Chapter 3

A MATTER OF INCOME TRUSTS

February 6 2006
Chapter 3

A MATTER OF INCOME TRUSTS

February 6 2006

A MATTER OF INCOME TRUSTS

Chapter 3

The story so far: Stephen Harper overhauled his campaign to make the Conservatives more formidable. Paul Martin was more or less running on the 2004 campaign plan all over again.

So spare a moment’s sympathy for Jack Layton.

The NDP leader knew better than anyone how gravely his party was endangered by the clash of dinosaurs now underway. In 2004, the Martin Liberals, more or less out of desperation, improvised a strategy that involved playing up the Conservative advantage. Martin’s own appeals to classic Liberal virtues had got him nowhere. He needed terrified NDP supporters willing to “stop Harper” by abandoning their party to vote Liberal. And in the last days of the 2004 campaign, that’s precisely what he got. It became a matter of lore in the NDP that the party wound up losing a dozen seats by less than 1,000 votes. In many ridings, the NDP vote softened, the vote for the Liberal firmed up—and in more than a few cases, a Conservative wound up beating the weakened NDP candidate by a tiny margin.

So Martin had learned what a great strategy it was to treat the NDP as a bag of spare Liberal votes he could dip into when the going got tough. But he needed the threat of a Conservative government. And while the polls were refusing to budge, Harper was starting to get strong reviews for his campaign. If he rose, he would become more of a threat to Martin than in 2004. Which would put a great big chunk of the voters Layton needed into play.

Uh-oh.

Brian Topp, a soft-spoken man with an unruly shock of curly black hair, is an executive at ACTRA, the film industry union. He was Roy Romanow’s deputy chief of staff when Romanow was premier of Saskatchewan. He worked on the Layton campaign in 2004, and in 2006 he returned as the NDP’s national campaign director. He embodies a characteristic New Democrats have to an extent no other national political party does: when there is a campaign anywhere in Canada, they make a convoy in large numbers from wherever they live to wherever the fight is. In the rabbit warrens of the NDP’s Ottawa campaign headquarters, upstairs from a Shopper’s Drug Mart on Laurier Street, you could find people who had worked with NDP premiers and party leaders in Alberta, Ontario, Manitoba, Saskatchewan and British Columbia. Many had no Ottawa experience apart from their periodic trips to the capital to fight for Jack Layton. Most came in 2004 for their first national campaign. They reconvened in the spring of2005 and went right back home after the false-alarm confidence vote. They came back again in the fall.

The NDP, Topp said, went through its own rigorous post-mortem after the 2004 election. Most of the changes they settled on weren’t huge; the NDP had, after all, nearly doubled its share of the popular vote in 2004, even if that had only won them six more MPs in the House. Layton’s campaigners decided that next time, they would target more people and money at the regions where they had narrowly missed and less at areas where they had no chance. They would make sure the party’s ads, tour operation and platform were saying the same thing at the same time. And they decided Layton’s 2004 platform, a numbingly long laundry list of promises, needed to be much tighter and more coherent.

But that was all secondary. “The first rule,” Topp said, “was don’t get clobbered.”

Topp is a student of minority Parliaments in which the NDP sits in opposition. They’re nice, while they last. The NDP has disproportionate influence over what governments do, especially Liberal governments. But then things get dangerous quickly. “History teaches that the Liberals run on our record—on the things we managed to get accomplished— and we get our heads handed to us by the electorate if we’re not very careful,” he said. Not since Tommy Douglas in 1968—38 years ago—has the NDP won bigger at the federal level after a minority Liberal government than before it.

“So we decided not to fight a two-front war,” Topp said. “We basically switch votes with the Liberals. So we were going to concentrate on the Liberals.”

The decision carried its own risks. If there’s anything most NDP voters like less than a Liberal, it’s a Conservative. By focusing his attacks on Paul Martin, Layton was hoping to keep NDP supporters from seeing Martin’s gang as an acceptable alternative. The danger was obvious: that he’d face a backlash for concentrating his attack on the lesser of two evils. In a way, that backlash was already upon him. Its name was Buzz Hargrove.

The CAW leader gave Paul Martin a union jacket in Toronto on the campaign’s first Friday. The Liberals deserved a bigger minority, he said, before wrapping Martin in a bear hug. That behaviour raised so many hackles among NDP supporters that Hargrove quickly wrote an op-ed piece for the National Post insisting he wanted CAW members to vote NDP wherever the party’s local candidate had a chance to win. But then there was Hargrove again, at Martin’s side, on the campaign’s second Friday. In Windsor. A city

]zwith two NDP MPs. Both of whom were running for re-election.

