Debates of March 5th, 1997
House of Commons Hansard #138 of the 35th Parliament, 2nd Session. (The original version is on Parliament's site.) The word of the day was plan.
- The Environment
- Cost Recovery Programs
- City Of Châteauguay
- Don McKinnon
- Women's Institute
- Customs Officers
- Agricultural Producers
- Liberal Party
- Canada Pension Plan
- International Women's Day
- Women's Health
- Dangerous Offenders
- Seal Hunting
- Health Care
- U.S. Helms-Burton Law
- Health Care
- Regional Development
- National Defence
- Food Inspection
- Citizenship And Immigration
- Crab Fishing
- Health Care
- Prescription Drugs
- Vehicle Emissions
- Presence In The Gallery
- Point Of Order
- Government Response To Petitions
- Committees Of The House
- Report Of Commissioner Of Environment And Sustainable Development
- Immigration Act
- Criminal Code
- Louis Riel Commemoration Act
- Questions On The Order Paper
- Underground Economy
Private Members' Business
March 5th, 1997 / 5:25 p.m.
Brenda Chamberlain Guelph—Wellington, ON
That, in the opinion of this House, the government should continue and enhance its efforts to address the underground economy, which costs Canadians anywhere from $23 billion to $156 billion in lost revenue and wages, by working with other levels of government, industry and unions in developing a plan of action, which includes a national education campaign and increased enforcement.
Madam Speaker, Reformers came to this place stating that they would do things differently, but as we see you have to keep order and I thank you for it. When we do go to the trouble of making speeches and working hard it is nice to be able to make them and for our constituents to hear.
I am pleased to speak to my Motion No. 243 calling on the government to enhance its efforts to combat the underground economy. My motion asks that the government consider a plan of action which includes a national education campaign and increased enforcement.
As part of my work as chair of the national Liberal caucus committee on economic development I recently chaired a subcommittee which studied the issue. I was pleased to have the opportunity to work with the hon. member for Brampton, the hon. member for Vaudreuil, the hon. member for St. Catharines and the hon. member for Lambton-Middlesex who is here and will speak later to the motion.
We made a number of recommendations to the Minister of Finance prior to the 1997 federal budget and we entitled our report "Our Future at Risk". The effects of the underground economy truly place our future at risk. What is perceived by some as an anti-GST activity is in fact costing every Canadian in lost revenues for social programs, deficit reduction and worker benefits.
What is attractive to some because of what they perceive as an unfair tax system is unfair to the honest tax paying Canadian. The underground economy places our social services, our deficit reduction efforts and our very future at risk. It is easy therefore to complain about taxes and to try to avoid them. Certainly our taxes are high. However it is important to remember that taxes support health care, education, social services and public pensions.
When we participate in the underground economy we are not taking money away from government. We are taking services away from the sick. We are taking education away from our children. We are taking pensions away from our elderly. Revenue Canada believes that the causes of the underground economy includes high taxation, the perception that government does not spend its money and efficiently, the GST, and the perception of unfairness in the taxation system.
No one really knows how much the underground economy actually costs Canadians, although it is estimated somewhere between 2.9 per cent and 3.5 per cent of GDP to anywhere around 10 per cent to 20 per cent of GDP. Whether we accept the low end or the high end, government must take a more active role in combating the underground economy.
One of the most important efforts that can be accomplished immediately is education. Canadians are unaware of the actual costs of the underground economy. Many do not appreciate that it places our future at risk. Certainly no one enjoys paying taxes.
However government must work to ensure all the money owed to it is collected. We could only imagine the benefit that would be accomplished if suddenly the money lost in the underground economy were used to pay down the deficit, used to fund hospitals, used to support post-secondary education, used for our police and used to support our infrastructure. That money rather than the irresponsible promise of tax cuts could do what we need to do much faster.
Combating the underground economy will ensure tax fairness. By offering support to the honest taxpayer it will ensure the preservation of our social programs. It will speed the deficit and debt reduction demanded by Canadians in Guelph-Wellington and in every other part of this great land.
A number of federal government departments are actively working on the problem. I commend the work currently being accomplished by the Department of National Revenue under the leadership of the current minister and the former minister, the hon. member for Victoria. Eight hundred additional auditors were announced in the 1996 federal budget. The work of the department has yielded more than $1.7 billion in additional revenue for the government since November 1993, revenue that would have been lost without these efforts.
Human Resources Development Canada has undertaken a study and the Department of Finance continues to look for ways to protect the integrity of the tax system.
One of the most important ways we can combat the underground economy is through partnerships. I am fortunate to have in Guelph-Wellington a number of concerned individuals and groups, especially the building trades that are ready and able to work with government and others to help reduce the effects of the underground economy.
