Crack down on tax havens
Thanks to a spectacular data leak, Canadians are getting a glimpse into what some have dubbed the “black hole” of globalization: The $20 trillion or more in unreported income thought to be stashed in offshore tax havens by the world’s richest people to avoid taxes. It’s not a pretty sight.
At a time when Prime Minister Stephen Harper’s government is struggling to eliminate a $26-billion deficit and when governments around the world are starved for resources, the seismic leak to the International Consortium of Investigative Journalists based in Washington can only add to the growing clamour for a crackdown on offshore accounts.
Consortium director Gerard Ryle was sent a computer hard drive that contained 2.5 million files involving more than130,000 people from 170 countries who have stashed money in offshore accounts over the past three decades.
As reporters begin mining the data, attention in Canada has focused on well-known lawyer Tony Merchant, who had $1.7 million in a tax haven, according to CBC News. Merchant, who’s married to Liberal Sen. Pana Merchant, is just one of 450 Canadians named in the leaked files. While offshore accounts are legal, earnings must be reported.
All too often they are not. The Tax Justice Network, based in London, estimates that some $21trillion to $31trillion is stashed away worldwide in unreported income. That’s a potential tax loss of $190 billion to $280 billion, based on a 3-per-cent return and assuming a 30-per-cent tax rate, the network reckons. The black hole of unreported wealth is vast and it has a major impact on public finances, political influence, the distribution of the tax burden and inequality. But until recently there has been little political will to crack down on the super-affluent.
In his recent budget, Finance Minister Jim Flaherty promised a crackdown on what he characterized as “substantial tax avoidance and tax evasion” by some wealthy Canadians. Ottawa hopes to boost revenues by $2 billion or more in the next few years by encouraging people to turn in cheats, requiring banks to report on international transfers above $10,000, and requiring people with large assets abroad to provide more information in tax filings. It’s a welcome initiative, as far as it goes.
But, at the same time, the Canada Revenue Agency’s $4.7billion spending in 2012-13 is expected to decrease sharply in the next three years, according to budget documents. While the agency is shifting more of its available resources into going after offshore dodgers, Liberal Sen. Percy Downe argues that it is still trying to improve collection “on the cheap.” He wants Ottawa to invest more in the CRA to fight tax evasion, and to identify the potential tax gap. Canadians for Tax Fairness, a group that campaigns for sharing the burden equitably, estimates affluent Canadians have stashed $160 billion into offshore havens, costing us nearly $8 billion a year in foregone tax revenues. That’s many times what Ottawa hopes to recapture. And even that may understate the problem.
In the United States, the Congressional Research Service puts the potential loss at $100 billion a year.
This predatory exploitation of gaps in cross-border tax rules has enabled a small, super-rich elite to shelter their wealth and avoid paying their fair share, leaving working people to shoulder the burden of sustaining the services we all rely on. It’s the kind of unfairness that fuelled the Occupy movement and shakes public confidence in the tax system. In March, the CRA reported on its website that a landscaper, mortgage broker and homebuilder were fined for tax offences. But there was no evidence of the agency going after bigger, offshore fish. That’s got to change.