A young bull and an old bull survey a large herd of heifers in the valley below. Says the young bull, "Hey, let’s run down there and have us one!” The old bull replies “Nah. Let’s walk and have them all.” *
Canadian Prime Minister Harper, Old Bull if you will, has taken the ambled route since his finance minister Jim Flaherty announced the decision last October to tax distributions of the country’s income trust sector under the wonderfully named “Tax Fairness Plan” (TFP).

Hopes had been high amongst the energy trust subset that concessions/exemptions would be made beyond the 4 year tax holiday. But no - Old Bull is going to have them all.

To put this in perspective, PM Harper broke an election promise pursuing the income trust tax element of the TFP. So when it became law on June 22 the energy trusts must have taken a long hard look at their lobbyists: the bill had survived three readings, a Committee stage and a Reporting stage in the Commons - and the same again in the Senate - all without concessions/exemptions.

Some now hope the legislation, enabled by a minority government, will not survive its creators by much. Canadian minority governments have an average life span of 18 months and so, the thinking goes, there is a potential re-rating catalyst in the offing if the Tories fall before 2011. Mr Harper’s conservative administration is now 19 months old and the latest polls are not good.

However, there is no obviously superior opposition alternative waiting in the wings. Certainly there is no opposition confident of outright victory were an election called next month. Moreover, times are economically sweet stupefying the average voter’s civic motivation; and, in any case, this scribe has yet to see a government, new or incumbent, significantly reduce its revenue by wiping taxes off the books merely out of the goodness of its heart.

If this legislation is ever rolled back it will most likely be on a commodities downturn in a time of political compulsion. It is one thing raising the cost of capital for energy trusts when times are good. But let sector job losses hit or ‘energy security’ become the focus of public attention and electable minds backtrack soon enough.

Through it all, the financially soundest energy trusts appear ‘holds’ at worst whatever form they might choose to take post-2011: until then they yield as much as 15% (think of the wonders of compound interest); sector consolidation seems inevitable as changes to the tax system impact marginal trusts; conversion to alternative trust-like tax structures is not out of the question though tricky (domicile changes); and the Magic of Chinese Demand continues.

* Obviously this is the polite version.

PS: That cowboy suit.

NB: Author holds Canadian energy trust units

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2 comments

  1. Charles Butler // 7/19/2007 08:42:00 PM

    Of course it's a little unusual the political landscape right now, what with the Bloq effectively orphaned by the last Quebec election and lifelong Conservative - and possible successor to Harper - Jean Charest heading the provincial Liberals in La Belle Province, closely hounded by the very Conservative-friendly ADQ. It is difficult to imagine the BQ signing their own death warrant by bringing down Cowboy Steve, at least until the PQ (so many initials!) shows signs of reorganizing itself. Keep in mind that I am generally proven wrong on these things.

    The party, BTW, went to all lengths possible to supress the second photo during the election. Did they get to you, too? Come clean, Rawdon.

  2. RJH Adams // 7/19/2007 09:45:00 PM

    Hey, I put the link to his Village People gear in didn't I?

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