The federal government must work with all levels of government, industry, labour and others to find new and innovative solutions. There are, for example, a number of key associations that are directly affected, including the Canadian Jewellery Association, the Canadian Dealers Association, the trade unions, chambers of commerce, the Canadian Automobile Dealers Association, local construction associations and tourist associations.
To anyone who says that the underground economy does not affect individuals, let them speak to people like Joe Maloney and Phil Benson of the building and trades department. They know that some of their members are unemployed as a direct result of underground economic activity. In these cases the underground economy hurts us two ways. It takes away legitimate government taxes and contributions for the Canada pension plan, workers' compensation, income taxes and employment insurance. It also places the worker, someone willing and able to work, on employment insurance, adding burden to the EI system.
There is also the toll that a monetary value can never replace. It takes away the dignity of work that the individual feels when he or she is contributing to supporting themselves or their families.
Every time someone paves a driveway, installs new windows, repairs the car or gets their hair cut through the underground economy they may very well be taking a job away from a friend, a family member or a neighbour, and a job necessary to provide support for a family.
There is a human face to the underground economy and there are no simple solutions to ending the underground economy. No one has the answer that would solve this problem. Any effort requires teamwork. That is why I am suggesting a Team Canada approach to solving the problem.
Like my community of Guelph-Wellington we have to work together in order to seek solutions and, most important, to find answers. In Guelph-Wellington our problems are solved through co-operation. Recently, for example, we needed a CT scanner for the General Hospital. It was purchased because hundreds of Guelph-Wellington residents, supported by the generosity of our corporate community, worked together to raise the necessary funds for equipment that will save lives.
In Guelph-Wellington solutions are found when labour, industry, politicians and citizens work together to find them. There is no doubt that the underground economy is fuelled by a lack of trust for the way that governments spend money. Certainly there was some justification in the lack of confidence in the way taxpayers' dollars were managed.
In the nine years prior to the election of the Liberal government Canadians watched Conservative finance ministers make 33 projections of deficits. We also watched them be wrong 33 out of 33 times. Canadians watched the debt nearly triple in those nine years. All of that has changed. Confidence has returned. There is still much work to do but sanity has returned to the management of the federal government treasury. Canadians can be confident that their money is being spent on their priorities and that we are no longer sacrificing our future by overspending.
The present finance minister has listened and we are now spending within our means. A balanced budget is in sight and the debate will soon change from how much is the annual deficit to where do we apply the surplus.
I ask those who participate in the underground economy because of mismanagement to reconsider. We have turned our finances around. We have listened. Their money is being spent building the greatest country on earth.
Combating the underground economy will require building on partnerships. Once Canadians realize it is in our best interest-and I mean each and every Canadian-to ensure tax fairness we can begin to eliminate the problem. Partnerships must include all levels of government, industry, labour, community associations and individual citizens.
The industries most affected such as the building trades are the first to want to volunteer for any effort that will be successful in reducing not only the underground economy but also unemployment and underemployment among their members.
Ultimately the underground economy has a human face. It causes hardship among hard working, able workers whose jobs are taken away because some Canadians choose to avoid paying taxes. All honest taxpayers must participate in any effort to end the underground economy.
As our colleague from Hillsborough, Prince Edward Island, said to me in a letter as we were preparing the report of the subcommittee on this issue, "we should not just increase enforcement but we should address the underlying causes of the underground economic activity".
The underground economy is caused by attitude as much as anything else. We all remember when drunk driving was either accepted or we chose to close our eyes to the problem. It was a slow process to change attitudes. Groups like Mothers Against Drunk Driving that has a chapter in Wellington county helped to raise awareness to the level where drunk driving is no longer acceptable. None of this happened overnight. These efforts took time but we are now living in a society where driving drunk is not tolerated.
So it is with the underground economy. Ending the problem will not be done overnight. Vigilance must prevail. A long term strategy is required. Patience is necessary.
One of the more successful tools we have to reach out and inform is education. Some people may offer simple solutions. Certainly any promise of across the board tax cuts may be attractive in the short term but tremendously unrealistic in the long run.
I have urged both the Prime Minister and the Minister of Finance in their roles as leaders to speak on the issue. Many Canadians are simply unaware of the size of the problem. Some believe their participation in the underground economy does not really make a difference because they are only one person. They fail to understand that when their participation is joined with that of others the problem becomes compounded. Others see the whole issue as too complex and too overwhelming to comprehend.
Recently the government of the province of Quebec undertook a major education campaign. The campaign focused on the fact that participation in the underground economy took away from our children's future. In one of the television ads we see a number of people hunched under a table making financial transactions. At the end of this long table we see a child sitting alone. The message is simple. The child receives none of the benefits of underground economic activity. Simply put, it is another message that our future is at risk.
As I said earlier, we need a Team Canada approach to the problem. Nothing could be more positive than a poster at a building supply depot from the Canadian Construction Association. A message sponsored by a local chamber of commerce or a reminder at a company bulletin board would have a positive effect.
Again, I ask that we remember the example I gave about drunk driving. It took persistence on behalf of a few to change the minds of many.
I want to touch briefly on the issue of the cashless society. There is no doubt that our system of paying for goods and services is changing.
Shop at most stores in my community and someone can probably pay by cash, credit card, cheque or perhaps Interac. Guelph is also home to Mondex, a fascinating cashless experiment. Certainly this will have an impact on the underground economy. Debit cards like Interac are traceable like a cheque. Transactions can be followed.
There is no doubt that the cashless society, whether it be a Mondex system or something even more fascinating will in the next few years change the way we purchase goods and services. I urge the federal government to monitor this situation closely.
The cashless society should benefit any effort to reduce the underground economy. I hope we work with those implementing this future technology for efforts that will discourage underground economic activities.
This issue is complex. We argue over the size of the underground economy and we can debate over which sectors are most affected. We can search for solutions. However, one thing is clear. As long as Canadians participate in the underground economy, they place our future at risk. It is easy to believe that we are avoiding the GST or simply not giving the government more money to mismanage.
However, participation in the underground economy does not hurt the government. It has a negative impact on government services and it increases the deficit and the debt. Participation in the underground economy takes beds out of hospitals, teachers out of schools and puts veterans' benefits in jeopardy.
It further burdens our children whose share of the debt increases each time someone avoids paying taxes. It prevents governments at all levels from offering all the services to taxpayers that they can and it puts honest, hardworking men and women on the unemployment line or makes them turn to social assistance in order to feed themselves and their families.
We must all work together to end this problem. A lack of confidence in government and its ability to spend money wisely and efficiently was perhaps a reason. We have turned the corner.
Participation in the underground economy only makes the situation worse. It hurts every single Canadian, particularly those most vulnerable.
Governments must reach out further to find partners, work on solutions and end this problem which clearly places our future at risk.
Private Members' Business
Richard Bélisle La Prairie, QC
Madam Speaker, the member for Guelph-Wellington has tabled Motion M-243, which reads as follows, and I quote:
That, in the opinion of this House, the government should continue and enhance its efforts to address the underground economy, which costs Canadians anywhere from $23 billion to $156 billion dollars in lost revenue and wages, by working with other levels of government, industry, and unions in developing a plan of action, which includes a national education campaign and increased enforcement.
I would like to begin by congratulating the hon. member on her initiative in calling on the federal government to step up its fight against the underground economy, even if it must be pointed out that this initiative has come on the heels of numerous requests by the Bloc Quebecois and of action undertaken by the Government of Quebec in this connection.
Quebec has once again been a step ahead of the federal government. An education campaign is already under way in Quebec. Viewers will recall the television ad showing a young child sitting on a table while adults exchange money underneath it.
The Bloc Quebecois has often asked the federal government to step up its fight against the underground economy, in its analysis of the auditor general's reports for instance, and again quite recently in the paper setting out our expectations with respect to the finance minister's last budget.
In this paper, we estimated that, for the federal government alone, the underground economy represents annual tax losses as high as $6 billion; this figure comes from a Statistics Canada estimate, and we argued that the government could easily recover at least $500 million by hiring more inspectors.
The auditor general has already pointed out that his inspectors cost an average of $35,000 each in salary, and that each one brings in on average almost half a million dollars in additional tax revenue annually.
Economists would advise the government that it should hire these workers as long as their training and salary costs are offset by what they bring in in additional tax revenue.
Right now, they are bringing in ten times more than they cost, which suggests that the revenue minister would do well to hire more of them.
It goes without saying that concerted action by the provinces, industry and unions has a better chance of succeeding than unilateral action by the federal government. We think that Quebec will very likely co-operate with the federal government in this endeavour, because this is a phenomenon that has a negative impact on the tax revenue of all levels of government, while there is only one level of taxpayer. If the federal government indeed acts along with the others involved, instead of harshly imposing its views and interests in this area, we consider this plan to be extremely viable and highly desirable.
The underground economy has two components: there are activities which are fundamentally legal but not reported for taxation, like moonlighting, and then there are illegal and criminal activities, like drug dealing and fencing stolen cars.
We believe that an education campaign ought to focus particularly on people liable to get involved in the first category of activities, and that increased enforcement-stricter legislation and inspection, for instance-need to be looked at for both categories, with particular attention given to controlling and eliminating the second category of activity.
We fully subscribe to the notion that, in a country where the community decides to provide public services, crooks and deadbeats who deliberately avoid paying taxes, who will do anything to avoid paying their fare share of tax, are guilty of antisocial behaviour. That is why we must first of all make people aware of the social significance of underground activities, while at the same time setting up active control measures in areas where such activities are more frequent.
We must, however, avoid going too far and considering everyone a potential crook and deadbeat. We live in a system where people are presumed innocent until proven otherwise, and this must continue. Ways must be found, however, to get at those who are knowingly behaving as bad citizens.
The public must be educated and informed about what their taxes are used for, so that they do not get the impression that they are paying them for no purpose. This implies that the government must first and foremost set an example, and prove that this is true. The public needs to be convinced that the rich, and the big corporations, are paying their fair share of taxes.
Our young people do not need the auditor general telling them that stock mismanagement costs them $1.25 billion, that the federal government spent $30,000 to move a ship in order to save $71 on a repair bill, that the RCMP ordered 4,000 too many hats.
The federal government still has a lot to do in this connection. There are two types of approaches to eradicating moonlighting and tax evasion: deterrents and incentives. The main deterrents are to increase controls and monitoring and to increase fines and penalties. We believe that the federal government should stress incentive measures including lower taxes, deregulation, simplifying the task of taxpayers and government officials faced with the complexities of the tax system, continued improvements in public administration and finally, tax amnesties, which, however, remain an exceptional measure.
In concluding, I believe that education is also helpful, as is the degree of visibility of consumer taxes and increased employment, which might reduce the pressure on taxpayers.
All these measures should be part of a comprehensive plan to fight the underground economy. Unfortunately, from what we have seen in recent months, including latest budget brought down by the Minister of Finance, there can be no doubt at all that the Liberal government is not really interested in fighting the underground economy, in spite of the efforts of the hon. member for Guelph-Wellington.
Private Members' Business
Herb Grubel Capilano—Howe Sound, BC
Madam Speaker, I would like to congratulate the member for Guelph-Wellington and her colleagues for engaging in a serious effort to understand the nature and the size of the underground economy and come up with some suggestions on how we could reduce the size of this unfortunate development in our economy.
As an academic economist I have a long tradition of studying this subject. I have attended a number of international conferences. I was first attracted to it when I met a professor from the University of Wisconsin, Ed Feige, telling of his experience when he stayed with a relative who came home one evening with a brown paper bag. He asked him naively what was in the bag. He opened it up and inside was cash. That person had a small retail store and he had taken a lot of his profits that day home in cash. They did not go through the banks.
It also brought back my own memory from childhood in Germany where my father had a grocery store. In the evenings he would draw all the shades and make sure that nobody could see in when he punched on the cash register a new tape reflecting a much lower cash receipt of the day that went into the official books. I know, and everybody seems to know, that these kinds of practices are very widespread. However, I found out at these conferences there is a very wide range. There was a very wide range of estimates of the size of the underground economy. It all depended on the methodology that was used by the people who studied it. On the one hand there was Ed Feige who said we have so much more cash floating around in the economy than we did before for a given national income that it must be used for the financing of the underground economy. He was driven by this example of his relative bringing in a brown paper bag full of cash. He estimates that it may be as high 15 per cent of national income, if not higher.
However, to me the most impressive and persuasive argument was made by people from Statistics Canada and other national data keeping organizations. Let me have a quick taxonomy. There is the underground economy that exists of barter where a dentist in a small town might accept a supply of chicken for 10 weeks, one a week, in payment for dental services. That kind of a barter undoubtedly takes place. Every once in a while I run into people who say "you are so naive that you did not know we were doing this". But the estimate of the importance of this kind of activity, given the size of the economy, is trivially small.
The second source of underground economy activity arises in the context of smuggling. Here the most outstanding example relates to goldsmith jewellery which is burdened not only with GST and PST but also a very unfair 10 per cent luxury surtax which is totally inappropriate for this age. It has created a huge underground economy. In the finance committee we heard regularly pleas from the industry for the government to abandon this absurd tax. I hope the government, as soon as it has breathing room, will follow this advice. It might produce more revenue than is being lost because the return to smuggling is destroyed.
The persuasive argument as to size came to me from national income accountants who said they knew from episodal evidence that the biggest cheating takes place in the construction industry, car repair, tailoring, barbers and a few other such industries.
We have statistics on the size of those industries. They may be important to individuals but given the size of the economy, a refinery or an automobile manufacturing plant those industries are very small. They make up no more than 2 per cent of national income.
A large proportion of those activities is undertaken by a large firm and a large firm that engages in car repair cannot cheat. Furthermore, let us look at home repairs where they might give a deal if they do not have to pay GST on building an addition to a house. Let us remember the person has to buy windows, doors and all materials that go into it. The addition may cost $10,000 but the value added by the person who does the work is probably about $1,500 or $2,000. GST is paid on all the inputs because the person cannot claim back a rebate on the input.
I am persuaded that it is a relatively minor problem. I believe the hon. member for Guelph-Wellington was overstating the case when she said that Canada's future was in danger because we had an underground economy. That is a vast exaggeration of the problem.
In the moments remaining to me I will talk about some possible solutions. The first solution would be more education. How can anyone be against education? How far can we go when the message being sent goes against individual self-interest? We know that in the end self-interest pays and dominates.
We should also remember especially in those cases that it is a victimless crime. The victimless crime morality is very hard to argue. The hon. member might say that other people will have to pay more taxes and services are down. That is remote. The amount of money being cheated is so small that the average person can rationalize very well the effect on society as a whole of minute actions. Nevertheless, let us have more education by all means but let us not spend too much money.
The next thing is to have more enforcement by the Department of National Revenue: more audits, more rat lines and all those kinds of things. Surely they will produce some benefit. Not only am I worried about the cost. I am also worried about the other side of the coin, that we are increasing the power of the state. We are letting human beings who are imperfect, who could fail and who
could abuse power go out and chase down a few individuals. This involves a great deal of risk.
Let us build partnerships. It is like education but I doubt that it will go very far. The conclusion I reached having looked at the subject is that the only sure way to do it is to lower the returns from cheating. How do we do it? It is by lowering taxes. There is a risk of being caught and a risk of social disapproval. The higher the rate of return from engaging in illegitimate activities and carrying the risks, the more will be undertaken. The converse is the lower the rate of return, the less will take place.
That is just another argument in a long line of arguments in favour of lower taxes which can only be brought about by Canadians accepting somewhat smaller government and going back to self-reliance rather than on any occasion possible screaming "Ottawa help me". That is the way to deal with the problem the hon. member has addressed in her resolution.
Private Members' Business
Barry Campbell Parliamentary Secretary to Minister of Finance
Madam Speaker, I begin by recognizing my hon. colleague from Guelph-Wellington for her work as chair of the subcommittee of the national Liberal caucus committee on economic development. In late December 1996 the subcommittee held hearings to examine the underground economy, taking the first of many important steps in the government's efforts to address the underground economy.
I welcome the opportunity the motion presents to review the government's continuing efforts to address the underground economy. The issue is fundamental to the integrity of the tax system. The government must ensure that taxes owed are taxes paid so that Canadians have faith in the fundamental fairness of our tax system.
The Canadian tax system is based on the principles of self-assessment and voluntary compliance. Most Canadians are honest and pay the taxes they owe. In fact about 95 per cent of tax revenues are collected without any direct enforcement action. There are areas of the economy where there is lower compliance and where the government has had to focus its efforts. The underground economy is one of those areas.
The underground economy we are talking about are those transactions, often cash transactions, on which income is not reported or is only partially reported for tax purposes.
There is nothing romantic or harmless about the underground economy. The simple fact is that all of us benefit from the economic and social programs funded by our governments. When some individuals do not pay their fair share of taxes to support those programs it is the rest of us who have to pay more.
The underground economy comprises business competing unfairly with honest firms, because they can offer consumers lower prices, as they pay no income tax and do not contribute to the Canada pension plan, the employment insurance plan or to workmen's compensation.
In this context, the honest firms paying their fair share of taxes may be forced to accept smaller revenues, indeed to lay off employees and even, in some cases, to close their doors.
Consumers themselves become part of the problem of the underground economy when they agree to pay cash in exchange for a better price, which enables the business or the tradesperson to hide the operation and avoid all taxes. This sort of behaviour hurts all consumers and all members of our society.
In fact, lost government revenues cannot be used for essential services benefitting all Canadians, such as health care, education and other social programs.
The problem of the underground economy is one we cannot and do not ignore. Let me expand on what our government and Revenue Canada have done and the progress we have made since 1993.
The action plan the government has developed and implemented puts heavy emphasis on voluntary compliance and the things that support it. It is a plan that balances partnership, education and service activities with enhanced enforcement. Let me emphasize that our strategy to deal with the underground economy is designed to promote the principle our tax system is based on, voluntary compliance.
From an economic point of view that is a smart strategy. It costs the government less to obtain taxes that are paid voluntarily than it does for Revenue Canada to go out looking for, auditing and investigating those who do not comply.
