Income Trust Policy Opposition Fails to Make Inroads

Transcription

1 Policy Opposition Fails to Make Inroads BDO Dunwoody CEO/Business Leader Poll by COMPAS in the Financial Post for Publication September 17, 2007 COMPAS Inc. Public Opinion and Customer Research September 17, 2007

2 1.0 Introduction Spotting business misgivings, especially in the energy sector, over the Conservative government s new tax treatment of income trusts, the Opposition Liberals came up with a new proposal replacing the Conservative government s 31.5% tax on distributions with a 10% tax that would be refundable to Canadian residents. The Liberals proposal has not yet resonated among the CEOs and business leaders on the COMPAS business panel. Asked to score the performance of the Conservatives and Liberals on income tax policy, panelists give the former a middling pass grade of 61% and the Liberals a failing grade of 35%. Asked to choose between Conservative and Liberal policy, panelists favour Conservative policy 46% to 28% with the remainder uncertain. Asked to forecast if a Liberal government would indeed carry out its proposed policy, 61% thought that this was definitely or probably unlikely while 17% thought it definitely or probably likely and 19% uncertain. Panelists opinions are relatively stable on the substance of the issue of income trusts. They continue to see income trusts as having been a threat to economic growth and government revenues while they remain divided in their assessment of income trusts as a way of attracting capital and about whether new government tax policy is driving control of the energy sector into the hands of foreigners. While stable, panelists opinions nonetheless seem to moving in the direction of polarization. On the one hand, there appears to be some growth in the size of the majority of panelists who believe that income trusts were a threat to economic growth and government revenues. On the other hand, there also appears to be a slight increase in the proportion of panelists who see the new tax policy as driving the energy sector into the hands of foreigners and who consider income trusts as an efficient way of attracting capital for investing. 2

3 These are the key findings from the current web-survey of the panel of CEOs and business leaders undertaken for the Financial Post under sponsorship of BDO Dunwoody LLP. 2.0 Moderate Approval of Conservatives, Disapproval of Liberals The business panel is stable in its moderate approval of the Conservatives performance on income trusts, as shown in table 2a, while disapproving of the performance of the Liberals on the issue, as shown in table 2b. In keeping with their assessments of the parties performances, panelists prefer on balance Conservative policy, as shown in table 2c. Meanwhile they are skeptical that a Liberal government would actually carry out its newly proposed policy, as shown in table 2d. Verbatim comments from panelists: Income trusts: Both parties handled this poorly. The Liberals, by not predicting the growth of income trusts when they were in power; and the Conservatives for stating that they would not touch income trusts when campaigning. The right thing to do was to tax income trusts. Those that did not see the change coming were either naive or dumb. Income trusts were a good incentive for investment in certain sectors with high risk such as mining and perhaps some energy sectors. The government should not have eliminated this investment vehicle but rather limited [it]. The first move should have been a moratorium. The second step should have been to find a way to tax this income in the hands of recipients similar to dividends. The third step should have been a study to find a way to limit this incentive to sectors that required this incentive for growth. 3

4 Given the surpluses of successive governments, they didn t need the income even if they may well have believed otherwise. The income trust policy was initially designed for real estate holding. However it spread to other sectors where funds were sourced in return for a steady and reasonable income stream. The basic tax policies of previous governments have, in large part, been responsible for the growth of this sector, as the after tax net to investors was better under trusts than under corporate structures. Investors were happy with the current levels of return discounting the change in taxable/non taxable portions of the income stream in future years. The solution is to place both on an equal footing, but that requires changes in tax legislation. The income trust policy was initially designed for real estate holding. However it spread to other sectors where funds were sourced in return for a steady and reasonable income stream. Members of the present government has put their heads in the sand and ignored the real facts about the threat to Canada resulting from their income trust policy. Canada suffers as a result. The trust give-away has ended. It is reasonable to look for ways to support Canadian corporations, such as allowing them to deduct foreign interest costs, but the opposition is doing a pure political play - after earlier losing their nerve to do this themselves. Income trusts have not been as good for the economy as normal corporate structures. There is a great need for large industries to re-invest and spend their profits in developing their industry and services in the national interest and not 4

5 just paying shareholders. This is particularly the case with respect to railways which should now be servicing all major centers. Table 2a: (Q1) On a 100 point performance scale, what grade would you give the federal government for its income trust policy? Mean September April Table 2b: (Q2) What grade would you give the Opposition Liberals for their position on income trusts? Mean 35 Table 2c: (Q3) The Liberals say that, if they come to power, they will replace the Conservative government s 31.5% tax on distributions with a 10% tax that would be refundable to Canadian residents. Which is better? ROTATE % The Conservative government policy 46 The Liberals proposed policy 28 Don't know or no opinion 26 5

6 Table 2d: (Q4) If the Liberal party did form the next government, would it implement its new policy on taxing trusts? ROTATE POLES % Definitely not 5 Probably not 56 Perhaps 19 Probably 15 Definitely 2 Don't know or no opinion On the Substance of the Issue Opinion Stable with a Hint of Polarization For the third time in since November, panelists were asked to assess the threat of income trusts to economic growth, their threat to government revenues, income trusts efficiency at attracting capital for investing, and the extent to which new tax policy on income trusts is driving control of the energy sector into the hands of foreigners. Panelists opinions are relatively stable. They continue to see income trusts as having been a threat to economic growth and government revenues while they remain divided in their assessment of income trusts as a way of attracting capital and about whether new government tax policy is driving control of the energy sector into the hands of foreigners. 6

7 While stable, panelists opinions nonetheless seem to moving in the direction of polarization. On the one hand, the majority of panelists believing that income trusts were a threat to growth and government revenues appears to be growing. On the other hand, there also appears to be a slight increase in the proportion of panelists who see tax policy as driving the energy sector into the hands of foreigners and who consider income trusts as an efficient way of attracting capital for investing. Table 3: (Q5) To what extent do you agree with the following opinions about income trusts, using a 7 point scale where 7 means agree strongly and 1, disagree strongly RANDOMIZE Income trusts were an increasing threat to economic growth because income trusts, unlike normal companies, were obliged to distribute their earnings and could not readily reinvest [tracker] Mean DNK Sept April Nov Income trusts were a threat to government because they deprived governments of necessary income [tracker] Mean DNK Sept April Nov Income trusts are an efficient way of attracting capital for investing in the economy Mean DNK Sept April The government's taxation policy on income trusts has been driving control of much of the energy sector and its infrastructure into the hands of foreign trusts or entities that don t pay Canadian taxes 7

8 Mean DNK Sept April Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted September 12 14, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of 127 are deemed accurate to within approximately 8.7 percentage points 19 times out of 20. The principal and co-investigator on this study are Conrad Winn, Ph.D and Tamara Gottlieb 8