Premiers can take positive action for fiscal stewardship
August 21, 2014
First ministers gather in Charlottetown next week where Premier Ghiz chairs meetings
Provincial governments, not just the federal government, are losing billions of dollars to tax havens and tax loopholes each year.
That money could be used for making our provinces stronger by investing in infrastructure, education and health care. Canadians can no longer afford the high cost of our wealthiest individuals and corporate citizens playing the tax system and not paying their fair share.
As chairman of the upcoming premiers' meeting in Charlottetown, Premier Robert Ghiz has the opportunity to provide fiscal leadership and challenge the status quo.
Reducing corporate tax avoidance and closing tax loopholes should be a priority for provincial governments. They should support the principle that everyone - including corporations - should pay their fair share of taxes - especially since Canada has the lowest overall corporate tax rate in the G7.
It is estimated that global tax avoidance schemes are hiding about $32 trillion. The problem occurs everywhere from the European Union to Africa to the Unites States. Canada is not immune.
Federal government action on tax havens and loopholes has been underwhelming. Recent budgets have acknowledged the problem. The Canada Revenue Agency created a snitch line that offers a reward for information on major tax cheats using tax haven. The CRA has also created a small unit assigned to international tax evasion, but these efforts pale in comparison to a problem that continues to grow.
Last year, Canadian money stashed in 10 offshore tax havens hit an all-time height of over $170 billion. The main reason wealthy individuals and large corporations send their money to tax havens is to avoid paying taxes. This has a high price for the rest of us. Even the most Conservative estimates show losses to federal and provincial budgets of at least $7.8 billion a year in tax revenue.
Most provincial and territorial governments rely on the Canada Revenue Agency to raise a large part of their revenue. Premiers have a major stake in ensuring everyone is paying their fair share of taxes. Provincial services and programs rely on a revenue stream that is collected by a system that should be efficient, effective and fair.
When governments allow the wealthiest corporations and individuals to play the system and avoid paying their share, it places an unfair burden on small businesses and ordinary taxpayers. It also undermines the very basis of our tax system which relies on trust and voluntary compliance.
Provincial and territorial leaders are dealing with large deficits by painful budget reduction measures, including cuts to essential programs such as health care and education. But so-called austerity measures are not the only solution. Making sure everyone pays their fair share of taxes should be the first line of defence. It could help reduce deficits, avoid cuts to services and provide additional revenue that could target poverty and environmental issues that face us all.
Everyone from tax lawyers to tax fairness advocates agree that the 1,100-page Income Tax Act is an overly complex mess. It needs a major rehaul. But in the meantime, provincial premiers and finance ministers can take action to press for closing the most unfair and ineffective tax loopholes.
Provincial governments are responsible for nominating members of the CRA Board of Management. They could be directed to strongly encourage the agency to give higher priority and devote more resources to compliance efforts related to tax havens. It is a strategy that could have important results.
Nearly a decade ago, the federal government allocated $30 million for the CRA to combat aggressive international tax planning.
That investment yielded a $4-billion return over four years. That’s the kind of math that makes sense.
Rather than learn from that experience, the Canada Revenue Agency was hit with a $60-million budget cut. Its current capacity is not adequate to deal effectively with the growing problem of policing the use of tax havens. CRA staffing cuts have been a false economy. More revenue goes uncollected than is saved in budget cuts. How is that good fiscal management?
The CRA is an essential national institution. It is time for the federal government to increase its audit and enforcement capacity and direct more of its efforts to pursue the big time tax cheats who are using tax havens. The financial stakes are high.
And it is time for provincial and territorial leaders to push for a Canadian tax system that can stand up to a $32-trillion global tax avoidance problem that is playing itself out from St. John’s to Charlottetown to Victoria.