Sadly, political dinosaurs escaped the comet

People ought not to laugh at dinosaurs while putting their faith in governments. For vast and terrifyingly strong but clumsy and incompetent predators, what rivals the modern state? This observation is prompted, this time at least, by Tuesday’s announcement that the Harper Tories will impose a sharp tax increase on “income trusts” to the understandable dismay of many investors and in violation of an explicit campaign promise. To be fair, it’s not actually that bad a policy. But the bipartisan shameless ineptitude required not to see it coming, and prepare for it in a timely and honest fashion, boggles the mind more thoroughly than any carnotaurus.

Allow me to explain. Carnotaurus is the only known predator with horns. No, sorry, I mean the “income trust” is a fairly new form of corporate organization under which companies are essentially obliged to return surplus earnings to shareholders rather than retain and invest them. It seems prudent, especially in mature industries where occasions for substantial innovative investment in the existing line of business are scarce and shareholders do not wish management and directors to indulge in trendily speculative projects unrelated to the core competency. But it should not be the job of government to encourage independently profitable business practices even in the unlikely event that it is generally capable of recognizing them.

Nevertheless, government encouraged “income trusts” by giving them far more favourable tax treatment than normal corporations. And you’ll never guess what happened next. At least you won’t if you’re a politician. When something that was already sensible also became a lucrative and relatively easy way to reduce taxes, a lot of people started doing it.

Now it hardly seems possible that one would pay money to encourage something unless one wished to encourage it and expected subsidies to have precisely that effect. But when it did, it created a crisis for government. So no laughing at spinosaurus.

I have commented before on the mind-boggling incompetence of modern politicians when it comes to the only thing that seems to interest them, namely government. In any other trade it would thoroughly discredit Dalton McGuinty that he promised to shut down Ontario’s coal-fired plants without studying the province’s energy needs, not to raise taxes without studying its fiscal needs, and not to tolerate the “Americanization” of health care through public-private partnerships in hospital construction without studying its capital needs. But is anyone even surprised that the alleged neoliberals in the Liberal party and alleged neoconservatives in the Conservative party acted as if they didn’t know people respond to incentives?

The weird thing is, I know from personal conversations that the Tory caucus includes people who do know it. And they must care, because many gave up more lucrative and less unsavoury occupations to advance free-market ideas in the political arena. But then, having done so, they somehow don’t allow the part of their brain that knows right from wrong and smart from stupid to communicate with the part that decides what to say and do next. For instance, when Jim Flaherty was running for the Ontario Tory leadership, I was led to understand that he was the mega-hard-right ultraconservative slashing right-wing bad person. But now he says he had to break his word on income trusts, trick investors and grab a huge pile of citizens’ money because “left unchecked, such corporate decisions would result in billions of dollars in less revenue for the federal government to invest in the priorities of Canadians.” Out here on the lunatic fringe, those priorities actually include keeping my own money and not being lied to brazenly by politicians. But I digress.

I knew the prime minister when he was a libertarian. How can he not have known incentives matter? How can he not have foreseen the massive move of corporations into income trusts, or the implications for revenue? And didn’t Department of Finance experts see it coming? If so, what can account for the failure of finance ministers and critics of all stripes to heed their warnings? Can’t anybody here play this game?

To be fair, the politicians know they can take our money any time they want, in any amount they want, as dimly and dishonestly as they please, and get re-elected. But it’s not exactly glowing praise, now is it?

So the next time you want to make fun of stegosaurus’ tiny brain, remember, when he saw an allosaurus coming he lumbered away or whacked it with his spiky tail. Whereas when we see the government coming, we just sit there.

[First published in the Ottawa Citizen]

ColumnsJohn Robson