is fair. Certainly not a lot of thought was put into the income trust ban.

We heard about Bell Canada. We heard about the banks. We heard about other companies wanting to become income trusts. I could not agree more that was not something we should allow as Canadians. When we look at these companies, they have to reinvest in the future, especially when we look at IT companies like Bell Canada. Those companies have to put money into research and development so that down the road they can have a better product and do more.

There should have been consultations, but that is unheard of with the Conservative government. The Conservatives just tell us what they think is right and what they want to do. There should have been consultations with the sector to find out what had to be done, where it had to go, what it needed and what we needed as a country. By doing that, we would have had a better idea rather than to ban income trusts outright.

There are some sectors where an income trust would not be a bad thing, for example, a mine or an oil well. When a resource is depleted, there is no need to invest a large amount of money in it. It is just a matter of getting the resource out and flowing it through to the individual investors. That is very important.

I come from northern Ontario. I know what flow through shares have done for mines and for the economy of northern Ontario. Obviously the government does not look at rural Canada with the same affection I do. There is something there, but it has to be realized there is some use to it.

When money starts flowing through to individuals, the money is not lost completely. The rate of return is higher for the end user, but the rate of income tax is higher at the lower end as well. The individual paying the tax will likely be paying more tax than the company itself.

When I look at this, I look at what has happened through the deception that has gone on and the broken promises. I look at what has happened within the income trust sector in Canada and I see a real flushing out of an industry that was truly Canadian. An industry that belonged to Canadian people is being completely destroyed. Why? The government broke a promise. A promise was just thrown away.

Today I think of our seniors, I think of investors who had banked on this based on a promise. Maybe we could make a change and make it worthwhile so that they could regain confidence and faith in the Canadian financial system, in the Canadian government, and in Canada itself.

Income Trusts
Private Members' Business

11:50 a.m.

Conservative

Gord Brown Leeds—Grenville, ON

Mr. Speaker, in the life of a Parliament, especially a minority Parliament, private members, those members who are not ministers of the Crown or parliamentary secretaries, typically have only one opportunity to bring forward an issue, either through a bill or a motion, for debate. They have only one opportunity potentially to present a piece of legislation or motion that could change or suggest a change for the betterment of their constituents and indeed all Canadians.

That is why I am surprised with the selection of this motion by the member for Scarborough Centre. While I would not suggest that the income trust issue does not merit discussion, I believe we have had ample opportunity to discuss and vote on the issue through the budget implementation bill, previous ways and means motions, and at the finance committee.

Moreover, not only do I believe this extensive and exhaustive debate has run its course both inside and outside the House, I believe the conclusion is clear and indisputable. Canada's Conservative government made the right decision when it levelled the playing field between income trusts and corporations and ended the growing drain of tax leakage on both federal and provincial coffers.

As a National Post editorial from early January stated so forcefully:

The NDP and the Bloc Quebecois have said they will support the government's income-trust plan. Civil servants have implemented the necessary regulatory changes....

The issue is settled, in other words. It's time to move on. Everyone else has gotten the message. Why haven't...the Liberals?

Why indeed. Another interesting question that voters in Scarborough Centre should ask themselves is why their member of Parliament used this one direct opportunity to effect change in this Parliament to parade out the Liberal finance critic's ill-advised proposal on this largely settled issue of income trusts. The member is ignoring the issues that really matter in his riding, like safer communities, improved public transit, a cleaner environment, and the list goes on.

We, along with the overwhelming majority of the House, will defeat the Liberal income trust proposal. The proposal fails to level the playing field between income trusts and corporations, nor does it even try to address tax revenue losses experienced by the federal and provincial governments. It is a proposal that independent expert Finn Poschmann, director of research at the C.D. Howe Institute, has lambasted as politically funky stew.

We instead will support our government's tax fairness plan which, unlike the Liberal plan, will restore balance and fairness to the federal tax system by creating a level playing field between income trusts and corporations.

If the member does not agree with that principle, then perhaps he should talk to his Liberal colleague Senator Jerry Grafstein, the chair of the Senate banking, trade and commerce committee, who had publicly noted even prior to our plan “a pressing need to fix the gap between corporations and income trusts”. Noting that, he said:

The most important thing is the tax system should be neutral between two firms in the same business.

Or maybe the member should talk to Ontario's Liberal provincial government which has heralded our plan. In the words of Ontario's Liberal finance minister, Greg Sobara:

--the Government of Ontario supports the federal government's efforts to ensure fair taxation through changes to the tax treatment of income trusts. We believe that these changes will protect federal and provincial revenue from significant tax leakage.

Moreover, our tax fairness plan will also deliver over a billion dollars in new tax relief annually through a corporate income tax rate reduction, an age credit amount increase, and of course, something that I had a lot of support for, the introduction of pension income splitting. I note for the member for Scarborough Centre, who has repeatedly voted against pension income splitting, that this measure will directly benefit countless pensioners and seniors in his riding.

Canada's Conservative government is committed to tax fairness, committed to ensuring businesses and individuals each pay their fair share. Had we not acted, the tax burden would have been unfairly shifted to hard-working Canadian individuals and families. We could not stand by and watch that happen.