New Democrats simply tossed up their hands at the antics of a man who had been one of the party’s most persistent internal sources of dissent, not all of it entirely coherent, for years. “His job between elections is to make the party as far to the left—and unelectable— as possible,” said Topp. Hargrove supported Svend Robinson for the leadership in 1995 against Alexa McDonough. In 2003, when McDonough finally gave up the leadership, he supported Joe Co-

martin, the left-wing Windsor MP who would find Hargrove campaigning with Paul Martin, a few years later, in his own hometown.

This was precisely the problem, New Democrats said. The only people who would listen to Buzz

Hargrove’s advice on anything were, disproportionately, living in ridings where NDP candidates had a fighting chance. There weren’t a lot of people in plummy Rosedale or Outremont taking their cues from a union boss. “His endorsement of the Prime Minister only hurts us where we can win,” one insider said.

NEWS THAT THE RCMP WOULD INVESTIGATE RALPH GOODALE'S FINANCE DEPARTMENT WAS A BOMBSHELL. THE NDP ALMOST MISSED IT DUE TO A LOCKED OFFICE.

Paul Martin, Stephen Harper, Jack Layton and Gilles Duceppe flew to Vancouver for the first round of televised debates, Dec. 15 and

16. The parties had hardly budged in the polls since the campaign had begun. It was the eve of the last full weekend before Christmas and the debates seemed designed to be as soporific as possible, with the leaders warned that their microphones would be cut off if they tried to interrupt one another. Just a low-key West Coast break from the campaign, then?

No way. The debates might be hard to win, but nobody wanted to be declared the loser. Ever since Brian Mulroney made himself unstoppable by rounding on John Turner over patronage in 1984 (“You had an option, sir”), surviving the debates has been among every leaders’ highest priorities. The Liberals’ opening gambit was to try to knock Harper off balance. Their plan went into action on the eve of the opening French-language debate.

On political chat shows on CBC Newsworld and CTV Newsnet, Liberal spokesmen affected dismay at the news that a 1997 speech by Harper had surfaced. In the speech, Harper calls Canada “a northern European welfare state in the worst sense of the term” and urged his audience not to “feel particularly bad” for Canada’s unemployed. “They don’t feel bad about it themselves, as long as they’re receiving generous

social assistance and unemployment insurance.”

Harper had delivered the speech in Montreal to a meeting of the Council for National Policy, a right-wing U.S. think tank. And of course the Liberals had leaked it. In Ottawa, their chosen go-between was Alex Munter, a former city councillor and advocate for samesex marriage, who delivered a copy to the Canadian Press. In Vancouver, Mark Marissen, Paul Martin’s British Columbia co-chair, alerted the CBC to the speech’s contents.

The Conservatives had been waiting for this kind of attack. Harper’s campaign staff, divided between the Vancouver debate venue and the Ottawa party headquarters, had a quick conference call. Marjory LeBreton, the

long-time Tory senator and Brian Mulroney confidante, was on the call.

To say the least, LeBreton had taken a long time to warm to Harper. When the Reform and Progressive Conservative parties were separate and at each other’s throat, she had been one of the PCs’ most effective weapons. She used to send reporters long emails detailing her point-by-point disagreement with Harper on questions of public finance or foreign policy. But to her amazement, Harper had come to rely on her, and then even to invite her to join his touring campaign staff. She offered two assets that were in perilously short supply: institutional memory and a willingness to charm reporters.

“What are we talking about here?” she asked as the other Conservatives discussed Harper’s 1997 speech. “Look. This speech has been around for a long time. Belinda Stronach tried to shop it around when she ran against Stephen for the Conservative leadership. The only way this is going to be a story is if we allow it to become a story.”

Harper agreed. In the end, the speech would turn into a two-day wonder. Ignoring it reinforced a novel pattern that was starting to characterize this election. Harper, the challenger with no experience at a federal cabinet table, was spending most of his time talking about how he would govern. Martin, the veteran of a decade of Liberal control of government, was spending most of his time talking about Harper.

The debates themselves offered few surprises. Each man gave a good account of himself, with perhaps only Gilles Duceppe showing an unaccustomed sluggishness in the English debate. Not that he had many English votes to lose in any case. Layton, who had spent the 2004 debates interrupting the others incessantly, trying desperately to make his points, was far more poised now. Many commentators called him the winner.

But it was Martin who produced the most memorable clip. Rounding on Duceppe in the English debate, he berated the Bloc leader on the secession question. “This is my country and my children were born and raised in Quebec, and you’re not going to go to them and say that you’re going to find some back-

door way of taking my country or dividing Quebec family against Quebec family,” Martin said, while Duceppe squirmed. “You’re not going to win, Mr. Duceppe. Let me tell you that.”