Given this context, education is a major tool in battling the underground economy. Through its education efforts Revenue Canada has raised public awareness of the consequences of the underground economy and tax evasion. Presentations have been made to local community and business organizations. Information sessions have been held at universities, colleges and high schools. Revenue Canada staff visits business people in communities across the country to inform them about their efforts to combat this problem and to encourage a level playing field for honest businesses.
During these visits they provide information on departmental services, answer questions and provide assistance to make it easier for businesses to comply with the various tax regimes. Overall I am glad to report that during the past two years Revenue Canada staff
has visited over 100 communities and met with more than 21,000 businesses.
Another important element of Revenue Canada's action plan is to inform individuals what happens if they have not reported all their income and they want to come clean.
Revenue Canada's voluntary disclosure policy enables all those who take part in the underground economy and those who have not complied with the law to correct any omissions in the income they declare to the department.
This policy is based on a simple principle: if a disclosure is made voluntarily, that is, before the department has begun an audit or taken other enforcement action, no penalty or sanction, such as prosecution for tax evasion, will be imposed. The individual will simply be required to pay the tax due plus interest.
It is has sometimes been suggested that a temporary tax amnesty would be useful in addressing the underground economy. The state of New York experienced some success recently with just such a program.
Revenue Canada's voluntary disclosure policy is better than any temporary amnesty program because it is permanent. Individuals who are drawn into the underground economy do not have to stay in hiding for several years hoping and waiting for an opportunity to change their ways without fear of criminal prosecution for monetary penalties. Revenue Canada's voluntary disclosure policy is a responsible approach to collecting the taxes rightfully owing to the government and has proven to be successful in recent years, borne out by the fact that voluntary disclosures have tripled since 1993. People can make voluntary disclosures by contacting any Revenue Canada office.
There is no question that enforcement has to be a fundamental element of our fight against the underground economy. That is why Revenue Canada has currently dedicated over 1,200 auditors to strengthen its efforts to identify non-filers and GST non-registrants and to conduct audits of small businesses in sectors of high non-compliance. Special audit teams have been established to focus on the construction, home renovation, jewellery, auto sales and repairs, hospitality and other service sectors, areas that can lend themselves to underground tax evasion.
Revenue Canada makes extensive use of state of the art technology to cross match data from numerous sources including municipal and provincial databanks to identify non-filers and GST non-residents. Last year this helped identify over 500,000 non-filers and GST non-registrants.
To enhance these activities the Minister of Finance announced in the 1996 budget that 800 more auditors would be devoted to Revenue Canada's audit program for unincorporated businesses and self-employed individuals. This will increase the audit coverage rate for these groups and bring it more in line with the continued growth in this sector.
I would add that this co-operative effort is not limited to audits for provinces that have concluded tax collection agreements. Quebec, for example, collects its own taxes, but we co-operate closely with officials in joint strategies and we co-ordinate our activities with their own business audit activities in the fight against the underground economy.
I would also point out that Quebec has invested significant resources in this problem and taken a very focused approach in the fight against tax evasion and the underground economy. These are positive measures that will add to our strategy in the fight against the underground economy.
What about the bottom line of our enforcement initiatives? I am glad to report that since 1993 our enforcement efforts have yielded more than $1.7 billion of additional revenue for the government.
Another important facet of Revenue Canada's audit activities is the information it gets from other federal departments and from the provinces and territories. Statistics Canada, Transport Canada, Public Works and Government Services Canada provide important information that facilitates audit selection and enforcement. Human Resources Development Canada works closely with Revenue Canada to identify links between employment insurance fraud and tax evasion. Revenue Canada also has an extensive network of provincial co-operation agreements that provide for information exchanges, joint enforcement action, shared experience and compliance.
These co-operative agreements are not limited to the public sector. During the past few years Revenue Canada has consulted with over 400 national and local industry groups and professional associations. These consultations are extremely effective in providing a common understanding of issues and obtaining private sector co-operation. These groups and associations include Canadian Institute of Chartered Accountants, the Canadian Construction Association, the Canadian Home Builders Association, the Canadian Jewellers Association and others. Each industry has its own unique character and issues. For that reason Revenue Canada is not applying blanket solutions. Instead, the department is working with industries on an individual basis to develop workable solutions.
One result of these partnerships was the announcement by the Minister of Finance in the 1996 budget of a new contract payment reporting system for the construction and home building industry.
Key industry groups and various trade unions are working in partnership with Revenue Canada to encourage these businesses to voluntarily report all payments made to contractors and to subcontractors.
For the small percentage of Canadians who feel they are above the law, Revenue Canada uses another effective tool, the widespread publication of successful prosecutions.
Bringing this information to the general public's attention has a major impact on the number of leads of potential tax fraud that the department has received. Since 1993, these have increased substantially to more than $28,000 annually.
