Good policy, bad politics

It’s got to be some sort of trick -- some cunning Conservative dodge, some deeply Roveian sleight of hand, in which what looks to the untrained eye like political suicide is revealed in the end to have been a political master stroke. Consider: At one blow, by suddenly reversing course and imposing a tax on income trusts, the Conservatives have infuriated old age pensioners, seriously put out Bay Street,  and destroyed $25-billion in wealth. Oh, and flat-out broken an explicit campaign promise from the last election -- just in time for the next. Confound your devilry, Jim Flaherty! It’s so stupid, it’s brilliant!

Mind you, the Conservatives appear to have covered off some of the worst political fallout. The increase in the Old Age tax credit (why should you get a tax credit just because you’re old? As an incentive for old-agedness? Just asking...) and the legalization of income splitting for pensioners will take some of the sting out for the elderly and enraged. Other investors will be mollified somewhat by the reduction in the general corporate tax rate, and by the four-year grace period for existing trusts. 

And to the extent that Bay Street does kick up a fuss, Mr. Flaherty seems to have no compunction in playing the “corporations have to pay their fair share of tax” card, in cheerful disregard of an inescapable fiscal truth: no corporation ever paid a dime in tax. (Corporations don’t pay tax, people do -- the people who own them, or the people who work for them, or the people who buy their products, though no one’s quite sure what proportion is paid by each.)

On top of which, it happens to be the right thing to do, so far as that matters in politics. But the Tories will get credit from some voters for decisively grasping the nettle, without too much dithering about -- and without letting on what they were up to. No one could have claimed to have seen this coming. So the Liberals will have to be careful about any attacks they might mount, for fear of dredging up memories of how the last package of changes to income trusts was handled. (Scott Brison, please call your office. Or better yet, text-message, dood. LOL.)

But... there is that little matter of the broken promise. The Tories could not have been clearer in the last campaign. “A Conservative government,” the party platform read, will “stop the Liberal attack on retirement savings and preserve income trusts by not imposing any new taxes on them.” Read our lips. Governments are given some latitude for changing course in the face of changing circumstances. But what is there about present circumstances that could not reasonably have been foreseen last January? 

Mr. Flaherty says it was the prospect of a flood of large corporations converting into income trusts that forced his hand, notably the announcements to that effect by two large telephone utilities, BCE and Telus. Fair enough: no government could tolerate either the revenue loss that would entail, or worse, the distortion of economic activity involved in such a massive exercise in tax arbitrage. But everyone knew that this was a prospect, indeed a likelihood, last year at this time. That’s why the last government cut the dividend tax, though it only succeeded in closing part of the gap. 

You say all those coporations rushing to file as income trusts turned a likelihood into a reality? What did you expect? You told them to. A Conservative government will preserve income trusts. By not imposing any new taxes on them. Apparently they took you at your word.

That’s the part of this that’s going to do the most lasting damage to Conservative election prospects. Keeping their promises was supposed to be part of the Conservative brand: that’s what the “five priorities” were about. Sure, they’ve already fudged, if not broken, about two and a half of them -- the wait times guarantee (still waiting -- perhaps we need a wait time guarantee on the wait times guarantee), the Emerson and Fortier appointments, the promised access to information reforms. But never in such a clear-cut, inarguable fashion, and on a matter as dear to the voters’ hearts as taxes -- money, in other words.

Should they, then, have stood by and done nothing, while corporate Canada poured through the income trust loophole? Should they have kept their promise, even if the promise was bad policy? No. But that doesn’t get around the apparent bad faith involved in making the promise in the first place -- a promise they must have, or should have, known they could not keep. 

But who’s going to call them on it? The Liberals? The party that was going to scrap the GST? The NDP, who’ve never had to keep a promise, never having been in power? In truth, every party is guilty of this, and in consequence none of them is trusted -- even when they’re telling the truth. And with each more extravagant effort to convince voters that, this time, we really mean it -- what, after all, were the Conservatives elected on? -- the damage is greater, and public cynicism grows. 

What will they campaign on, any of them, next time? What promises can they possibly make? Why should anyone believe them?