Evidence of meeting #59 for Finance in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was trust.
A recording is available from Parliament.
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
Are you going to let me answer or do you just want to keep going? If you want to keep going, it's okay. I've made the important points I wanted to make, and if you don't want me to reply, I won't.
Liberal
John McCallum Liberal Markham—Unionville, ON
You have had 30 minutes. I simply want to know, did you receive any reports from your department as to the likely impact on the market value of income trusts before your announcement?
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
I'll answer the question. If you give me a moment, I'd be happy to.
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
I should mention, Mr. McCallum, the little speech you gave. The $500 million figure I used today is the same figure I used in October—
Liberal
John McCallum Liberal Markham—Unionville, ON
I know, but that is not the question. I take it the answer is no, or else you would have said yes. Did you have any reports? Did you have any sense as to the loss to those hardworking Canadians who had invested in income trusts, taking the Prime Minister at his word? Did you have any sense of whether the loss they would experience the day after your announcement would be $30 billion or $30 million or $30,000? Did you have any advance estimate or information from your department as to the likely impact on Canadians of that announcement of yours?
That's my question.
Conservative
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
How about if I say what I want to say in response to your question? Will you let me answer or not?
Liberal
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
Good. Thank you.
The estimate of the tax loss was $500 million on October 31—
Conservative
The Chair Conservative Brian Pallister
Mr. McCallum, your time is up, but I'll give a little bit of time for the minister to respond, if he'd like to have just 20 seconds.
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
The answer, of course, Mr. McCallum, is that just as your government knew, if it had acted, there would be a negative impact on the market, as you knew in 2005 and you didn't have the courage to act.... You had the courage to leak but not to act. We knew there would be an impact on the markets, and I did not look forward to that. That was a sad effect on people in Canada, on a significant number of investors. I met with one yesterday. It gives me no happiness to see that kind of impact on people, but you have to act in the interests of the whole country, of all Canadians, and do the right thing, which we did and your government didn't.
Conservative
The Chair Conservative Brian Pallister
Thank you, Mr. Minister.
Just as a point of information, it is interesting for the committee to know as well that over 80% of trusts are up since the middle of November.
We will go to our second questioner now, Mr. Paquette.
Bloc
Pierre Paquette Bloc Joliette, QC
Thank you, Mr. Chairman.
Thank you, Minister, for joining us.
I would like to remind you of the reason why the Bloc Québécois wanted the committee to take a closer look at the decision announced on October 31 last.
During the election campaign, the Prime Minister said he would not change the rules governing income trusts. Based on that undertaking, many small investors decided to invest additional sums of money in income trusts. You clearly demonstrated that a fiscal imbalance exists and I don't disagree with you at all on this. On the substance of the matter, the Bloc Québécois supported the government's decision and voted in favour of the notice of ways-and-means motion.
How do you explain the fact that during the election campaign, Mr. Harper didn't appear to be convinced that a fiscal imbalance existed, when you've just been able to prove convincingly that the opposite is true? Why opt for a four-year transition period, rather than two years, or six years? I'd like to know the rationale for this decision. If the aim is to address the fiscal imbalance, why exclude property trusts?
Lastly, you spoke of losses amounting to $3 billion if the transition period was extended to 10 years. It seems to me that all you've done is automatically multiply $500 million by six, when it's a known fact that profits will be taxed at a lower rate over the next few years. Did you take this fact into account when you came up with your estimate of $3 billion?
I believe these are four very clear questions.
Conservative
Jim Flaherty Conservative Whitby—Oshawa, ON
Yes, there were at least a couple of questions there. I'll try to be as efficient in my answer as I can.
First of all, with respect to why the government acted at the end of October, the reason was what happened in 2006, and several things happened. As chart A shows, there was a rapid acceleration of conversions to income trusts in the first 10 months of 2006, including the ones that were announced by TELUS and BCE. Secondly, the quantum had gone up dramatically, about $70 billion alone in the first 10 months of 2006. Thirdly, the nature of the income trusts--they were starting to invade active areas of the economy requiring investment and re-investment, the knowledge-based sectors of our economy--was very dangerous for the growth of our economy and our future prosperity. All of those things were new in 2006 and were not present in 2005, and that is why we felt, given that change of circumstances, to act was the best thing for Canadians.
Now, why will the transition period be four years and not 10 years?
Pierre Paquette Bloc Joliette, QC
You're right. All of these facts weren't known in 2005.
I agree with the decision to block income trust conversions. However, in 2005, you were willing to live with the existing 250 income trusts. Now, you've changed your tune, and rightly so.