Not to be trusted

Having missed the announcement last week, I'll take a moment to comment on the Cons' move to tax income trusts. It's certainly a pleasant surprise to see a glaring tax loophole closed, and Flaherty deserves due credit for that. But then, with the Cons there are few unmixed blessings...and it's not hard to see how the income trust announcement could be twisted later on to suit the Cons' purposes in dealing with other governments.

Domestically, it's been noted that the income trust move will also result in increased tax collection by the provinces. In and of itself, this would be a plus. But with a resolution to federal/provincial funding among the next items on the Cons' agenda, it seems entirely likely that the move will be twisted to avoid increased funding for the lower levels of government, as the Cons attempt to credit the increased provincial revenue as a contribution to resolving the fiscal imbalance while ignoring the greater boost to federal coffers. Which would leave more money in Flaherty's pocket to be contributed to the Cons' vote-buying efforts, and potentially undermine any good that could come from interjurisdictional rebalancing.

Mind you, a united provincial effort would be able to counter such a claim very easily. But since the provinces haven't yet shown any sign of being able to come to any consensus, the Cons could well manage to toss a coat of paint on equalization, claim to have added taxing power to the provinces, and declare the fiscal imbalance to be over and done with.

And that's just the potential domestic fallout. While the income trust move was a necessary one to avoid creating incentives toward tax loopholes generally, it undoubtedly caused some negative short-term economic effects. Hopefully the apparent rebound will continue - but if not, then the Cons may be able to use any ongoing decline as an excuse to claim that further integration with the U.S. is needed to try to boost Canada's economic fortunes.

Which, conveniently enough, would be a lot easier for the Cons to work out following the elimination of a gaping loophole which the IRS had long since rejected south of the border.

In fairness, the above concerns are largely speculative, in contrast to the immediate good of Flaherty's announcement. But it's still worth keeping an eye out to ensure that the Cons aren't able to use a single sensible tax policy as an opening to make matters worse on other fronts. And based on the Cons' stay in power so far, there's little apparent reason to believe that they have any other intention.