Market likely to shows its fury this morning
as Flaherty boldly does what Goodale mused
What Jim Flaherty did tonight was quite profound. The implications will be with taxpayers and investors for years to come, and with this government in spades. Jim rolled the dice. It was an uncharacteristic move for a cautious man.
As a result:
(1) For the Toronto stock market, the first day of November could be a slaughter of sorts. Income trusts have been the darling of Bay Street, with giants Bell and Telus recently announcing plans to convert. Stock in those giants will plunge, and several billion dollars will be wiped off the investment accounts of Canadians, a lot of them owned by seniors who rely on income trusts to get by.
(2) This will create some serious bad blood between the investment community and the feds. After all, this is a huge political gamble for the Harper Conservatives. We are just a few months after an election campaign in which the Tories made it clear they would never, ever tax income trusts, and in which former Finance Minister Ralph Goodale was pummeled for even musing about it. Of course, Ralph’s real crime was talking about taxing trusts, instead of doing it, which helped wipe more than $9 billion from their worth over the course of a few weeks.
(3) In fact, Flaherty will have to wear this, which is why, I figure, he was not looking his jovial self on television Tuesday night. The man has just ushered in a monumental tax increase; triggered a general market decline; changed the rules upon which corporate Canada had laid its plans; pissed off core Conservative support; and set himself up to be accused of a sizeable flip-flop. If I were Ralph Goodale, I’d be up all night getting ready for QP.
(4) But at the same time, Flaherty and PMSH are very aware of the impact this will have on seniors, who are the ones income trusts have benefited most. Companies that turn into trusts pay their profits to unitholders in the form of income, instead of retaining profits which are taxed. That means their share prices usually rise, and the people owning units get a far higher return on investment than a GIC could ever pay. That’s why seniors love ‘em. And to mitigate, the feds are hiking the tax threshold for seniors and allowing them to split pension income for tax purposes. This latter item is something I have personally supported for ages, but didn’t expect it to arrive with a nuclear bomb strapped to its thorax.
So, it was a night of guts for the minister of finance. And he will have some intense days as a result. His argument will be that income trusts threatened to suck off so much lost tax revenue that without a new levy on them, everyone would end up paying more. Whether investors – and seniors – buy it will be the big question.
Did he do the right thing, and the right way? Well, this is just what I predicted in the media a couple of weeks ago, after Bell announced it would be morphing into a trust. It looked then like a death stroke was inevitable. And it came on Hallowe’en. Flaherty was right to dump this on an unsuspecting nation, in order to keep the stock market carnage to one day or two and avoid a Goodale-type slow melt. But the boys on Bay Street have long memories, and this night will go down as a classic. In the morning, they will show you. Count on it.
7 comments ↓
AS I have heard it Flaherty comes to this Ministry with baggage -Now I think he is starting to unpack some of those bags and we have another Minister with a knee jerk response and we all know that reactive responses cost a lot more than proactive responses -It may be time for the PM’s office to book an appointment with a proctologist as the fickle finger is running wild on the hill on Halloween.
Garth..the best part of this announcement, we won’t be subjected to 100 comments on this blog by uninformed lefties slagging the govt., and singing your praises…hallelujah!
The arguement that ’seinors’ are going to suffer is ridiculous. When you invest in the market, there is an inherint risk that you can lose all your money in a day be it by government policy or economic melt-down.
Robert Coulter, give your head a shake! You too Garth! Most Canadians are sick of corporations getting away without paying taxes. Federal tax revenues are made up of 90% personal taxpayers, 10% corporations. So, the corporations were trying to evade even more taxes, and the Conservatives called them on it! GOOD for them, and stop with the “scare” tactics Garth, maybe it’s about time that corporations had to pay their fair share. The average Canadian really doesn’t care what the stock market is going to do, because the average Canadian is taxed so high that they can’t afford to invest in it. Not like like you Garth, who has excess money to play with in the market. And finally Garth, it was not the boys on bay street that elected the Conservatives, it was me! One voter!
Hey Hunter:
Are you a businessman or investor? I doubt not.
I wish Government would quit medling in affairs such as Income Trusts. So the Corporations are getting away without paying too much taxes you say- but what’s the solution? If we tax them too high they shut down and move elsewhere, or even out of the Country.
I’d rather see the money Corporations make flow through to investors, and they can pay taxes on it. Either way, Gov’t is still collecting taxes. It’s all political posturing and a way to try and get MORE tax money (which all taxpayers like you and me pay for).
Anybody having a Pension should know that some of their money will be afffected by this “hasty” decision.
I disagree with the PC’s decision to tax Income Trusts the way they have outlined. It won’t get them many votes, either.
Garth, get this tax system set up for “family income” which is fair and equitable to all- not just seniors.
Removing the incentive for all corporations to convert to income trusts is essential for preserving the health of the Canadian economy.
Too many companies were making the shift for the wrong reasons (purely tax avoidance), and we would have ended up with a raft of failing, unsustainable, undercapitalized Canadian companies.
An income trust is not a good structure for all companies, but everyone was doing it.
This is a heavy-handed and not terribly discriminating way to go about things (as those organizations suited to the income trust structure are being penalized too), but it’s better than having everyone on the TSE convert.
Personally we lost in excess of $ 100,000.00 of the value of our portfolio so far today. We are retired. Neither of us have a company pension.
Our loss is about $ 10,000.00 a year in income (from Income Trusts of course) and the governments loss $ 2,500.- in income tax. Is that fair?? Flaherty has just cost the “hard working individuals and their families†and especially us pensioners, a fortune with the drop of the prices of the Income Trusts, they have invested in. Did he mention “hard working individuals and their families” somewhere??.