A new independent study refutes claims that income trusts hinder productivity growth or economic expansion in Canada.
According to a report by HDR|HLB Decision Economics, firms adopting the trust structure are in fact making a marked positive contribution to Canada’s overall economic performance.
The study was prepared at the request of the Canadian Association of Income Funds late last year.
The study refutes a report released last week by the Certified General Accountants of Canada asserted that the trust structure itself, and specifically its regular distribution payments to unit holders, may hinder capital investment and in turn growth.
The HDR|HLB Decision Economics study found that claim to be unsubstantiated, as the rate at which firms invest in fixed assets, capital equipment and technology-based business processes and logistics was found to remain largely unchanged following the adoption of a trust structure.
“This report sets the record straight on the positive contributions income trusts deliver to Canada’s economy,” said Paul Hollands, CEO of A&W Revenue Royalties Income Fund and chairman of CAIF, in a release.
“Our study found that the majority of income trusts operate in some of the most capital intensive industries within Canada’s economy,” said David Lewis, chief economist of HDR|HLB Decision Economics. “There is no evidence to suggest that the adoption of trust structures has had, or for that matter will have, any negative effect on capital investment or Canada’s economy.”
In 2004, the mining and oil and gas sectors, which represent more than half of all income trusts in Canada, had a capital intensity ratio of $1,848 in fixed assets per worker. This figure dwarfs the capital intensity ratio of Canadian industry as a whole of just $188 in fixed assets per worker.
The capital intensity ratio is simply the ratio of the total money value of capital equipment to the total amount of labour hired. Rising capital intensity increases the productivity of labour, so a society that is more capital intensive tends to have a higher standard of living over the long run than one with low capital intensity.