People are up in arms over the government's decision to tax income trusts and I understand their point of view.
People overinvested in them based on the governments promise not to tax them and now they've been hurt by the reversal of that promise.
I don't in any way condone breaking election promises but in this particular case, I think that the government realized there was a serious storm brewing and needed to quickly put a halt to it.
I think that a better solution would have been to put an immediate halt on the creation of income trusts and to grandfather those that already exist, but I'm not the finance minister and have no idea whether that sort of action would even be legal.
The fact is, though, that the conversion of major corporations into income trusts was going to seriously hurt the country and that those most disadvantaged by it would be the lower classes. Critics are arguing that it's the elderly and the everyday Joes who are hurting because the income trusts in their portfolios have lost a lot of value.
I wonder if anyone has put into perspective what percentage of Canadians don't hold any income trusts in their portfolios and, frankly, how many don't HAVE a portfolio because they can't afford to own investments when they're too busy trying to pay their rents and feed their families.
Income trusts are good only for those who hold their units. Beyond those people, the country and its citizens are being short-changed by them and the government has realized this. They exist in a tax loophole that should never have been allowed in the first place the problem had finally reached critical mass with the likes of BCE and the big banks considering the conversion.
Reading about people who have lost hundreds of thousands of dollars isn't going to cause a family living at or below the poverty line to lose any sleep. These things weren't wiped out. They lost around a quarter of their value so for every hundred grand lost, the suffering masses likely have another 3 hundred grand sitting in the bank. While their quality of life may well suffer and their retirement may not be quite as comfortable, there is certainly no worry that they're going to end up on the street picking through trash cans for food.
This all ties back to my post a few days ago about greed. The people hurt most by this are those who are already doing well for themselves. The people hurt most by not making these changes are those who are not. It's those who will have to bear a greater share of the tax burden because investors are soaking up profits that are no longer being taxed by the government.
Now this all gets more complicated when you look at the income taxes paid on the distributions and what not, but at the end of the day, those can be sheltered by RSPs and other tax sheltering methods so the government in the end loses revenue.
That money has to come from somewhere and it's the working stiffs that will end up paying it out.
So all in all, Mr. Flaherty, I commend your actions. I commend you for having the courage to do what's right for the country rather than what's going to make the most money for the affluent.
I only hope that this doesn't hurt the government's chances for re-election. Hopefully they can follow this up with a tangeable tax break for ordinary Canadians so they can see the benefits of these changes.