Scandal shows need for transparency

The massive leak of tax information from Panama has once again put the spotlight on the growing problems of overseas tax evasion. As we know, it is not illegal to have a bank account overseas, but it is illegal not to report any proceeds from these accounts to the Canada Revenue Agency (CRA). However, every time we have a data leak from a tax haven, a number of those accounts show Canadians who are trying to avoid paying taxes.

The tax system, like all of government in a democracy, relies on the consent of the public in order to function.

In turn, that consent is based on Canadians’ confidence that everyone is paying their fair share and is being treated equally. No one enjoys paying taxes, but most recognize that they are — to use a phrase attributed to Oliver Wendell Holmes — the price we pay for a civilized society, and are willing to pay their fair share if they are certain that it is their fair share, and that others are doing the same. Tax revenue is the underlying foundation of every aspect and activity of government, from search and rescue to trade promotion. Put simply: if government cannot fund, government cannot function. As a result, whenever a government advances a new policy or program, the first questions asked are inevitably “what will this cost?” and “where will the money come from?” How the government raises that money is every bit as important as how it spends it. Although there is a long list of revenue sources for the government, the overwhelming majority of funds pass through the CRA.

So it follows that the CRA plays a uniquely important role in the functioning of the Government of Canada, and as such, must be subject to a high level of scrutiny to ensure that it is managed in a competent manner.

It used to be that the CRA didn’t attract a great deal of attention, either from the public or from the government. As the only branch of government to turn a profit, there has always been a temptation to simply let it go about its business — “if it’s not broken, don’t fix it.” However, that confidence is being eroded as we see the growing number of overseas tax evasion disclosures. The CRA repeats the same words after every incident, how they are working hard to catch tax cheats, that they take it very seriously and so on, but the rhetoric belies the fact that their efforts and results are disappointing in the extreme.

For example, the CRA still refuses to measure the tax gap — the difference between what the CRA actually collects and what they should be collecting. Some of our biggest trading partners, the United States, Mexico and the United Kingdom, measure the tax gap because they believe it is an important tool to identify the size of overseas tax evasion.

The CRA refuses to join the club. Not understanding the size of the tax gap means the CRA doesn’t know the resources they require to fight the problem and thus recover the money that should be available for the Canadian government to spend on Canadian priorities. The lost revenue for the Government of Canada could be massive. An indication of the size of the lost can be shown when in 2005, the then government invested a onetime injection of $30 million to the “aggressive international tax planning” unit of the CRA and in only six years, it became $4 billion in identified taxes owing. We must know how much money we are losing, how we are losing it, and what we can do to stop it. It’s time to measure the tax gap.