Revenue Canada is taking an analytical approach to identifying and addressing non-compliance issues to ensure enforcement resources are used efficiently and effectively. The department is using technology to analyse data and assess the risk of non-compliance in specific sectors. Audits are then directed to those areas.
We have come a long way, but we still have a long way to go. Revenue Canada has developed a long term strategy for the fight against the underground economy, which strikes a fair balance between measures promoting voluntary compliance and enforcement action.
Certain elements are essential to the success of this strategy. We must make the public aware. We must work with industry and other levels of government. We must take effective enforcement action.
We must ensure that every Canadian understands the underground economy threatens government services and programs. It imposes an unfair burden on honest taxpayers.
In conclusion, I commend the hon. member for Guelph-Wellington for bringing this matter once again to the floor of this House, supporting the government in its efforts to address the underground economy.
Private Members' Business
Rose-Marie Ur Lambton—Middlesex, ON
Madam Speaker, I am delighted to take part in today's debate on Motion No. 243, sponsored by my friend and hardworking colleague, the member for Guelph-Wellington, which calls on the government to develop a plan of action to counter the underground economy in Canada.
Participation in the underground economy and tax evasion represent significant loss of revenues to both federal and provincial governments. A precise estimate of the underground economy is not possible.
However, the most commonly accepted estimates of the size of the underground economy place it in a range of 10 per cent to 20 per cent of the GDP. That implies an economy of illegally hidden activities that is larger than the entire economy of Alberta and places the size of Canada's underground economy in a range of $75 billion to more than $150 billion.
Since taxes of all types represent nearly half of Canada's reported economy, this could represent a loss of anywhere from $35 billion to $75 billion every year. It also poses a serious threat to Canada's tax system which is based on self-assessment and voluntary compliance. This is not a victimless crime.
According to Revenue Canada, some of the causes of underground activity are recession, high tax levels, perception that government squanders tax dollars, perception of unfairness, high regulatory burdens, particularly for small business, perception that there is a low risk of being cause, perceived high cost of compliance and declining real incomes.
While too many Canadians will continue to view any of the above as legitimate reasons to continue operating in the underground economy, the fact remains we all need to be reminded of the implications of the underground economy to the country and to the Canadian way of live.
Huge revenue losses have many long reaching effects on the systems and programs that we take for granted. For example, essential programs and services are at risk. An unfair burden is placed on honest Canadians. Unfair competition occurs. Unfair access to tax credits and other social programs takes place and we are left with a legacy of higher deficit and a larger debt.
In November 1993 Revenue Canada concluded that the problem of the underground economy was so severe that its approach to solving the problem at hand must be different from the methods that have been historically employed.
In launching its underground economy initiative, the department chose to concentrate on the following three strategies: encouragement through education efforts of the underground economy to rejoin the legitimate economy, promoting voluntary compliance, and taking responsible enforcement action.
Under this strategy the department has been conducting a risk assessment to target its enforcement activities on identified areas of non-compliance and on files that are identified as high risk.
The department has also entered into co-operation agreements with all the provinces to exchange information, share audit strategies and co-ordinate audit and enforcement activities.
As part of its efforts to rehabilitate sectors that it has targeted as prone to non-compliance, Revenue Canada has consulted with more than 240 industry and professional groups to seek input from those concerned about underground economic activity.
While no single action is likely to markedly reduce the size of the underground economy in Canada, a series of actions to accompany Revenue Canada's initiative might prove to be more helpful.
For example, I believe we must attempt to link taxes more closely with the actual benefits enjoyed by taxpayers, who are more likely to comply when they can readily identify the direct benefit to them of the tax.
There is also much evidence that compliance, particularly for the small business sector, needs to be kept as simple as possible. This is a major issue for the GST and is related in part to a narrower base for the tax, a base which excludes some items and includes others.
This issue is even more important in provinces which have maintained a PST base that differs from that of the GST. The April 23, 1996 harmonization memorandum of understanding between the federal government and New Brunswick, Nova Scotia and Newfoundland suggests that we can make real progress in this area, but there still is work ahead before we can ever claim to have a truly harmonized tax system in Canada from coast to coast.
There is fairly good evidence that the underground economy in Canada has grown considerably in absolute size and relative to total economic activity. With this in mind, there is also a very good argument to devote more resources to the task of obtaining a better understanding of the underground economy's role in this country and the factors contributing to its growth.
I believe it is crucial that we not expend all our energies in merely attacking the symptoms of this very serious problem. To ensure success we must use creativity in addressing its underlying causes.
