Tuesday, April 17, 2007

Stephen Harper's Bad For Business

If you are a Canadian based business, it seems that Stephen Harper doesn't want you to remain so for much longer. The effects of two key Conservative government decisions are now starting to ripple through the business world.

The first decision to set the stage was a ham-fisted handling of the Income Trust issue. While I philosophically agree with the move itself, it was done in such an abrupt fashion it has left Income Trusts sitting on average around 20% below "fair market value" for the same company if they were still structured as a conventional corporation.

The second decision I commented on was the changes to taxation on interest which essentially oblige Canadian companies to hoard their capital in Canada.

These two policy decisions are making Canadian companies ripe targets for foreign takeover.

Sure enough, in the business news yesterday, two significant announcements popped up:

1. Algoma Steel being bought up by an Indian company.

2. 3 Income Trusts consumed by foreign takeovers:

a) VoxCom bought by UE Waterheaters
b) UE Waterheaters purchased by Alinda Capital Partners
c) Clean Power by Australia's Macquarie Bank

Lest some accuse me of being a hypocrite, complaining about protectionism in one sense, and then demanding it on the other hand - I don't object to foreign buyouts per se - I object to our government setting the stage for a discount auction of Canadian assets by the fiat of bad taxation policy that hamstrings the options that would normally be open to Canadian companies.

Under Harper's rule, the only way a Canadian company can grow onto the international stage is to be purchased by a foreign company - otherwise they are subject to a punitive tax regime when they try to finance expansion abroad.

No comments: