Blessed by the Potato

With an election underway, there’s bound to be a few more political posts here at BbtP as I think out loud on the issues coming up. I haven’t yet decided who I’m going to vote for: the Liberals certainly seem to be making the environment more of a priority, and Glen Pearson seems like a decent enough MP; OTOH, I might want to continue to throw the Greens or NDP a bone, especially since this is a pretty safe Liberal stronghold, so strategic voting doesn’t really come into play.

One thing I know is that I won’t be voting Conservative. They’ve been campaigning pretty much non-stop since the last election, with a non-stop series of attack ads. Negative campaigning usually turns me off in general: this isn’t the States with a 2-party lesser-of-two-evils choice, slamming one candidate/party still usually leaves us with two viable choices. Doubly so when they’re wasting energy campaigning outside of an election when they should be doing what they were elected to do. Despite my distaste for negative reasoning, I’m going to go on a bit of a rant here about why you shouldn’t vote for the Cons. I can’t really say if you should vote Liberal, NDP, or Green instead — that’s up to you to figure out based on the issues and the candidates who would represent you in your riding. Here though are just a few of the reasons why you shouldn’t vote Conservative this time:

-Income Trusts
-Hypocrisy in many forms: floor-crossers, accountability, senate election/cabinet minister, own election law.
-Not prime minesterial: thuggish, non-stop partisan attack ads on taxpayer dime (10%ers); Con MP will be just another Harper pawn, will not represent riding
-CNSC affair – dangerous precedent
-Corruption – Cadman, in-and-out election funds
-Bad policies – spending away surplus and lack of fiscal restraint; GST vs income tax; 40-year mortgages; child care; no green/global weirding plan to speak of
-Transparency and accountability: nonexistent
– Goes against grass roots of party locals (parachute candidates, etc), MPs accountable to Harper, not the riding (cf. Lunn’s “I serve at the pleasure of the PM”)
-“Ontario is the last place to invest” – which is just a complete WTF moment coming from the guy who set the very taxes he was complaining were too high just a few years previous.

A few days ago I hammered that point-form summary out, intending to flush out each of those bullet points for anyone that wasn’t familiar with the issues, but I think with the exception of the 10-percenters (I don’t think they’re bothering to send them to Toronto) everyone should be pretty familiar with what’s going on here, and I don’t really want to spend too much time rehashing idiocy and negativity that make my head spin. So, quickly: ten percenters are mailings that MPs are allowed to send to 10% of their riding, that are paid for by the government (via our taxes). They’re supposed to be information fliers: for instance, you pass a new law about car seats, and send information to the 10% of your riding with a high portion of new parents; you change pension rules and send one to an area with a high portion of seniors. On average, I got 1 a year from my previous MPs. The Cons figured out that they could send them not just to their riding, but any riding. So even though I have a Liberal MP, I’ve been getting non-stop fliers (6 so far this year) paid for by the government, outside of an election period, from Conservatives. They are not informational, and in fact look exactly like their billboard attack ads “Dion’s Tax on everything; Not a leader; Dion will take away your 2% GST rebate”. It’s disgusting, and not the least bit prime ministerial to have a mailing ostensibly from Stephen Harper himself that is paid for by the government to bomb my riding with very negative, very partisan ads that have nothing to do with anything in parliament — there isn’t an election, Dion isn’t in power, and hasn’t even said the things they say he said he’d do. It’s clearly a political ad, yet the government is paying for it as though it were an informational mailing. There’s something deeply wrong with that, but censure, if it comes at all, probably won’t come until after the election… (for an example of some Con 10-percenters, click here)

Instead of focusing any more on that, I’ll quote liberally from a recent post by John Scalzi, on his site Whatever. His post was about the US election going on now…

“It’s a campaign that will lie and continue to lie when called on its lies because as far as it can tell it’s being rewarded for doing so.
[…]
When there is no real-world penalty for lying, distorting and demonizing, then the only thing to stop you is your own moral compunctions. However, if McCain actually had any moral compunctions on this point, he wouldn’t be running the campaign he’s running now. And I would suggest that a man who shows no moral compunction in pursuit of power is not a man who will suddenly find those compunctions once he has power. An election is a job interview, people. If someone lies to you during a job interview, and says to you “yes, I’m lying, what of it?” when you catch them in the lie, and you hire them anyway, well. You shouldn’t be surprised at what comes next.”

