When the finance minister gets so rabid on these issues, it tells me that I am on the right track. The yelling by the finance minister tells me I am on the right track. With a 31.5% tax on seniors, I am on the right track.
I can say that when one gets the market valuation of an investment instrument discounting the future, the long term yields, and it shows there is going to be a 31% tax starting four or five years from now, the present value of that investment is going down.
How far did it go down? Canadians understand how far those investments went down. They went down immediately, the very next day. They went down by $35 billion of investment value, mostly seniors' investments. Their retirement nest eggs were wiped out. The minister will say that is nonsense.
I have the information and I can tell the House exactly how many seniors were involved in this. About 1.5 million seniors were damaged by this. There is nobody in the House of Commons who did not get more feedback from people on this income trust debacle, this broken promise than any other issue. This was the issue of this Parliament. This is a promise broken that destroyed the retirement nest eggs of a significantly large number of Canadian investors, most of them seniors.
Obviously parliamentarians were concerned. In fact, it was the Liberal caucus that went to the finance committee and made a proposal to look into this. It is not enough to just have rhetoric and yelling and screaming. The Conservative members want to yell and scream. Let us have some debate on this. Let us bring it to committee. Let us get some expert witnesses. Let us find out what the true facts are.
The finance minister came before the finance committee and said it was going to cost $500 million a year for six years, that $3 billion was going to be lost in tax revenue to the government and that we could not afford it. What happened? Experts came before the committee and the committee tore the finance minister's arguments to shreds. He said there was $3 billion of tax leakage. There was not $3 billion worth of tax leakage.
Don Francis, for example, an economist, said there was no tax leakage. Cameron Renkas said that studies done by BMO capital markets have shown there was not any tax leakage. Yves Fortin, an economist who the minister knows, said the allegation of the existence of tax leakage was unfounded and the tax leakage argument was incorrect and unsubstantiated.
There were others who characterized the methodology used by the Department of Finance in its 2005 consultation paper, which the committee was told has not changed, as faulty.
Gordon Tait suggested that in his view some of the assumptions used by the Department of Finance were flawed.
These were expert witnesses coming before the finance committee.
The Canadian Association of Income Trust Investors described the tax leakage estimate as grossly exaggerated and not supported by fact and indicated that there was no clear, credible data.
I have talked about conclusions that some people reached. How about some facts? I was there and I participated in those debates and hearings. I was there because it was important to my constituents.
The best testimony came from HDR/HLB Decision Economics Inc., which laid out different assumptions with respect to four key factors that might explain the difference in the analysis that it did compared to that of the finance department. They were identical in all respects except for a couple.
Here is one that will blow your socks off, Mr. Speaker. The first one is that the finance minister's calculations over the six years, the $3 billion calculation, failed to take into account legislative tax changes that this Parliament already had passed. He just left them out and assumed that they were not going to happen even though they were law.
The government made a mistake, but the minister did not agree. He did not defend his position. He did not acknowledge that he made a mistake. Why not?
There was another item. HDR/HLB came back and said it was assumed that persons as income trust investors through an RRSP did not pay taxes because RRSPs do not pay taxes and that the tax would be paid only when money came out of the RRSP. But this analysis assumed that anybody who bought income trusts through registered retirement savings plans would never pay tax, never ever, nobody in Canada, for all time.
Obviously that is not a tax leakage: it comes out. In fact, we can look at the public accounts and see how much tax revenue people pay on deregistering of RRSPs or conversion to RIFFs and taking the money out in the prescribed fashion. That was an error in the computation of the tax leakage by the finance minister and the finance department.
There is also the effective corporate tax rate for energy trusts. History shows what it is. The big charts that the finance minister trundled in before the finance committee were totally wrong. They did not tie in with the actual historical corporate tax rate for the energy trusts.
There were problems with the proportion of income trust units held as tax exempt units. As well, the value of deferred taxes was handled wrong.
I could go on, but the bottom line of the HDR/HLB Decision Economics Inc. analysis, which was applauded by all, was that instead of having an estimated $500 million tax leakage for 2006 it in fact was $164 million, and in 2010, instead of being another $500 million, it was actually only $32 million. We see quite a difference just by correcting the errors that the finance minister made before the finance committee.