Great stuff. Martin pursued the theme in the scrum room after the debate, where reporters were waiting to quiz the leaders on their performance. Did he want to have another go at Duceppe? You bet. Martin said he would meet the Bloquiste “on every street corner, in every city and in every town and village in Quebec.”

It was a typically expansive answer from Martin, who almost never merely stated something when he could proclaim it instead. Almost immediately it got him into trouble. Two days later in Montreal, Duceppe said he considered Martin’s boast as a formal offer. And he was taking him up on it.

Breaking into English, the language of Martin’s challenge, Duceppe shouted hoarsely: “If you’re ready to meet me everywhere in Quebec, Mr. Martin, be my guest. I’m in Montreal today. I’m waiting for you! Come on the North Shore to talk about softwood lumber, Paul Martin. I’m there Tuesday. I will be waiting! Come on!”

The Liberals had been unable to get off the mat in Quebec since Sheila Fraser’s Adscam bombshell in 2004Martin’s empty boast had only made this weakness more apparent. But the other problem coming out of the debates was both subtler and more significant.

For the second election in a row, the SES polling firm in Ottawa was running a daily tracking poll of voter preference for CPAC, the political-affairs cable television channel. SES didn’t just track how respondents planned to vote. It also asked which leader would make the best prime minister and how they rated on a composite score of three attributes: trust, competence and vision for Canada.

Since the beginning of the campaign, Martin had held an average 10-point lead over Harper on SES’s “best prime minister” scale, and a 20-point lead on the composite leadership scale. The gaps in both cases lasted for three weeks. The debates were at the end of the third week. By the middle of the fourth week, Martin had lost two-thirds of his ad-

vantage on the first scale, and all of his advantage on the second. And he never regained a clear lead.

The Liberal leader went into the debates looking like the only leader. He came out looking like one of two. And the worst week of his political career lay just ahead.

Martin’s campaign team—David Herle and John Webster; Karl Littler, the national campaign director; Steven McKinnon, the party’s national director; and Scott Reid, the communications chief—had decided that despite the long writ period, their campaign wouldn’t begin in earnest until Jan. 3. It was an odd call. It assumed that Canadians are so monomaniacally fixated on their Christmas planning (must find the spicy eggnog...) that they blot out everything else.

And in its bovine complacency, the Martin camp’s late-start theory was eerily similar to the miscalculation that had cut short the careers of the last two serious politicians to lose badly to Paul Martin. In 2001 and 2002, Jean Chrétien, convinced of his invincibility, let Martin organize the Liberal party right out from under him. Then John Manley waited until the campaign for Chrétien’s succession was essentially over before he joined it. Manley talked himself into believing that once Liberals’ minds were made up for Martin, he could change their minds with a bit of charm. He was completely wrong. In any case, he forgot to bring the charm. So the question for the history books is: why did the Martinites cast themselves as the slowpokes?

Even if the strategy hadn’t been so weirdly naive, and even if Martin’s personal approval numbers hadn’t already started to rot before the Christmas shopping rush began, the late start would still have depended on a single necessary condition. It would have required that the last week of 2005 be calm. Martin couldn’t come out of the gate playing defence. As so often happens to the overconfident, events conspired against him.

On Friday, Dec. 23, the Toronto Star ran a short article noting that Mike Klander, a senior Ontario Liberal organizer and a key member of Martin’s 2003 leadership team, had amused himself with an Internet weblog on which he compared Olivia Chow, the Chinese-Canadian NDP candidate for Toronto’s Trinity-Spadina riding, to a chow-chow dog. NDP supporters, apparently forgetting that the Martinites expected them to ignore politics over Christmas, chewed on the news all weekend on various NDP-affiliated blogs. Several of them sent notes to more prominent bloggers. On Christmas Day, Klander’s dubious witticisms—he had also called Chow’s husband, Jack Layton, “an asshole”—were chronicled on the Maclean’s Inkless Wells blog. Klander resigned from his party functions a day later. For Martin the trouble was only beginning.

On Dec. 26, thousands of shoppers were chasing Boxing Day bargains on Yonge Street, in the heart of downtown Toronto, when a volley of gunshots rang out. A half-dozen shoppers were wounded. Jane Creba, a bright and popular high school student, was killed. The death shocked a city where crime had been falling but deadly gun crime spiking. It’s not as though the Liberals or anyone else had ignored gun crime. Martin had already visited Toronto during this campaign to announce his tenuous, limited handgun “ban.” But after the shootout, police seized one reportedly illegal gun. The Yonge Street chaos showed how hollow grand pronouncements can be in protecting ordinary citizens. By the end of the week, John Reynolds said, internal Conservative polling showed crime as a topfive voter concern, for the first time.

five voter concern, for the first time.

