Pay your fair share

It’s a simple equation: If other people weasel out of paying the taxes they owe, the more you and I are going to have to pony up.

As tax season creeps closer, there’s a useful new reminder that this problem may be a lot bigger than many of us thought.

The Conference Board of Canada now estimates that the federal government is missing out on uncollected taxes that amount to at least $16 billion a year — and might even be as high as $47.8 billion.

Other levels of government are also missing out on unpaid taxes, so the total could be a lot higher. And all this at a time when governments are scrambling for money to meet all kinds of needs and pay for massive infrastructure projects.

The bottom line on this is simple. If governments don’t collect the taxes they are owed, they have only a few choices.

They can skimp on social programs and underfund areas such as justice and national defence. They can run bigger deficits, piling up debt for future generations to deal with. Or they can raise taxes on ordinary taxpayers who can’t avoid or evade paying the bill.

Far better if everyone paid their fair share, and that starts by figuring out the size of the “tax gap”: the difference between the amount the government should be collecting and the amount it actually raises.

Surprisingly, Canada’s federal government hasn’t published a complete estimate of the tax gap for this country, even though it has promised to do so.

But both the British and U.S. governments have come out with estimates for their own economies, and the Conference Board came up with its range of possible tax losses for Canada by applying those countries’ methods to our economy.

Using the British method, it estimates the tax shortfall for Ottawa alone in 2010 at $16 billion. If the U.S. method is applied, the gap adds up to a staggering $47.8 billion.

That’s enough, for example, to pay Canada’s entire defence budget more than twice over. It’s almost 10 times more than the estimated cost of a national child-care program.

The tax gap includes a wide range of factors. It includes the so-called shadow economy of unreported economic activity, as well as under-reporting of income. It includes sophisticated tax avoidance, such as the legal use of offshore tax havens by wealthy people to minimize their tax bills in Canada. And it includes outright tax evasion and criminal activity.

However the calculations are made, it’s clear that Canadian governments are failing to collect a lot of money that should be going to them.

The federal government has already taken important steps to improve tax collection. It started in 2013 under the Harper Conservatives, who gave the Canada Revenue Agency more money and directed it to increase “compliance” on overseas assets held by Canadians.

The Trudeau government then boosted the CRA’s funding by $444 million over five years to hire more auditors.

Those are useful measures and they have already resulted in recovering significant concealed tax revenue.

The government should continue along that path and it should make its own estimate of just how big the “tax gap” is in Canada. Closing the gap would go a long way toward making sure everyone pays their share.

Canadian governments are failing to collect a lot of money that should be going to them