Plenty of hot air has been expended on the income trust issue, and there’s surely more to come. But if there’s one unqualified good that comes out of this whole mess, it’s that it highlights the need for tax reform.

The government’s stated reasons for taxing trusts — tax leakage and capital market distortion — seem overblown. At the same time, it’s hard to argue that there should be wildly different tax treatments for different corporate structures. Moreover, securities regulators have done little to ensure that investors know they are buying equities, not fixed-income products, and that trust disclosure is adequate.

But there’s no question that the issue could have been handled better. Although springing a big surprise on the market was, perhaps, the fairest way to do it, a more consultative approach may have resulted in a less drastic decision.

At the very least, the latter approach would have given the (largely retail) income trust investor base a signal that there could be some change to trust taxation. The more risk-averse would then have had a chance to adjust their portfolios; and those who didn’t couldn’t claim that the government completely blindsided them. If nothing else, the government’s horrible handling of the income trust file gives it plenty of fences to mend.

The popularity of income trusts can be read as an implicit vote for corporate tax cuts. Cutting unproductive capital taxes, lowering corporate taxes generally and enacting other changes designed to boost productivity should also, ultimately, increase income available to shareholders.

Many voters may not make the link between lower corporate taxes and their own financial health. But there is much that can be done to appease them, as well. Enhancing a household’s ability to save and invest for retirement, and improving its flexibility to manage its retirement might ease the sting of the new trust tax. That means following through on promised capital gains tax relief; boosting contribution limits and loosening the rules around RRSPs; and introducing a vehicle, such as tax-prepaid savings plans, that would help lower-income households save.

If the feds follow up this credibility-crushing income trust decision with a plan for a much more productive and efficient tax regime — voters may yet forgive and forget.