Tax breaks given without proper oversight: auditor
Finance Canada is failing to properly manage billions of dollars in tax credits it offers to Canadians and, in many cases, does not know if they are relevant, effective or achieving the government’s goals, says the federal auditor general.
The Finance Department also does not provide adequate information to parliamentarians on the tens of billions of dollars in so-called taxbased expenditures, auditor general Michael Ferguson says in a stinging report released Tuesday.
Among his criticisms — which, coincidentally, come at the height of the tax season and just a week after a federal budget touting tax relief — is the government’s failure to include the projected future cost of its many tax breaks.
Opposition parties, spending watchdogs and many economists have for years criticized some of the “boutique” tax credits offered up by the Conservative government, and have instead called for more broad-based tax relief rather than the targeted measures they say are being used to buy votes.
The auditor general examined nine different federal tax breaks offered to a wide swath of individuals and companies, including: tax credits for first-time home buyers; children’s fitness activities; textbooks; the multibillion-dollar Age Credit; Scientific Research and Experimental Development Investment Tax Credit; and a Search and Rescue Volunteers Tax Credit, along with a handful of others.
Each of the tax credits (or taxbased expenditures) is considered a cost for government because of the forgone revenues.
In its audit, Ferguson’s office examined the relevance, efficiency, effectiveness, equity, implementation costs and how frequently the credits were evaluated, among other factors.
The auditor general found examples of where Finance Canada identified issues with certain tax credits before implementing them, but — despite those potential problems — has yet to evaluate the tax measures.
“Overall, we concluded that the department fell short on managing tax-based expenditures. We reached this conclusion because these expenditures were not systematically evaluated and the information reported did not adequately support parliamentary oversight,” Ferguson says in his report.
The auditor general made three recommendations to Finance Canada, which have been accepted by the government.
They include conducting “systematic and ongoing” evaluations that assess a tax measure’s relevance and appropriateness, determining whether the tax system is the most effective way to meet the desired policy objective, and establishing whether to retain, abolish or modify certain tax credits.
Ferguson also recommended the government improve its reporting practices on the billions of dollars in tax credits, including providing projected cost estimates in future years, and more timely and rel- evant information for parliamentarians.
The auditor general found that Finance Canada did not evaluate half of the specific tax measures it examined in its audit, including the Age Credit, Mineral Exploration Tax Credit, Textbook Tax Credit and First-time Home Buyers’ Tax Credit.
“The department does not have complete information to determine if these tax measures are relevant and performing as intended,” Ferguson says in his report.
In the House of Commons, Prime Minister Stephen Harper defended his government’s decision to offer tax credits to Canadians, despite the problems identified by the auditor general.
“It’s people’s own money. We want to make sure more of it stays in their pockets and creates jobs and economic growth,” Harper said Tuesday.
NDP Leader Tom Mulcair said the auditor’s report slams the Conservative government for failing to be transparent about the “billions of dollars in tax giveaways” through loopholes and boutique tax credits that are “gifts to the wealthy few.”
Liberal finance critic Scott Brison said the report further shows the Conservative government is “guided by ideology, not evidence and economics.” Making smart economic decisions means government and Parliament need better data and analysis on the tax programs, he said.
It’s people’s own money. We want to make sure more of it stays in their pockets and creates jobs and economic growth.