本文发表在 rolia.net 枫下论坛Behind the affair on income trusts
Star investigation dissects rumours
SEC now looking into controversy
Jan. 7, 2006. 01:34 PM
ANDREW MILLS
IN OTTAWA
SHARDA PRASHAD
IN TORONTO
IN OTTAWA
It was five days before the government fell. Late on Nov. 23, at about 5:20 p.m., Finance Minister Ralph Goodale's lieutenant appeared on national television, telling the country that the government was going to slap a new tax on income trusts, a decision that would affect the investments of millions of Canadians. Less than an hour later, Goodale corrected his parliamentary secretary at a news conference in Ottawa: The government had in fact decided not to tax income trusts and would instead lower taxes on corporate dividends.
It was the first sign something was badly amiss as the government played out its final days.
The events leading up to that announcement are now the subject of an RCMP probe. Based on heavy trading in the Toronto stock market in the hours before it closed on Nov. 23, the Mounties are investigating whether the government's plans were leaked in advance. Last night, the U.S. Securities and Exchange Commission announced it is also looking into the matter.
Some Bay Street players knew that an announcement was likely, though they did not know details. Goodale and Prime Minister Paul Martin have somewhat different versions of their discussion leading up to what was a major tax decision. And, it emerged this week, two other ministers also knew.
Anyone involved in the decision has been silenced from speaking publicly because of the police probe. Whether anyone traded in the market on a leak is not yet known, and likely won't be known until police complete the criminal investigation.
But at the very least, observers say, the events leading up to Goodale's announcement was "a classic case of bad policy making," bungling that would embarrass any government.
"Making policy on the fly doesn't work," said Allan Hutchinson, assistant dean of law at York University's Osgoode Hall Law School. "It leads to an ultimate decision that's a joke."
Goodale will not comment, citing the police investigation. Here, the Toronto Star dissects critical moments.
November was chaotic in Ottawa. The dying Liberal government was rolling out as many pre-election announcements as there was time for, cramming 145 of them into 23 days and totalling some $24 billion in spending.
One of those announcements was Goodale's, after stock markets closed Nov. 23, to resolve what had been a long-running debate on income trusts.
On Monday, Nov. 21, two days before Goodale's decision, a group of finance officials met in Ottawa to discuss how to resolve the income trust debate.
Ottawa had been studying the issue — indeed, many market players had believed the government would in fact decide on a tax — and had already halted advance tax rulings for companies that wanted to convert to a trust from a traditional corporate structure. This would not have been good news to Bay Street, where trusts now account for about 10 per cent of the value of companies listed on the Toronto Stock Exchange. At the same time, Ottawa had said it was looking at reducing the taxes on corporate dividends.
Several options were discussed during that Monday meeting, but, according to a government source, no decisions or even working decisions were made.
Among those at the meeting was John McKay, Goodale's parliamentary secretary. And what he understood — misunderstood, actually — at the end of that meeting would cause confusion when he went on television two days later, raising more questions about the way Ottawa handled the decision.
On Tuesday and early on Wednesday, finance officials met again and those options were whittled down.
Nobody will say exactly how or when Goodale made his final decision, but on Tuesday on his way out of afternoon question period he told reporters he had as yet made no decisions. "I am thinking my way through that issue."
At about 8:30 a.m. the next day, six members of the Investment Dealers Association, a self-regulator of the investment banking industry, met with Goodale in a boardroom on Parliament Hill. Connie Craddock, spokeswoman for the IDA, says the meeting was an annual "general consultation."
A range of policy matters covering the markets, tax issues and, indeed, income trusts were discussed. But if Goodale had already decided what he planned to announce, he didn't tell the IDA. Instead, the group discussed a submission it would be making in response to the ministry's consultation period for trusts.
At some point in the day, Goodale also met with Martin, although they each have slightly different versions of their discussion. Goodale has said he did not have a final decision when he spoke to the prime minister. Indeed, Martin told his finance minister to make the decision and he would live with it, according to Goodale's version.
Martin's version is that he had a fairly good idea of what Goodale was planning and he felt his finance minister would call him if he changed his mind.
Word that Goodale planned an announcement was certainly making its way through the investment community. In fact, trading volume in trust units rocketed about 50 per cent beforehand.
One of the first signs came online, on StockHouse.ca, a popular Canadian site for investors. At 11:14 a.m., this posting appeared on its online board, under the subject heading Skuttlebut: "...he will soon announce a reduction on dividend taxation to `even the playing field'. If this is not coupled with assurances that he'll leave ITs alone, it is not acceptable. At least not to me. Z."
Another user posted a similar message a minute before the market closed.
