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Liberals pulling out all the stops - the market didn't buy it though - very little movement in income trusts today after the announcement.
It'll be interesting to watch him try to defend this one in the debate...
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Liberals vow to scrap tax on trusts
Dion retools campaign to focus more on economy with pledge to resuscitate investment vehicle popular among older voters
Article Comments (258)
STEVEN CHASE
From Monday's Globe and Mail
September 22, 2008 at 3:54 AM EDT
OTTAWA — Stéphane Dion's Liberals are promising to scrap the Harper government's hefty tax on income trusts as they release their campaign platform today, a pledge that offers a potential new lease on life for an investment vehicle much beloved by older voters.
The Liberals hope a full costing of their promises will help counter Conservative attacks that have succeeded in raising questions about whether they are unsound fiscal managers who would drive the country into deficit as the economy worsens.
"A Liberal government will never put Canada into deficit. Period," party spokesman Mark Dunn said yesterday.
The platform release comes as the Liberals retool their campaign, scaling back emphasis on their controversial Green Shift carbon tax in favour of a focus on the ailing economy and moving Leader Mr. Dion into the background while front-bench MPs such as Bob Rae and Ralph Goodale take the lead.
New polling for The Globe and Mail and CTV in closely fought ridings shows the Liberals are failing to gain traction as Conservative support strengthens or holds. The anti-Tory vote remains heavily fractured among opposition parties instead of coalescing behind Mr. Dion as Liberals might have hoped.
First floated in 2007, the Liberal promise to revive the income-trust market offers voters a clear alternative that starkly contrasts with what the Conservatives have on offer.
"The fact we've written it in the platform in black and white means we're serious," said Liberal MP John McCallum, a former bank economist who helped price his party's 2008 platform.
The pledge holds out a potential stay of execution for a lucrative investment option popular among those saving for retirement. It is one that lost substantial appeal after the Tory government slapped a surprise tax on income trusts in October of 2006.
Plus, Liberals say, they believe that scrapping the tax could substantially lift the market values of income trusts, helping restore much of what investors lost in late 2006 after panic over the surprise levy drove down the value of the vehicles.
"Our experts tell us this change in policy [would] restore two-thirds of the value that was lost as a consequence of the [Harper] government's move," Mr. McCallum said.
He added he cannot guarantee that all that market value would reappear, but said he believes a "good proportion" would return under a proposal that offers a future for trusts without the Tory tax.
That assumes, however, that investors are still holding units of the same income trusts they had before the Tory levy.
The Liberals are fond of their pledge, though, because it reminds voters that the Conservatives broke a 2006 election promise to avoid taxing trusts.
The year before the tax was announced, about one million people in Canada owned trusts directly and millions held them through mutual funds, according to industry testimony before a Senate committee.
The levy, 34 per cent declining over time to about 28 per cent, was applied to new trusts and was to be applied to existing trusts in 2011.
The aim was to collect tax revenue from trusts that the Conservative government believed was not being otherwise recouped because these vehicles paid little, if any, under previous rules.
Specifically, the Liberals are proposing replacing the Tory tax with a much smaller 10-per-cent levy that is refundable for domestic investors but not foreigners. Mr. McCallum said the Liberals believe there is far less "tax leakage" from trusts than the Tories say there is because investors are eventually taxed on returns when they sell units.
Should the Liberals win office, their pledge would substantially lower the effective rate of taxation on existing trusts and mean potentially richer returns for trust investors because these businesses pass on most of their earnings in the form of dividends.
But it is not certain that the Liberals would allow new trusts to be created in every sector.
The party says few, if any, trusts are starting up today and should it win office, it would maintain what amounts to a de facto moratorium on new trusts until after consultations to decide which industrial sectors would be allowed to create them.
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