So even better than an election campaign, we’ve had a minority government to test-drive Con governance. And what did we get? Extreme partisanship, pork-barreling, broken promises, stupid promises upheld even under shifting economic sands, hypocrisy, and single-minded arrogance (no coalition or compromise seeking in the minority government, instead just election threats and confidence measures). Indeed, this is a leader who thinks he’s above even his own laws. I shudder at what might happen if the Cons get a majority government and then find some part of the charter of rights and freedoms inconvenient. Then the election comes along, and we get, yes repeated lies (ok, Garth Turner isn’t exactly an unbiased source). We get fearmongering rather than a debate on the issues. To some extent the hyperbole and vilification is there in every election, but the Cons seem to have taken it to new lows, and it makes me afraid not of the Green Shift, but of what might happen if the Cons win…

Of course, there’s a small part of me that’s afraid of a deeper game here. What if Stephen Harper’s insanity is a sacrifice play? What if they knew that the subprime issues in the States, the blowback from globalization and oil consumption were going to come to a head near the end of this decade? What if they called this election just before an unavoidable and severe recession hits, and just happened to throw the election and let the Liberals into power? What if they then later blame said recession on the Liberals, and get to become the ruling party for the next two decades? Because sometimes, it just looks like they’re trying to make themselves unelectable (though damnit, too many people are afraid of this carbon tax thing to see the real danger). Of course, the polls say they’re ahead, but I don’t know if they’re only polling out in Alberta or what, because I don’t know anyone who’s pulling for the Cons.

The Liberals have made one of their election promises to reverse the damage Harper & Flaherty have done to income trusts, and set a new tax of 10% which should bring them back to something approaching fair (it might just swing back too far towards benefiting trusts with the rebate, but it’s a hell of a lot closer than 31.5% was). This has brought the whole issue back to the forefront for a surprisingly small amount of people — most people never knew what an income trust was to begin with, or have written the sector off for dead and couldn’t care less about a Liberal promise. From a political point of view, it’s a brilliant promise because it points out to burned trust investors that the Cons broke their promise (flagrantly) at the same time that it talks about what the Libs will do. It’s negative campaigning at it’s best, because the negative part is fairly subtle. “They’re bad, and we’re better than them and have a plan to fix things.” vs. the usual Con rhetoric of “They’re bad, and we’re not them” which just doesn’t motivate me.

Anyhow, I know most of my readers won’t care, and in fact probably don’t know what an income trust is. Being an income trust investor myself, I’m going to do a post on the matter.

So for starters, what is an income trust? Well, it’s a special kind of company, a corporate structure. Like public corporations, you have shares (units) traded on an exchange such as the Toronto Stock Exchange, that represent ownership of the company. Unlike a regular public corporation, the money the trust makes is not taxed by the government in the hands of the company — instead, the company distributes the money every month to its owners (you, the unit holders), and it’s taxed there. There are various rules about how much a trust is allowed to grow and whatnot, but that’s the basic idea. The first wrinkle comes in that some of the distributions are (often) not interest, or employment income or even dividends when they go to the unitholders to be taxed, but rather are (or can be — some parts can be interest, income, or dividends) “return of capital”. This means they’re not taxed right away when you get them, but can be deferred until you sell your units (it affects your adjusted cost base*), and then at half your marginal rate.

So far, it’s looking about the same from the investor’s point of view: they can make the same money from either capital gains on a corporation’s shares or an income trust, and only pay capital gains tax (at half their marginal rate) when they sell. Then you consider that there’s a time advantage to getting the money up front but deferring the tax, which the income trust investor can do, and on top of that that the corporation was taxed on its money that it reinvested in itself, whereas the income trust was not taxed on its money. Then things start to look pretty rosy for the income trust setup, even with the other rules. They’re fantastic for people like seniors and students: you can get some cash flow up front, to keep the pizza and coke fund afloat while you’re still working a little, then when you’re finally in school full time (or retired), you can sell your trusts, and not pay much (any) tax since you’re in a lower tax bracket. The restrictions on growth were easily met by mature companies, and indeed it’s a pretty optimal structure for a company that has plateaued in its growth and capital expenditure and is now just churning out cash.

Of course, the deal seemed a little too good to be true, and there were ever more companies deciding that they would convert. There were accusations of “tax leakage” — that less tax overall was being returned to the government with trusts than with corporations. It’s kind of a difficult thing to figure out: yes, there almost certainly was less tax being paid by trusts**, but how much? Some of it was being taxed in investors hands, and while regular corporations faced double-taxation, that was only on their profit whereas income trusts get taxed on their cash flow (in the hands of investors). Was it worth bothering with, especially given the other benefits trusts offered (when you’re not taxed “expensing” something has a different meaning — I haven’t conducted a thorough survey, but obscene salaries, perks, and bonuses are seemingly less common in income trusts; stability in returns; regular cash flow vs. having to regularly sell when you’re in say, retirement)?

