OTTAWA, TORONTO -- Finance Minister Ralph Goodale signalled yesterday he may provide investors some direction on a proposed solution to the income trust dilemma before his Liberal government topples on Monday, a sudden change of timing that experts believe could pave the way for a politically popular dividend tax cut.
The finance minister said he wants to provide "the greatest degree of certainty that's possible" for income trust investors before an expected election campaign begins next week.
"I'm very anxious to ensure the greatest amount of certainty and I am obviously considering what the implications of a non-confidence motion might be," Mr. Goodale said, referring to opposition plans to defeat the Liberals.
He cautioned he has not made a decision yet. "I am thinking my way through that issue. I haven't come to a conclusion yet."
An early answer could anger investors who had been told they have until Dec. 31 to submit recommendations -- a point Mr. Goodale said he's pondering. "Obviously the early calling of an election overlaps with a portion of the consultation period so I am thinking through those implications."
Bay Street officials said they would not be surprised to see Mr. Goodale tackle the trust issue before the government fell, given how much of a political headache it has become for the Liberals.
The Liberal government cast a cloud of uncertainty over the once-red-hot income trust market in September by signalling it is unhappy with the current rules for trusts and may change them to reduce the tax advantages.
An early solution was applauded by some. "The sooner they come up with any firm indication of what the environment will be, if the Liberals are in power, it's incredibly beneficial," said Bill Holland, chief executive officer of CI Fund Management Inc.
Finance-watchers said the minister appears to be floating a trial balloon to gauge whether there would be huge opposition to an early solution.
Toronto-Dominion bank chief economist Don Drummond predicted in September that there was a 50-per-cent probability of the Liberals cutting the effective rate of tax on dividends if they acted on income trusts before an election.
He's now raised that probability to 80 per cent, but still can't rule out the possibility that the government may also apply some sort of tax on trust distributions.
Mr. Drummond said that of the three possible solutions Finance outlined in a September discussion paper, "only cutting the taxation on dividends would not cause pain in markets."
The case for a dividend tax cut is expected to grow when one of Canada's leading tax experts submits his recommendations to Finance later this month -- a paper officials in Ottawa have said would carry extra weight.
Jack Mintz, president of the C.D. Howe Institute, is expected to call on Ottawa to cut the effective rate of taxation on corporate dividends enough to remove any tax advantages for income trusts and make the dividend tax credit refundable so pension plans can claim it too.
Mr. Mintz said yesterday he would be "shocked" if Ottawa announced a solution before consultations are over.
"Why did I write a 40-page paper for an exercise in which the minister made up his mind already? He has wasted a lot of people's time if this is the case," he said.
"The sad part is there is no easy solution outside of doing nothing. If one thinks there is a magic bullet the likelihood is that mistakes will be made as the government panics."
© The Globe and Mail
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