We could also not stand by and watch the negative ramifications that the rapidly growing rate of conversions of corporations to income trusts was having on Canada's long term productivity and economic growth. This is a concern that was shared, as revealed in an April 2007 Financial Post poll, by a strong majority of Canadian business leaders who saw the rising trust conversions as:

--an increasing threat to economic growth because income trusts, unlike normal companies, were obliged to distribute their earnings and couldn't readily reinvest.

As we have heard before, Jim Pattison, the head of one of the largest private companies in Canada noted that ours was the right decision. As he put it, fundamentally it was the right thing for the country. Why? It is simple, Pattison, like all smart entrepreneurs, knows that a successful company is created for the long term by continually reinvesting profits.

However, an income trust CEO has no such opportunity. In his own words:

In my opinion, it's important to manage for the long term...

And when the pressure is on management for distributions all the time, there's a tendency by some to not put the money into R&D or spending capital...because the pressure is on the distribution.

Jeffrey Olin, investment banking head at Desjardins Securities, echoed those sentiments when he observed that prior to our government's action, many business models were not adaptable to the income trust structure were drawn to it solely on the promise of easy tax savings. In his analysis he notes:

As a result, trusts may have less internal capital available to pursue growth initiatives or reinvestment in capital expenditures. This could be quite detrimental to the long-term interests of the entity or the economy in general

Before I conclude, I will address a charge that has made by the Liberal members and their friends and a certain well funded lobby group that our tax fairness plan has killed businesses involved in the income trust sector.

To illustrate my point, I will read verbatim what Rudy Luukko, Investment funds editor of Morningstar Canada, had to say on the matter just a few short weeks ago on May 25:

From...the harsh reaction from the trust industry and trust investors, you might have thought that Finance Minister...had driven a stake through the heart of Canadian income trusts on Halloween night.

Six months after the Oct. 31 fright night, however, a much more benign picture emerges. To paraphrase Mark Twain, reports of the death of income trusts have been greatly exaggerated.

There's no question that the trust universe took a hit, and that there are some awful individual trusts whose prices have collapsed because of their lack of business merits. But in the context of equity investing—where double-digit short-term losses are not at all unusual in the pursuit of higher long-term returns—the damage has on the whole been relatively light

In the six months ended April 30—whose Nov. 1 start date coincides with the first trading day after [Minister of Finance]'s surprise announcement—the S&P/TSX Capped Income Trust Index is down 3.6%.

Nevertheless, it was clear that income trusts had a special tax advantage that regular businesses and corporations did not and in the interests of fairness we were compelled to act.

As a respected Canadian commentator Andrew Coyne cleverly observed:

To listen to these trust-fund patriots, you’d think they were the only businesses in the country that were being taxed. Quite the opposite: before the change of policy, they were the only ones that weren’t...

So all of this squawking...is over the loss of, in effect, a subsidy.

Clearly, a policy that levels the playing field between income trusts and corporations that makes them equal, not worse, was the right thing to do. Although the decision to act was not easy, it was absolutely necessary. It was a decision for the country for future generations of Canadians, our children and our grandchildren.

Income Trusts
Private Members' Business

11:55 a.m.

Liberal

Derek Lee Scarborough—Rouge River, ON

Mr. Speaker, I am pleased to wrap up the debate on a private member's bill that attempts to redress the impact of the government's budget measure, essentially penalizing income trust owners in a way that had not been envisaged before the budget.

The reason why the member for Scarborough Centre has introduced this bill is to propose implementation of measures, which had been generated within the Liberal opposition caucus, to redress these punitive tax measures introduced by the government in its budget.

The issue for many Canadians, who hold income trusts, is not only that there was a tax measure introduced, but the tax measure introduced reneged on a promise. It was not like the government was backed into a corner and did not do anything in relation to one of its promises. It actually promised these income trust holders that it would not tax them and then turned around and equivalent to a sucker punch proposed to tax these people in this tax measure. It was not only a broken promise, it was an obvious betrayal.

Arguably income trust owners are not the majority of Canadians, but they are a very identifiable segment of Canadians. The ones we are concerned about, and the reason for the bill, is the seniors group who have always paid taxes. They have done their savings and now they chose a tax measure that they thought would suit. The government has now changed the rules and punitively taxed them. This measure is intended to redress that.

Income Trusts
Private Members' Business

Noon

Conservative

The Acting Speaker Royal Galipeau

It being 12:02 p.m., the time provided for debate has expired.

The question is on the motion. Is it the pleasure of the House to adopt the motion?

Income Trusts
Private Members' Business

Noon

Some hon. members

Agreed.

No.

Income Trusts
Private Members' Business

Noon

Conservative

The Acting Speaker Royal Galipeau

All those in favour of the motion will please say yea.

Income Trusts
Private Members' Business

Noon

Some hon. members

Yea.

Income Trusts
Private Members' Business

Noon

Conservative

The Acting Speaker Royal Galipeau

All those opposed will please say nay.

Income Trusts
Private Members' Business

Noon

Some hon. members

Nay.

Income Trusts
Private Members' Business

Noon

Conservative

The Acting Speaker Royal Galipeau

In my opinion the nays have it.

And five or more members having risen:

Pursuant to Standing Order 93 the division stands deferred until Wednesday, June 13, immediately before the time provided for private members' business.