When behemoths Bell and Telus decided to join in the fun it started to become clear that there might be a problem, that the trust structure was clearly more lucrative than was fair. (Though according to CAITI Bell and Telus hadn’t paid any corporate taxes anyway, so converting to a trust would increase government revenues — again that point about taxing net income vs cash flow).

To “fix” this problem, the Cons, Flaherty and Harper made a surprise announcement, apparently having done no research on the subject, imposing a punative 31.5% tax, to come into effect in 2011. Now the evidence is clearly showing that this tax is too much to be fair because there is a torrent of companies converting back into regular corporations. Indeed, it doesn’t look like the government will collect anything from it’s 31.5% tax, because there won’t be any profitable trusts left. When asked to prove how they got to their figures on tax leakage, they released 18 pages of blacked-out documents, which tells us that they probably were wrong and are just too bone-headed to admit it and fix their error, or, as they have done before, they ignored the advice of their experts and just did whatever the hell they felt like anyway.

This was a hugely bad move not just from the point of view of killing the whole trust sector, but it also put the government on a bad foot because they were rash and impulsive. This was an election promise that they flagrantly broke, with no evidence provided that it was necessary. Moreover, this was not introduced gradually, there was no study. They didn’t halt new conversions and invite testimony from the corporate world, they just leaped out of a dark corner and sprung this on the market, and let me tell you, the market fucking hates that shit. It’s very difficult to do business in an environment where the government is pulling the rug out from under you and changing the rules all the time. Not just trust investors, but everyone suddenly had to be on Harper/Flaherty watch: what if a golf buddy of his complained about the favourable tax treatment solar water heaters were getting, would he jump in on that “crisis” and start taxing the sun to level the playing field with natural gas? If someone in the grocery line complained that cheese didn’t have GST but Coke did, would he run off to “fix” that, and add a cheese surcharge and tank that industry? What if he suddenly started believing in global warming?! Oh, the damage he could do in a brash unresearched move***. I’m all for fairness, and an income trust tax was probably necessary. But if you’re going to do that to the market, you’ve got to show up with a binder the size of the Yellow Pages documenting how you came to that conclusion, and showing that your new tax would be fair but not punitive, and moreover, showing that you’re taking this move as part of a well-researched plan, and aren’t just jerking the business world around on a whim.

And, as has been pointed out numerous times, the surprise announcement lead to a sell-off, which foreign and private companies/pension funds took advantage of to snap up trusts, and hey: now the tax leakage just got way, way worse.

So the Liberals have promised to put the tax at 10%, which to me seems more like where fairness should be (though rebating that might swing the pendulum back a bit too far in favour of the trusts). It should remove any tremendous tax advantage from either side, and will let companies pick the structure that best suits their investors based on other factors — are they mature, more suited to spinning out cash in a predictable fashion? Or do they still have potential for growth? Are they majority owned by crotchety old seniors and pension funds who want stability and cash flow from their mature industries, or hot-shots with blackberries trying for a two-bagger? Should they take on incredible amounts of debt to become highly leveraged, or would they benefit from being more stable with modest debt levels? I’m a trust investor, and I like having options, so I think the trust structure should remain a viable option, but yes, it shouldn’t be a privileged one.

My idea is that if the big symptom of a problem, the indicator of a preferred tax setup, is that too many companies are trying to convert; but that it just takes too much studying to try to determine the tax leakage and a fair tax rate from the government’s side… then let the market determine the fair tax rate for trusts. Let one and only one company convert to trust status each year, and let them bid on the tax rate they’re willing to pay to make it worth their while. Whoever is willing to take on the most tax burden gets to switch, the others can try again next year/quarter/whatever.

*** – hell, he risked nuking Chalk River/Ottawa because those damned “Liberal” safety people wouldn’t turn the 50-year old reactor back on without, scoff, backups. Oh, but he had it on good authority that it wouldn’t blow up, but he couldn’t share his evidence… but that’s a rant for another day.

The Cons have been campaigning non-stop since the last election, itching to throw down by making nearly every issue in parliament a confidence vote. Finally sick of working within a surprisingly functional minority government, Harper has broken his own fixed election date legislation and called an election. I’m actually quite surprised that it’s coming — I felt sure the Governor General would slap him about the head with his own fixed election date, and give Dion a shot at being PM for a week.

Looks like I’m going to have to get off my butt and do some thorough research into the Liberal Green Shift plan — though my riding is likely to go Liberal anyway.