Sandy MacIntyre, senior portfolio manager at Sentry Select Capital, was also told late that morning Goodale was going to make an announcement, although he will not say who called. An hour later, he got a similar call from a trading contact, who MacIntyre says was in turn told by his bank's investment adviser that the finance minister would be making an announcement on dividend taxes. A day later, MacIntyre wrote the Ontario Securities Commission, and later said it was "pretty clear somebody leaked this thing and they should be held responsible."
Another investment power broker, Jim Leech, the senior vice-president of the Ontario Teachers' Pension Plan Board, was out of his office, in meetings, all day but did receive multiple messages that an announcement was coming, the first email arriving at 12:10 p.m. He assumed, incorrectly, the news was bad for income trusts.
About two hours later, Don Drummond, chief economist at Toronto Dominion Bank, also got an email, from a journalist "who was just picking up on different rumours."
And just after the markets closed, Steve Cawley, a TD Newcrest bank analyst, speculated on a conference call. "Let's just make the assumption that at 5 p.m., and this could be the wrong assumption, that he lowers the dividend tax rate." Cawley says he heard there would be an announcement from a news release, but couldn't say when. A Bloomberg News article at 4:14 p.m. said Goodale was leaning toward implementing a tax on income trusts.
While speculation was rippling through the financial district, Goodale was being questioned in Ottawa, called on once in question period by Tory finance critic Monty Solberg.
"Mr. Speaker," Solberg, the witty Alberta MP, said from his place on the Conservatives' front bench, "the minister of finance is sending the signal that he might be starting the very long climb down from the income trust debacle. ... Now that the minister has had his nose bloodied by seniors and small investors who rely on income trusts, will he finally back away and declare that income trusts are here to stay and he will not raise taxes on them?"
Goodale responded with a reminder the government has been consulting on the issue, but gave away nothing to suggest an announcement was imminent.
"It is very important when making decisions to base those decisions on the best advice one can get," said Goodale. "Many of those seniors to whom the honourable gentleman has referred and many other Canadians have come forward to give me the benefit of their opinions and I value those opinions."
Shortly after 5 p.m., in the Commons, the Liberals tabled the parliamentary tool used to implement tax changes until full legislation can be passed.
By this point, two other cabinet members knew about Goodale's decision, House Leader Tony Valeri and National Revenue Minister John McCallum. Valeri is the procedural technician who shepherds business through the Commons and he knew the content of the motion. McCallum knew because of the tax implications of the decision.
Minutes later, Goodale's office sent out an official press release. The decision was now public.
It was at about 5:20 p.m. that McKay appeared on a CBC Newsworld panel alongside Solberg.
CBC host Don Newman asked McKay about the trust announcement that had just moved on news wires. The parliamentary secretary responded that the government was going to resolve the debate by slashing the tax rates on corporate dividends, which was correct. But then, he incorrectly added the Liberals would slap a new tax on some income trusts.
"He was not up to speed," a government source said of McKay.
"On the day of the announcement, instead of getting a full briefing, you're told, `Yep, we're going with option three.' But option three isn't the same option three it was on Monday," the source explained. "That's sort of what happened."
While it's not known whether anyone traded on prior knowledge of the details of Goodale's announcement, some observers say that just knowing an announcement was coming was an unfair advantage. Others, however, say that would not be in contravention of any laws and would be fair game.
Regardless, some say the income trust fiasco is a sign of sloppy planning.
"It's an object lesson in how not to make fiscal policy," said Hutchinson of Osgoode Hall Law School. "It's a classic case of bad policy-making."
Developing fiscal policy process should include consultations, proposals, discussions in cabinet and how the proposed policy fits in with existing policies, he said.
But other evidence suggests Goodale's original intent was to provide a thoughtful policy on the issue, said Richard Powers, business law professor at University of Toronto's Rotman School of Management. "There's no way they were going to piss off the electorate at such an important time," said Powers. "It wasn't a good decision because they didn't have the time."
But Bill Holland, a respected figure on Bay Street and the chief of CI Financial, one of the largest mutual fund companies in the country, said that while the decision "came out of the blue and caused unrest and confusion," he was satisfied with how the policy was made.
"It was a simple decision and was the first step in solving the problem."
Still, in a climate where Canada is also trying to strengthen its capital markets to attract investors, Powers argued that the rushed and seemingly bumbled decision-making process won't sit well with investors, particularly foreign investors, who might see financial regulations as being inadequate. Referring to Bank of Canada Governor David Dodge's now famous comment on the perception of oversight in Canadian markets, Powers said, "Once again, we'll be perceived as the Wild West."
