Evidence of meeting #60 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was taxes.
A recording is available from Parliament.
Noon
President and Chief Executive Officer, Manulife Financial
Are you asking me that question with reference to the legislation?
12:05 p.m.
President and Chief Executive Officer, Manulife Financial
As I remarked in my comments, I think that capital is important and the accumulation of capital in corporate entities is to be encouraged, not to be discouraged.
I believe the use of trust structures was extended to areas where it was inappropriate, and all of us in the corporate sector would eventually, if this were left unchecked, face pressures to look at our businesses to see whether they could seize some tax savings by restructuring themselves. And I think that would not be a good long-term thing, because income trusts exist largely to distribute their current earnings, and the retention of earnings, for the various reasons I mentioned, is not encouraged.
Underlying some of this is a theory that somehow corporate managements can't be trusted to properly employ the capital and therefore should distribute it out and then go back to shareholders or unitholders and ask for a reinjection whenever the need arises.
The reality is, that's not very practical. You need a stable and predictable capital base in order to conduct your affairs.
12:05 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
Some of the other panelists have had an opportunity to answer this question, and maybe you can, if you feel comfortable. I thought the reason for these meetings was not to do with tax leakage, but with an extension from four years to ten years, which some people are musing about.
Do you have any comments on whether the four-year tax holiday that now exists in the ways and means motion is appropriate, or do you have any comment about extending it?
12:05 p.m.
President and Chief Executive Officer, Manulife Financial
As I said in my remarks, I'm not a tax specialist. I don't know exactly why that particular sector couldn't have been carved out; I don't know. I can only assume that those who do have the knowledge and the analytical tools available to them looked at it. I can't imagine that if it was easy to carve out that particular sector, it wouldn't have been done.
12:05 p.m.
Conservative
Mike Wallace Conservative Burlington, ON
I have a question for Mr. Dancey. I want to be clear that the organization you're representing here today has no pecuniary interest, and that you're here representing the chartered accountants from a business perspective. You highlighted in your presentation that this was tax-neutral and tax-fair. Could you tell me why that's important from an accounting point of view?
12:05 p.m.
Conservative
12:05 p.m.
President and Chief Executive Officer, Canadian Institute of Chartered Accountants
Okay, I'll be very quick. I think the key issue is that businesses should select the structure that they need for business reasons, not for tax reasons. The environment prior to October 31 was such that there was an incentive to select their structures basically for tax reasons, not for business reasons.
12:05 p.m.
Conservative
12:05 p.m.
Liberal
Jim Peterson Liberal Willowdale, ON
Governor Dodge, my interpretation of your comments is that you did not offer an unqualified endorsement of the government's actions. Is that correct?
12:05 p.m.
Governor, Bank of Canada
What I said was that a step was taken to level the playing field and it was a step absolutely in the right direction, but that, as Mr. Dancey said, the tax system is complicated, there are incentives in it, and it's always an ongoing process in trying to deal with the tax system to get greater neutrality.
12:05 p.m.
Liberal
Jim Peterson Liberal Willowdale, ON
Thank you, Governor.
Mr. Tait, with respect to Telus in B.C., the government had options. It chose to ensure that there were no new trusts, and that they would kill off existing ones over four years. The result was a washout of savings of $25 billion or more.
If the government had instead put a moratorium on the creation of new trusts and had considered ways of better integrating the personal and corporate income tax systems, such as those Mr. Dancey and Governor Dodge have talked about--by refunds or whatever--and had the government announced that approach instead, would that have resulted in this incredible, huge loss to Canada's pensioners?
12:05 p.m.
Managing Director and Research Analyst, BMO Capital Markets
No, I don't believe it would have. If there was no tax being.... If there's really a way to study the issue and put a moratorium on these trusts, if there's a way to study the issue without immediately introducing the 31.5% tax, if that's the best way to go, then no, it wouldn't have been as damaging. People would have been nervous and there would have been some sell-off, but in my view it wouldn't have been anywhere near what we saw on November 1.
12:05 p.m.
Liberal
Jim Peterson Liberal Willowdale, ON
Around the table have you seen any studies, any view on this, from the government as to what the precise market reaction to the government's measures was going to be?
12:05 p.m.
Managing Director and Research Analyst, BMO Capital Markets
No, I haven't. We've done our own studies. We've made our own estimates, but I haven't seen studies from others that might have assessed what it could be before. Is that the question?
12:10 p.m.
Managing Director and Research Analyst, BMO Capital Markets
We did think that it would be slightly less than the initial sell-off, but the market very quickly prices these in. If you had put a 31.5% tax on bond income the next day, you would have seen the same kind of sell-off.
My view is that if they had said it was a problem and they didn't want to see companies in key sectors, the very large corporations, converting, and that we had to study it, it would have caused some nervousness, but I don't think you would have seen the reaction that we did see on November 1.
12:10 p.m.
Liberal
Jim Peterson Liberal Willowdale, ON
Do you think the government intended by its measures to increase the overall tax burden on a pension fund holding an income trust from somewhere in the mid-40s to the mid-60s?
12:10 p.m.
Managing Director and Research Analyst, BMO Capital Markets
I'm sorry--could you say that again?
12:10 p.m.
Conservative
The Chair Conservative Brian Pallister
We can carry that conversation on later, I suppose.
We'll conclude with a very brief question from Mr. Dykstra.
12:10 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
Mr. Fortin, we've got letters from finance ministers from every province across this country. The finance department supports this; Mr. David Dodge has made his comments today, and Mr. D'Alessandro, and Mr. Dancey.
You're in opposition to that, and as a former member of the Department of Finance you made an absurd comment that I think discredited you as a witness here today when you stated that big corporations behind the scenes have influenced the Ministry of fFnance in their decisions. Are you suggesting that's what happened when you actually worked for the Department of Finance, or was that happening after you left?
12:10 p.m.
As an Individual
No, sir.
What I am saying is that the corporations are applauding the measures because they suit them. That's what I'm saying. Do not try to distort what I said.
12:10 p.m.
Conservative
Rick Dykstra Conservative St. Catharines, ON
That's not what you said in your statement, sir.
Mr. D'Alessandro, your position on this in terms of--
12:10 p.m.
President and Chief Executive Officer, Manulife Financial
I'd like to clarify that in our particular case, we would have preferred an announcement that would have dealt with the trust issue in a way that would have left our investments...because we have sizable investments; we have trusts of our own. I personally, as a Canadian, have investments in trusts. Had they been grandfathered in some way, that would have suited us. I think the notion and the implication that on this file the government is somehow responding to initiatives that originated with corporations is not based in reality.