Not too long ago, there was a considerable political stink raised when the NRU in Chalk River went down for maintenance and was found to not have the proper emergency power supplies, etc., in place. The outage caused a significant ripple in the medical community, as the NRU provides about half of the Tc-99m used in the world, the most commonly used isotope in nuclear medicine. Indeed, it was pressure from patients and the health care community that made the government take the incredible step of over-ruling the nuclear safety watchdog.

The restart and upgrades to the NRU are really just stop-gap measures though: that reactor is a bit of a dinosaur, and due for replacement. Long in the works, the twin MAPLE reactors were supposed to be that replacement, but recently it was announced that their continued development was going to be cancelled. They had been almost completed, when it was found that their reaction characteristics were not as expected, and years of tinkering and experimenting were not able to find or fix the design flaw. For now, things will muddle on: the NRU has a license to operate until 2011 and can probably continue operating for a few years beyond that.

But the simple fact remains that Canada has no long-term plan for the supply of isotopes for nuclear medicine. And that means, essentially, that half the world doesn’t have a long-term plan for medical isotopes. One thing we can say for certain is that nuclear medicine is about to become a whole lot more expensive. All along, the costs of the NRU have not, AFAIK, been passed on to customers. Money was not being collected to fund the construction of MAPLE reactors. The Canadian government was essentially subsidizing the cost of nuclear medicine the world over. I’m all for subsidizing it in Canada, don’t get me wrong, but my understanding is that our exports of nuclear material did not fully recover the true costs (granted, including money sunk into research in the 50’s/60’s).

An alternative option for many (but not all) present nuclear medicine scans is the use of PET. PET is not currently paid for by OHIP, largely because it is seen as too expensive, even though it offers advantages for some types of imaging (e.g.: cancer). However, that cost disadvantage is partly artificial: a PET scanner requires a ~$10 Million cyclotron facility within about 2 hours of driving distance, which adds up to a fair number of cyclotrons needed across the province. However, traditional nuclear medicine requires a billion dollar+ reactor, which just happens to be subsidized by the Canadian government.

It’s hard to say at this point what the future will hold for nuclear medicine. Maybe it will get more expensive, as a private group (or another country, like the US) builds a reactor to replace the NRU, and tries to run it at a profit. Maybe it will change quite rapidly over to PET imaging if the end of the NRU is seen with no replacement in sight. Or perhaps nuclear medicine will go away, except for a small number of truly needy cases who might warrant bringing isotopes across the Atlantic.

PEI has always been a bit of a funny place out on its own. Part of its unique character was the fact that you couldn’t get pop in cans out there. Oddly enough, juice did come in cans, but anything carbonated had to come in a bottle. A lot of people bristled against this, and one of the most common things to buy when on an excursion to New Brunswick was a couple of cases of Coke, but the system worked for the most part. The bottle deposits were fairly hefty — 30 cents for a 750 mL bottle IIRC, and as much as $2 for a 2L (which are no longer around because they were frickin heavy) — which is I think part of why it worked so well. Ontario also has a bottle return system (though it’s been several decades since pop or juice came in returnable containers) run by the Beer Store, which does a half-decent job of reusing the bottles; and reusing them is much more efficient than throwing them in the recycling. However, the deposits have really not kept up with the times, and far too often people simply throw their bottles into the recycling, where rather than be rinsed and refilled, they are smashed, melted down, and reformed (which, as you can imagine, takes a lot more energy). At 10 cents a bottle though, only serious drinkers with a full case (which is, from the looks of the stats, about 90% of beer drinkers) and a car tend to bother bringing them back — I know that even though I’m probably going to be close to the Beer Store tomorrow, I’m not going to bother trying to return the two bottles that were left at my house after the long weekend party for a lousy 20 cents.

The bottles are so near worthless that drunken kids throw them just for the sheer idiotic hell of watching them smash, never mind the dangerous broken glass. Which is, unfortunately, a nasty side effect of a bottle economy, and one of the main reasons PEI is now phasing out its bottle system and allowing cans back on the island (though from what I just saw in the grocery store, the 2L plastic bottles are more popular than the cans). With pop in bottles, the danger is amplified by the fact that kids can have access to them, knock them off store shelves or out of the fridge. Kids are clumsy. Adults (and who else is allowed to drink beer or liquor) should be able to handle not breaking bottles — even drunk adults (ideally, anyway). So here’s what I think: we should increase the bottle deposit to make beer bottles worth something again. The deposit in Ontario has been a dime for as long as I can remember — decades, at least. To keep up with inflation, that should have tripled to over 30 cents by now. To account for the fact that people are perhaps a little lazier and/or more smash-happy these days, and for the fact that the bottle deposit probably won’t be touched (if we do change it now) for another 3 decades, I propose that we increase the bottle deposit to an even buck.