Did he or any of his officials in the subsequent hearing days ever challenge any of the testimony of the expert witnesses? The answer is no. There was no rebuttal. There was no explanation of the criticisms of the computation of the tax leakage. That tax leakage calculation was the only reason that they moved forward. They made a mistake. They are not prepared to admit it, but the impact on Canadians is unbelievable.
What did the finance committee do in its 14th report to the House of Commons? It made three recommendations. The first is that the government has to be “as transparent as possible”. It recommended that the government “release the data and methodology it used” in estimating the amount of the federal tax leakage.
The committee was satisfied that it did not receive the information and the methodology. In fact, in a response given to an access to information request, all of the rows and columns of the analysis were blacked out. All that was delivered were the titles across the top and down the side. It was effectively a blank piece of paper.
That was the response by the finance minister to a legitimate access to information request. The Standing Committee on Finance of the Parliament of Canada wanted it. Did it get the information it asked for? The answer is no. The finance minister refused.
The second recommendation made by the committee was that rather than dealing with these income trusts together with a few other items in a ways and means motion, maybe the House of Commons ought to handle as a separate item income trusts and this terrible broken promise that destroyed the pension nest eggs of so many seniors across Canada, rather than burying it in a whole bunch of other things. Parliament would have been given an opportunity to express itself in a clear vote on what it thought about the income trust decision.
The third recommendation stated:
Overwhelming evidence indicates that superior and far less damaging alternatives were available to the federal government. The Committee urges the government to consider implementing one of two such alternative strategies....
What were those strategies? I know what one of them was. It was a Bloc Québécois proposal basically saying that instead of deferring the implementation of this 31.5% tax by four years, it should be delayed by 10 years. Certain death would be delayed. I do not agree with that one.
However, there was another one. It was proposed by Liberal members of committee in consultation with the Liberal caucus. That proposal was to change or wipe out the 31.5% tax on income trusts and replace it with a 10% tax, but that 10% tax would apply only to those who were not Canadian residents.
In other words, there would be a rebate to Canadians so that Canadian investors in income trusts would not be hit. That means Canadian seniors would not have lost their nest eggs. Experts have indicated that up to about two-thirds of the lost market value of their investments in income trusts would be recovered by going at it in a less draconian fashion.
Members who have talked on the budget have talked about it being divisive, about it pitting some Canadians against others. This is an example of where the government has put a lot of seniors at a disadvantage.
There were better ways to do this. If the finance department is not prepared to provide the Standing Committee on Finance with the detailed calculations on which it based its decision, it shows there is something wrong.
In fact, the expert witnesses showed that it was wrong. The government is not prepared to open up to that. It is not prepared to admit it. It is not prepared to defend its position. It is not prepared to show where the analysis of the expert witnesses was wrong. Why? Because it cannot. That is the issue. The government cannot defend the indefensible. It was a bad decision, from the way it was handled right back to the promise not to tax income trusts. Why interfere with the markets?
Now I must tell members that the government decided to offer pension income splitting because it thought that might help to appease Canadians. The fact is that when we look at the numbers one of the things we are going to find on pension income splitting is that after adjusting for the number of people who have no one to split with, and after adjusting for those who are already at the lowest possible rate or who have a partner who is at the lowest rate and bracket, after all those factors, according to Yves Fortin, an economist who appeared before the finance committee, only 12% to 14% of all seniors will benefit at all from pension income splitting.
It is not enough. This is smoke and mirrors, as has been suggested. Even in some of the documents the government has, the government refers to it as income splitting, not pension income splitting. Why? Because again it is part of the strategy of the rhetoric of the government to suggest that something exists which in fact does not. There is somehow this belief that if it is said often enough people will start to believe it and it must be so because it has been heard so many times.
Let them understand one thing. The Prime Minister was right when he put in the document that I referred to earlier that “there is no greater fraud than a promise not kept”. The income trust decision was a fraud and a broken promise.