Additional articles by Andrew Mills更多精彩文章及讨论，请光临枫下论坛 rolia.net
Star investigation dissects rumours
SEC now looking into controversy
Jan. 7, 2006. 01:34 PM
ANDREW MILLS
IN OTTAWA
SHARDA PRASHAD
IN TORONTO
IN OTTAWA
It was five days before the government fell. Late on Nov. 23, at about 5:20 p.m., Finance Minister Ralph Goodale's lieutenant appeared on national television, telling the country that the government was going to slap a new tax on income trusts, a decision that would affect the investments of millions of Canadians. Less than an hour later, Goodale corrected his parliamentary secretary at a news conference in Ottawa: The government had in fact decided not to tax income trusts and would instead lower taxes on corporate dividends.
It was the first sign something was badly amiss as the government played out its final days.
The events leading up to that announcement are now the subject of an RCMP probe. Based on heavy trading in the Toronto stock market in the hours before it closed on Nov. 23, the Mounties are investigating whether the government's plans were leaked in advance. Last night, the U.S. Securities and Exchange Commission announced it is also looking into the matter.
Some Bay Street players knew that an announcement was likely, though they did not know details. Goodale and Prime Minister Paul Martin have somewhat different versions of their discussion leading up to what was a major tax decision. And, it emerged this week, two other ministers also knew.
Anyone involved in the decision has been silenced from speaking publicly because of the police probe. Whether anyone traded in the market on a leak is not yet known, and likely won't be known until police complete the criminal investigation.
But at the very least, observers say, the events leading up to Goodale's announcement was "a classic case of bad policy making," bungling that would embarrass any government.
"Making policy on the fly doesn't work," said Allan Hutchinson, assistant dean of law at York University's Osgoode Hall Law School. "It leads to an ultimate decision that's a joke."
Goodale will not comment, citing the police investigation. Here, the Toronto Star dissects critical moments.
November was chaotic in Ottawa. The dying Liberal government was rolling out as many pre-election announcements as there was time for, cramming 145 of them into 23 days and totalling some $24 billion in spending.
One of those announcements was Goodale's, after stock markets closed Nov. 23, to resolve what had been a long-running debate on income trusts.
On Monday, Nov. 21, two days before Goodale's decision, a group of finance officials met in Ottawa to discuss how to resolve the income trust debate.
Ottawa had been studying the issue — indeed, many market players had believed the government would in fact decide on a tax — and had already halted advance tax rulings for companies that wanted to convert to a trust from a traditional corporate structure. This would not have been good news to Bay Street, where trusts now account for about 10 per cent of the value of companies listed on the Toronto Stock Exchange. At the same time, Ottawa had said it was looking at reducing the taxes on corporate dividends.
Several options were discussed during that Monday meeting, but, according to a government source, no decisions or even working decisions were made.
Among those at the meeting was John McKay, Goodale's parliamentary secretary. And what he understood — misunderstood, actually — at the end of that meeting would cause confusion when he went on television two days later, raising more questions about the way Ottawa handled the decision.
On Tuesday and early on Wednesday, finance officials met again and those options were whittled down.
Nobody will say exactly how or when Goodale made his final decision, but on Tuesday on his way out of afternoon question period he told reporters he had as yet made no decisions. "I am thinking my way through that issue."
At about 8:30 a.m. the next day, six members of the Investment Dealers Association, a self-regulator of the investment banking industry, met with Goodale in a boardroom on Parliament Hill. Connie Craddock, spokeswoman for the IDA, says the meeting was an annual "general consultation."
A range of policy matters covering the markets, tax issues and, indeed, income trusts were discussed. But if Goodale had already decided what he planned to announce, he didn't tell the IDA. Instead, the group discussed a submission it would be making in response to the ministry's consultation period for trusts.
At some point in the day, Goodale also met with Martin, although they each have slightly different versions of their discussion. Goodale has said he did not have a final decision when he spoke to the prime minister. Indeed, Martin told his finance minister to make the decision and he would live with it, according to Goodale's version.
Martin's version is that he had a fairly good idea of what Goodale was planning and he felt his finance minister would call him if he changed his mind.
Word that Goodale planned an announcement was certainly making its way through the investment community. In fact, trading volume in trust units rocketed about 50 per cent beforehand.
One of the first signs came online, on StockHouse.ca, a popular Canadian site for investors. At 11:14 a.m., this posting appeared on its online board, under the subject heading Skuttlebut: "...he will soon announce a reduction on dividend taxation to `even the playing field'. If this is not coupled with assurances that he'll leave ITs alone, it is not acceptable. At least not to me. Z."
Another user posted a similar message a minute before the market closed.
