The federal Department of Finance doesn’t look poised to take a definitive stand on income trusts suggests TD Bank chief economist Don Drummond in a research note.

Referring to the consultation document that was released today by Finance, Drummond’s note says, “The consultation document and the process suggest that this is not a file that is going to go very far or very fast. On key issues of the economic impact of income trusts, the revenue loss and what, if any policy changes should be made, the document is largely agnostic. Both positive and negative influences on economic efficiency are identified without a clear view offered on what Finance thinks is the net impact.”

He also says that the document doesn’t reveal which of the three policy options its proposes Finance might favour. “Indeed, Finance states that all of these approaches ‘may be complex’ and ‘may also be costly in terms of foregone federal tax revenues.’ That does not sound very promising if the purpose of any action is to limit revenue losses,” he suggests.

“The political cycle suggests that any clarification of Ottawa’s attitude toward income trusts and any policy changes will not be forthcoming soon,” he concludes. “It seems inconceivable that measures could be formulated between the end of the consultation period on December 31, 2005 and an early 2006 Budget if, indeed, there even is one. More likely, the results of the consultation process will be at least temporarily swept aside during an early 2006 election.”

Drummond notes that, “it will be satisfying to many that Finance’s consultation paper does not offer an alarmist view on the growth of income trusts.” Those comforted may include pension funds, and companies that have converted or are thinking of converting to a trust.

However, a lot of uncertainty remains around the issue. And, Drummond says “this does not detract from the need for Ottawa to quickly clarify its position on the phenomenal growth in this sector and act to correct the tax elements promoting this structure.”