Ok, let’s see if we have this straight. The CEO of the Royal Bank of Canada muses publicly about the bank becoming an income trust. The prime minister is not amused and orders that the hottest thing in capital markets be shut down.

Granted, this is only the Globe and Mail’s explanation of why Ottawa suddenly stopped providing advance rulings on income trusts and therefore stymied their growth.
But it does ring true, considering the government had previously announced a consultation process on income trusts and then arbitrarily took drastic action without
waiting for the exercise to conclude.

Very few industries would allow themselves to be treated so cavalierly. In fact, Canadians would be concerned if almost any industry were treated this way. Imagine, for example, if the government tried treating the auto industry like this.

But this is the investment sector. And it being affected on an issue that is hard to explain. Therefore, there is no public uproar.

You could argue, of course, that income trusts wouldn’t be so popular with issuers and investors if corporate taxes weren’t so high and if dividends were more attractive.

After all, when a significant portion of financial markets shifts to one type of investment vehicle, there is bound to be a compelling reason.

But it is hardly realistic to expect any government to acknowledge that excessive taxation is behind any trend, particularly when that government must appease the New
Democrats to stay in power.
It is the job of others to point that out. And that brings us to the question of where Bay Street was.

As most people are aware, the government relations or lobbying sector in Ottawa has grown to employ thousands of people. Apart from the legions of hired-gun lobbyists in the office towers below Parliament Hill, just about every industry has its association or some sort of representation in the capital.

Every industry, that is, except the securities industry, which has taken the narrow view that because it is provincially regulated — at least directly — why worry about federal politics?

Sure, the Canadian Chamber of Commerce and the Council on Business Issues are prominent in Ottawa. But they deal largely with fiscal policy and macro-economic issues.

The Investment Dealers Association of Canada closed its Ottawa office more than 10 years ago. In fact, while banking, credit unions, life and casualty insurers are heavily and, for the most part, ably represented, the investment dealers are non-players.

Of course, the IDA continually deals with the Bank of Canada and the Department of
Finance by phone and e-mail. But who will be visiting MPs and senators to explain that the income trust issue is about investor rights rather than fat cats avoiding taxes?
Given the conspicuous absence of the IDA and other industry groups, it is easy to understand why it took 30 years to get rid of the limit on foreign investments in retirement portfolios.

Another issue that warrants some rational discussion is the contingency fees paid to lobbyists.

Contingency fees in the form of bonuses or commissions are not in themselves illegal, despite all the bad press they have recently received.

However, Ottawa specifically forbids recipients of publicly tendered contracts or of grants from programs such as Technology Partnerships Canada from paying lobbyists these contingency . As a result, very few lobbyists in Ottawa, at least the ones who bother to register, accept contingency fees.

This prohibition stems from the 1993 election campaign in which the then-righteous Liberals convinced the media that elimination of contingency fees meant elimination of malfeasance with public funds.

Even though the Liberals, after 12 years in power, have shown they are just as capable of wasting money as any government, contingency fees are still regarded as something wicked in Ottawa.

But should they be? Applying for a TPC grant is a complex and expensive process for any company. As a result, small emerging companies, for which the program was created, are noticeably absent from the lists of recipients.

In fact, one could be forgiven for thinking TPC was an exercise in largesse for large defence contractors.

For centuries, contingency fees or commissions have been a perfectly respectable form of doing business. And their elimination has clearly not accomplished what it was meant to.

Certainly, their existence should be publicly registered, just as all legal lobbying contracts are. But there is no justifiable reason why smaller companies shouldn’t have the option of paying them, instead of cash, upfront.

@page_break@If the government is truly serious about ethical reform, it should also stop dragging its feet on plugging the loopholes in the Access to Information Act and on providing reasonable protection for whistle-blowers.

Once the election is out of the way and cooler heads prevail in Ottawa, perhaps debate can focus on practical ways to prevent waste and corruption.

Probity in Ottawa is as much an issue today as it has ever been. But symbolism won’t help. IE