Bonehead bloggers and tragic crime are, sadly, the way of the modern world. Neither incident would have rattled Martin profoundly. Only the income-trust affair could do that. On Dec. 28, it blew wide open.

The affair had been a long time brewing. In the wake of the dot-com crash, investors looking for reliable investments flocked to income trusts, which pay the lion’s share of their cash flow directly to investors in monthly cash distributions. The market value of trusts surged. Hundreds of companies rushed to restructure themselves as trusts to reduce their tax burden and appeal to ready capital. But the Finance Department in Ottawa was unamused by the loss of hundreds of millions of dollars in tax revenue.

In his first budget in 2004, Finance Minister Ralph Goodale announced limits on the amount of money Canadian pension funds could invest in trusts. The idea was to limit market demand, but the plan immediately backfired. Large, powerful funds like the Ontario Teachers’ Pension Plan screamed in protest, saying the government had compromised their ability to provide benefits to retirees.

Goodale backed down, but Finance remained concerned about tax revenues lost to trusts. On Sept. 19,2005, Goodale dropped another bombshell. His department would no longer provide advance tax rulings for companies considering converting into income trusts. This was a signal that the Martin government was considering fundamental changes

to the way public companies, including trusts, were taxed. The announcement had the same effect as erecting a stop sign in the middle of a four-lane highway without any notice. Trust prices plummeted. An arcane accounting matter had become a political crisis.

On Nov. 23, five days before the confidence vote that brought the Martin government down, several of Canada’s biggest income trusts suddenly jumped in value. After markets closed that day, Ralph Goodale announced a cut to dividend taxes. But he added that Ottawa would not impose any new taxes or restrictions on trusts. It was just the decision investors were hoping for. Or was it the decision some had been told to expect?

The NDP had its war room up and rehearsing, upstairs from the Ottawa drugstore, when Goodale made his announcement. Party staffers noticed the spike in trading. “We saw right away that this looked like a classic example of market interference,” Topp said. The RCMP has a special unit that investigates this sort of business. “We felt there was enough evidence that they would bite on it.”

Judy Wasylycia-Leis, the Winnipeg MP who serves as NDP finance critic, wrote a letter of complaint to the RCMP. The NDP was used to getting a flat No when they asked

the RCMP to investigate the government, and in any case they were used to waiting a month for an answer. This time, truth be told, they kind of liked the idea of a month’s delay. While they waited, they took care not to call for Goodale’s resignation. They wanted to be able to kick the drama up a notch if they got lucky. They did get lucky, and they almost missed it.

On Dec. 23, the RCMP faxed a letter to Wasylycia-Leis’ Parliament Hill office, telling her they had launched a criminal investigation based on her request. Problem: the office was closed for the duration of the campaign. Apparently the police were surprised not to get a response to such momentous correspondence, because on Dec. 27 they telephoned Wasylycia-Leis’ Winnipeg constituency office. A quick call to Ottawa and a staffer was sent to fetch the fateful fax. On Dec. 28, Wasylycia-Leis, who was spending her Christmas vacation near Toronto, hurried to the Ontario capital. She scrummed outside the provincial legislature, in the rain, without pausing beforehand for a drink of water. When her throat dried up so badly she couldn’t talk, a reporter discreetly passed her a mint so she could finish the announcement.

The news of a police investigation presented Martin with an unwinnable dilemma. He could fire Goodale and make big news even bigger. Or he could protect him and make Goodale’s woes his own. He stood by his friend, in a way that promptly reminded everyone that he was often less eager to stand by Liberals who weren’t his friends. “I have the honour of knowing Ralph Goodale,” the Liberal leader said, irrelevandy, byway of explanation. Apparendy, after all Martin’s promises of a higher standard, it still mattered who you knew in the PMO.

History has a shorthand for complex events, and history will record that the incometrust investigation put paid to Martin’s reelection chances. In fact, the SES tracking poll shows that the Conservatives had already begun gaining on the Liberals several days before. Voter support for the Tories

caught up with support for the Liberals on Dec. 29. The next day Reynolds and Michael Fortier, the Conservative campaign co-chairmen, sent a letter to every candidate and campaign manager in the party.

“The final three weeks of this campaign are going to be, to quote Thomas Hobbes, ‘nasty, brutish, and short,’ ” Fortier and Reynolds wrote. “Paul Martin began this negative campaign by accusing Stephen Harper of being unfit for public life. His supporters have followed suit by attacking Conservative candidates in personal and unacceptable ways. And there will be more. In the last election, they got away with such unsubstantiated attacks. But it will not happen again. This time we will vigorously defend ourselves.”