Thank you very much, and thank you for the opportunity to present our views.
When the Conservatives broke their promise not to tax trusts, it came as a total surprise to millions of hard-working Canadians, and it will have severe negative economic impacts for all of them. The government continues to ignore their concerns and has advanced its broken promise into Budget 2007.
Our coalition has made every attempt to understand how the government arrived at their tax leakage calculation. This committee's previous investigation into the trust decision has revealed that the government has intentionally prevented this information from coming to light. In the absence of such information, Canadians have no alternative but to believe the government's decision was ill-informed and not well thought out.
In December 2006 we presented a detailed, comprehensive report of the importance of energy trusts in the Canadian oil and gas industry. We have yet to receive a response from the Department of Finance. Their failure to engage in consultation on our report indicates to us that the government has chosen to ignore the concrete facts presented by companies that are generating billions of dollars of wealth and employing thousands of Canadian taxpayers.
We believe our position is beyond dispute and that energy trusts should be allowed to continue to exist as they were prior to the so-called tax fairness plan. In our last presentation to this committee, we provided copies of this report.
You have previously heard testimony from government-selected witnesses, and ironically, many of them believe there is a role within Canada's capital markets for energy trusts. Let me highlight some of their comments.
Dominic D'Alessandro noted that real estate and royalty-producing assets such as energy trusts are the businesses that the current tax regime was designed for. He said that energy trusts have a strong case for exemption. We agree.
David Dodge said, “on balance, income trusts make capital markets somewhat more complete and somewhat more efficient”. He went on to say, “the income structure may be very appropriate where firms need only to manage existing assets efficiently”. That is exactly the energy trust role in maximizing production from Canada's mature oil- and gas-producing assets.
Jeffrey Olin, by inference, declared that there are businesses suited for the trust sector. We believe this is the case for energy trusts.
Kevin Dancey said, “trusts have a role to play in rounding out Canada's capital markets”. We agree.
The government has heard these inconvenient truths from their very own expert witnesses that they presented to this committee. These individuals say that trusts, and particularly energy trusts, have a role to play in Canadian capital markets. Contrary to this advice, the government's proposed tax measures will see trusts disappear from capital markets in Canada. We have repeatedly stated that eliminating energy trusts will reduce production and reduce government revenues.
There is an increasing threat of foreign takeover of trusts. Foreign corporations are not focused on maximizing production from conventional western Canada oil properties. This has been the domain of the energy trusts. The increased cost of capital imposed by this tax will alter the economics of these mature properties, leading to reduced ultimate recoveries of Canada's oil and gas resources.
It has been only six months since the government made this ill-considered announcement; nevertheless, our sector has already seen changes. Energy MLPs have made overtures to acquire some of our member companies, and others have been looking seriously at moving mind and management of their organizations to the U.S. The revenue losses to the government will be significant relative to retaining the status quo of the energy trust sector.
Another impact of the October 31 announcement is that Canada's credibility in foreign markets has been significantly eroded. We are no longer looked at in the same positive way by foreign investors. At a time of increasing globalization, this is a severe black mark on our nation's reputation. We expected better from our government.
You heard our position regarding this government's decision to break its promise on tax trusts from my colleague, Gord Kerr, on February 1. Let me conclude by restating our position.
Energy trusts do not cause tax leakage. Taxes are not avoided; they are transferred to the unitholder. Energy trusts enhance energy productivity. U.S. energy trusts in the form of the MLPs and LLCs not only exist but are expanding rapidly.
Canadian junior oil and gas companies are struggling today due to the materially reduced access to capital resulting from the trust tax announcement. The increased costs of capital imposed on the energy sector have negatively impacted the economics of important projects, including those targeting carbon dioxide capture and storage.
We believe it is only reasonable that the Minister of Finance revisit the issue of Canada's energy trusts, just as he did to fix a mistake he made on foreign interest deductibility for Canada's corporations. Individual Canadians deserve the same treatment afforded these large corporations.
In conclusion, I would say, as we have said before, that it is never too late to get it right, not just for energy trusts and its investors but for all Canadians.
Thank you, Mr. Chairman.