It’s been said that Canadian Prime Minister Paul Martin is not unlike a bean bag chair, taking the shape of whoever last sat on him.
But “Mr. Dithers” is showing some uncharacteristic firmness in supporting floundering finance minister Ralph Goodale, who says he will not step down from his post in the face of a criminal investigation into his department by the Royal Canadian Mounted Police.
Investigators are looking for information and evidence related to the income-trust scandal — only the latest in a string of scandals to come out of the Liberal Party of Canada.
For our many foreign readers, a quick backgrounder: Canadian income trusts use a corporate structure that’s essentially a huge loophole, allowing a company to virtually cease paying taxes and instead pay out most of its profits to its unitholders, who may or may not pay tax.
Popular with the retail crowd, and especially seniors who like the trusts’ trademark monthly payouts, the trust-unit sector has ballooned from a total market capitalization of $18 billion at the end of 2000 to over $170 billion by last September.
(As hot as the sector has become in recent years, there are still currently only three Canadian mining-related trusts: Noranda Income Fund, Labrador Iron Ore Royalty, and Fording Canadian Coal Trust.)
However, by the end of October 2005, there was much uncertainty whether the federal government would finally put an end to this damaging market distortion and start taxing trusts like any other business. This fear had helped knock some $23 billion in market cap off the sector in just a month.
On November 23, 2005, after the markets closed in Canada, Goodale broke a promise that he would hold off on making a decision on the matter until the end of the year, and instead announced that the federal government would not be imposing any new taxes on income trusts. As well, taxes on dividends would be reduced, thus making dividend-paying stocks more attractive relative to trust units.
The move was widely seen as a crass pre-election move to placate cranky seniors as well as the Bay Street crowd, who have made fortunes in recent years dressing up sometimes moribund companies and then spinning them off as trusts units.
However, in the last hours of trading before Goodale’s announcement, there was a flurry of large-scale buying in the trust-unit sector by only about one-third of Bay Street’s brokerage houses, and prices soared.
Anyone who looks at the trading pattern of these trust units can see there was a high-level leak, and many seasoned veterans have confirmed on the record that there were tip-offs for a select few from well-connected Liberals.
The next trading day, there was a far broader surge in prices and trading volume in trust units and dividend-paying stocks.
Those who had jumped deep into the trust sector in the hours before Goodale’s announcement made a lot of quick, easy money. For instance, according to CTV National News, TSX Group CEO Richard Nesbitt — by amazing coincidence — happened to purchase $759,000 of stock in the hours prior to the announcement and made a $100,000 paper profit the next day.
Right from the start, Goodale denied there had been a leak, even in the face of the obvious, damning trading patterns and the many admissions from top Bay Street players that they were aware of a leak.
By not immediately calling for an independent investigation himself, Goodale’s credibility as a finance minister sunk to a new low, even below the depths he reached in the summer when he agreed to a hasty $4.6-billion addition to his mini-budget in order to gain New Democratic Party (NDP) support and allow the minority Liberals to survive in power another half-year.
The issue festered for a full month until the week between Christmas and New Year’s Day, when RCMP commissioner Giuliano Zaccardelli confirmed to NDP finance critic Judy Wasylycia-Leis that the RCMP had completed its initial review of the leak allegations she’d made and, based on what it had found, was proceeding with a criminal investigation “regarding a possible breach of security or illegal transfer of information” in advance of Goodale’s announcement.
Sadly, this is not unprecedented with Paul Martin’s gang: it’s the thirty-third criminal investigation targeting the Liberal government in the last three years.
And there may yet be another parallel investigation: the unusual, pre-announcement trading in trust units and related stocks also took place in stocks inter-listed on the New York Stock Exchange, making the scandal within the jurisdiction of the U.S. Securities and Exchange Commission (wittily described by Canada Stockwatch recently as “Canada’s finest stock regulator”).
The NDP also complained to the Ontario Securities Commission, but it has so far been its usual quiet self on another big issue.
Now we have Martin and Goodale changing their stories on a daily basis.
First, Goodale denied there was any leak and said he had sufficiently investigated in his own department, but then admitted that the Prime Minister’s Office (PMO) and not just the finance department was aware of his decision beforehand.
Goodale finally admitted he’d told Martin, either the night before or, at least a few hours before his announcement, and Martin confirmed that he “knew” and was “one of those” in the PMO that did.
Then, Goodale suddenly remembered that he never did tell Martin, and Martin said he knew “which way Goodale was leaning” but not “exactly.”
Under parliamentary tradition, Goodale is personally responsible for what goes on in his department, and any minister respectful of the foundations of our governmental system would normally step aside during a criminal investigation into the goings-on at the very top levels of his own department.
That Goodale is so keen to snub the Canadian public and hold on to power for even a few more weeks speaks volumes about how deeply the Liberal party has debased federal politics in this country.
Paul Martin’s promises when he became leader to clean out the deadwood in his own party quickly proved to be only half the real story: he has been eager to root out corruption and incompetence only if it results, in the expulsion of rival Jean Chretien loyalists. As for corruption and incompetence linked to his own partisans, Martin has been all too willing to look the other way.
One glaring example of this double standard has been Martin’s failure to speak out against the awarding of lucrative polling contracts to political insiders who are then required in their contracts to submit only “verbal reports” to the government, leaving no paper trail of any work performed.
This outrageous practice has been condemned by the auditor general, who singled out the Department of Finance, which, under Paul Martin, relied heavily on these verbal reports in contracts with Martin’s friends at Earnscliffe Strategy Group. The company earned almost $6 million from federal work since 1993 and did the dirty work behind the scenes to make Martin prime minister.
We hope Goodale stays on as finance minister until election day on January 23, so that more Canadians can see that the Paul Martin Liberals are little different than their predecessors under Chrtien.
That way, more Canadians might wake up out of their thirty-year Trudeaupian stupor and ask themselves, as they cast their ballots, “Why should I reward the party that has betrayed Canadians’ trust over and over again?”
The first move a Conservative minority government will make is to introduce its sweeping Federal Accountability Act, which will take a big step towards returning ethics and accountability to the upper levels of our national government. The act should have the support of the other opposition parties.