Wednesday, April 26, 2017

Forget the Wall, We've Just Opened a Hell of a Door

Source: CBC News - Saskatchewan Government Passes Bill 40 Allowing Partial Sale of Crowns

Let's ignore the long absence, and just get right to it, shall we?

We've talked about Bill 40 before on the blog, and how the government was making overtures towards moving the goal line on what is and is not "privatization". There is a lot of be rehashed, which could just be gleaned from reading the old post, but let's do the cliff notes short version to make sure we're all on the same page:

  1. Saskatchewan law, under the Crown Corporations Public Ownership Act of 2004, which makes it such that a government cannot "bring into force" a bill that would privatize a Crown unless it occurs 90 days after the last election. (Nutshell: A government passes the law, has to campaign on it and be re-elected in order to actually privatize a Crown.)
  2. Wall's campaign in 2016 did not include any reference to selling off the Crowns; it was not an idea that was floated. As such, Wall cannot say that he fulfilled any aspect of the CCPO Act as mentioned above.
  3. Wall mused with a referendum as a potential out, but abandoned the idea in the face of overwhelming public resistance to it.
  4. Bill 40, which had the boring title of "an amendment to the Interpretation Act of 1995" was Wall's Hail Mary pass; in that the government would simply redefine privatization as a sale of more than 49% of a Crown. As such, as long as the province maintained 51% of the Crown's shares, it was not "privatized".
There, that should catch us up. If you're curious as to the case to why selling SaskTel, in any amount, is a bad idea, I encourage you to go back and read the first post on Bill 40.

Now that the bill is law, we need to add a reason to that list that hasn't been discussed very much yet. Surprisingly, the province has talked a bit about this given the cuts to the Grants-in-Lieu to Municipalities, but Wall and Co. have yet to address a very real situation they're about to open the door to.

In another nutshell, the Grants-in-Lieu of Taxes was an ages old agreement between the municipalities and the province as a means of revenue transfer from the province to the municipalities. But why, you ask?

The answer lies in the complex nature of taxation: No level of government can levy a tax against another level of government. As such, the Grants-in-Lieu of Taxes served as a complex web that compensated municipalities who couldn't levy taxes on the Crown Corporations in their communities. (For example, Yorkton couldn't levy property tax on the buildings owned and operated by SaskTel; since it would be one level of government taxing another.) This is a gross oversimplification of the Grants-in-Lieu of Taxes, and only looks at one aspect of the program, but it's the part we want to highlight for now.

Where else have you heard this argument?

Well, surprise surprise, Brad Wall has gone around for the better part of a year making this argument himself against the Federal Carbon Tax. Wall has argued that the province would have legal grounds to fight any federally imposed Carbon Tax if it was applied against any of Saskatchewan's Crown Corporations. Since one level of government cannot levy tax on another, a federal Carbon Tax would in effect potentially violate that notion. So, Wall is certainly aware of the limits of federal taxation when it comes to the Crown Corporations.

And that's what makes this next part rather shockingly frustrating.

Under Section 149, d.1 of the Income Tax Act of Canada, Crown Corporations are exempted from Federal Income Tax, as they are owned by the Crown. The problem, however, is that the threshold of what qualifies as a Crown Corporation is a corporation wherein no less than 90% of shares are owned by the Crown.

Bill 40 would allow the government to sell up to 49% of the shares in a Crown Corporation; leaving the Crown with only 51% of the shares, and thus falling massively below the federal tax threshold of 90%. As such, Bill 40 opens the door for any Crown to sell more than 10% of shares to be taxed on the federal level; a tax which they currently do not pay.

Wall, who has spent the better part of the last two years railing against any potential new taxes levied on Saskatchewan by the feds, finds himself in a somewhat hypocritical position here as he just passed a law that opens Crown Corporations to being taxed by the federal government once a stake in them is sold.

Pot meet kettle, and all that, I suppose. It is really quite strange to watch a politician who has been in a Quixotic-like war of words with the federal government pass a bill that basically cedes a lot of ground to them on the issue of taxation. I'd have some kind of joke here for that, but really, it's kind of too mind-boggling to even try.

The fact of the matter is, ultimately, Bill 40 is going to do more harm than good. As highlighted in the last post, SaskTel for example provides a level of service that would not exist under any "national" competitor. We talked about the Black Market for SaskTel cell phones across the country. We talked about the risk to infrastructure development and investment in "low coverage areas". We talked about the risk of rising rates once the regional carrier has been effectively rendered useless. And now, we can talk about opening the Crowns open to a federal tax responsibility they currently are exempted from.

So, what happens now?

Wall and Co. have been adamant that no offer is currently before the government on any of our Crowns, although their trustworthiness on this kind of issue is suspect at best given their history of closed room deals thus far in the province. (We'll talk more about this one at some point.)

The province thus far in response to the budget has been rather proactive. Earlier this week, cuts to provincial libraries were completely rolled back by the province; and a huge part of that was due to public outcry and support for our local libraries. As such, we've established that it is possible for the province to blink.

Which means that every action taken by this government from now is effectively a staring contest between them and the people of Saskatchewan. It's our job to get out there and make sure they're one who blink first.