Sandy MacIntyre, senior portfolio manager at Sentry Select Capital, was also told late that morning Goodale was going to make an announcement, although he will not say who called. An hour later, he got a similar call from a trading contact, who MacIntyre says was in turn told by his bank's investment adviser that the finance minister would be making an announcement on dividend taxes. A day later, MacIntyre wrote the Ontario Securities Commission, and later said it was "pretty clear somebody leaked this thing and they should be held responsible."
Another investment power broker, Jim Leech, the senior vice-president of the Ontario Teachers' Pension Plan Board, was out of his office, in meetings, all day but did receive multiple messages that an announcement was coming, the first email arriving at 12:10 p.m. He assumed, incorrectly, the news was bad for income trusts.
About two hours later, Don Drummond, chief economist at Toronto Dominion Bank, also got an email, from a journalist "who was just picking up on different rumours."
And just after the markets closed, Steve Cawley, a TD Newcrest bank analyst, speculated on a conference call. "Let's just make the assumption that at 5 p.m., and this could be the wrong assumption, that he lowers the dividend tax rate." Cawley says he heard there would be an announcement from a news release, but couldn't say when. A Bloomberg News article at 4:14 p.m. said Goodale was leaning toward implementing a tax on income trusts.
While speculation was rippling through the financial district, Goodale was being questioned in Ottawa, called on once in question period by Tory finance critic Monty Solberg.
"Mr. Speaker," Solberg, the witty Alberta MP, said from his place on the Conservatives' front bench, "the minister of finance is sending the signal that he might be starting the very long climb down from the income trust debacle. ... Now that the minister has had his nose bloodied by seniors and small investors who rely on income trusts, will he finally back away and declare that income trusts are here to stay and he will not raise taxes on them?"
Goodale responded with a reminder the government has been consulting on the issue, but gave away nothing to suggest an announcement was imminent.
"It is very important when making decisions to base those decisions on the best advice one can get," said Goodale. "Many of those seniors to whom the honourable gentleman has referred and many other Canadians have come forward to give me the benefit of their opinions and I value those opinions."
Shortly after 5 p.m., in the Commons, the Liberals tabled the parliamentary tool used to implement tax changes until full legislation can be passed.
By this point, two other cabinet members knew about Goodale's decision, House Leader Tony Valeri and National Revenue Minister John McCallum. Valeri is the procedural technician who shepherds business through the Commons and he knew the content of the motion. McCallum knew because of the tax implications of the decision.
Minutes later, Goodale's office sent out an official press release. The decision was now public.
It was at about 5:20 p.m. that McKay appeared on a CBC Newsworld panel alongside Solberg.
CBC host Don Newman asked McKay about the trust announcement that had just moved on news wires. The parliamentary secretary responded that the government was going to resolve the debate by slashing the tax rates on corporate dividends, which was correct. But then, he incorrectly added the Liberals would slap a new tax on some income trusts.
"He was not up to speed," a government source said of McKay.
"On the day of the announcement, instead of getting a full briefing, you're told, `Yep, we're going with option three.' But option three isn't the same option three it was on Monday," the source explained. "That's sort of what happened."
While it's not known whether anyone traded on prior knowledge of the details of Goodale's announcement, some observers say that just knowing an announcement was coming was an unfair advantage. Others, however, say that would not be in contravention of any laws and would be fair game.
Regardless, some say the income trust fiasco is a sign of sloppy planning.
"It's an object lesson in how not to make fiscal policy," said Hutchinson of Osgoode Hall Law School. "It's a classic case of bad policy-making."
Developing fiscal policy process should include consultations, proposals, discussions in cabinet and how the proposed policy fits in with existing policies, he said.
But other evidence suggests Goodale's original intent was to provide a thoughtful policy on the issue, said Richard Powers, business law professor at University of Toronto's Rotman School of Management. "There's no way they were going to piss off the electorate at such an important time," said Powers. "It wasn't a good decision because they didn't have the time."
But Bill Holland, a respected figure on Bay Street and the chief of CI Financial, one of the largest mutual fund companies in the country, said that while the decision "came out of the blue and caused unrest and confusion," he was satisfied with how the policy was made.
"It was a simple decision and was the first step in solving the problem."
Still, in a climate where Canada is also trying to strengthen its capital markets to attract investors, Powers argued that the rushed and seemingly bumbled decision-making process won't sit well with investors, particularly foreign investors, who might see financial regulations as being inadequate. Referring to Bank of Canada Governor David Dodge's now famous comment on the perception of oversight in Canadian markets, Powers said, "Once again, we'll be perceived as the Wild West."
Additional articles by Andrew Mills更多精彩文章及讨论，请光临枫下论坛 rolia.net