Private Members' Business
The Acting Speaker (Mrs. Ringuette-Maltais)
There being no further members rising for debate and the motion not being designated a votable item, the time provided for the consideration of Private Members' Business has now expired and the order is dropped from the Order Paper.
Does the House give its unanimous consent to call it 6.30 p.m.?
Private Members' Business
Some hon. members
A motion to adjourn the House under Standing Order 38 deemed to have been moved.
Derek Wells South Shore, NS
Madam Speaker, I am pleased to have the opportunity to rise again in the House to speak about cost recovery as it affects the fishing, fish processing and aquaculture industries of Nova Scotia.
On every possible occasion I have drawn attention to the vital role of the fishery in the region's economy and especially in my riding of South Shore. In Shelburne County, for example, the fishery directly or indirectly employs 80 per cent of the workforce.
I meet regularly with the fishing industry leaders and their organizations. Cost recovery has been a recurring topic for nearly two years. We have worked hard to document the impact of new and increased fees charged by government departments and agencies for different industry services. We have identified 14 categories of fees which directly affect the bottom line of fishing enterprises.
I have been asking for a cumulative impact study to analyse the combined and overall effects of these fees.
We have a fairly comprehensive picture of the impact of cost recovery at enterprise levels but we lack information about the combined or cumulative impact of fees at community or regional levels.
Last month the Standing Committee on Fisheries and Oceans heard testimony about cost recovery from fish harvesters and fish processors. Representatives from Treasury Board attended these sessions and we understood they took a very strong message back to the minister that cost recovery, if allowed to proceed unchecked and without a cap or ceiling, will have significant impacts on business competitiveness and the entire economy of Atlantic Canada.
I am confident the fisheries committee will be recommending, as I have, that a detailed study of the cumulative impact of cost recovery on the fishing industry be carried out and that no new fees or any increases to existing fees be imposed.
I also hope that serious consideration be given to scaling back fees in circumstances where it can be demonstrated that they represent an excessive burden on either the fishing enterprise or the community.
I commend the paper tabled in this House on February 20, 1997 called "Getting Government Right: Governing for Canadians".
This document states unequivocally that those who pay for services must have an effective voice in service design and delivery.
To date information sessions and consultations between fisheries and oceans and its principal clients have taken place, but opportunities to roll up the sleeves and work together to decide on essential services and program delivery have not materialized.
"Getting Government Right" also talks about a process which is available to mediate in situations where clients believe departments and agencies have not followed the mandate to work in co-operation with stakeholders. It has become increasingly clear that mediation between the fishing industry and the federal government is a real and very urgent requirement.
I hope and request that the new guidelines to be announced by the President of the Treasury Board will recognize the concerns that I have been expressing over the last number of months: requiring the department to hold meaningful consultations with industry; adopting the user pay, user say concept; providing a process which would allow industry to appeal the imposition of any new fees; requiring government departments to disclose their own costs to those who are being asked to contribute to those costs.
We need the commitment. We need the guidelines. We need the assurances that the guidelines will be followed and that what industry has endured over the last two years will not be repeated.
On behalf of my South Shore constituents and their counterparts from every other region of Nova Scotia and of Canada, I am today asking the President of the Treasury Board to say "yes, we recognize a problem with cost recovery and action must be taken to ensure the long term sustainability of Canada's fishing industry".
Barry Campbell Parliamentary Secretary to Minister of Finance
Madam Speaker, Treasury Board is responsible for establishing the overall policy and for providing general guidance to departments in its implementation. This includes the need for them to be sensitive to the cumulative impact of fees on their clients.
We view the assessment of cumulative impacts as a very important issue with respect to the introduction or amendment of user charges. Officials of the Treasury Board secretariat assemble an advisory committee of businesses and consumer groups to help them draft a revised set of cost recovery policy guidelines. We see this policy development as a first and important step toward ensuring that all departments and agencies work toward the same goals when they introduce or amend fees.
Program review has changed the way government conducts business. Many activities are being totally re-engineered to ensure Canadians get the best value for money spent. Scarce tax dollars cannot continue to be used to fund programs that provide specific benefits to clients which are over and above those provided to the general taxpayer.
In our efforts to improve the focus of government spending we are paying more attention to who receives benefits from government activities. Unfortunately shifting such costs to those who benefit will necessary involve fee introductions or increases in those areas which seem large when viewed outside this context. We all know nobody objects to paying their fair share, but those impacted by these changes want and deserve a voice in what happens. Departments and agencies must give clients an opportunity to provide input as to how services for which they have to pay can be improved.
However, this is not a one way street. Departments and agencies must keep an eye on their overriding policy objectives as they work with suggestions for change. The Treasury Board will not impose a ceiling on charges. However, it wants to ensure that departments carefully assess how such fees affect clients before they are put in place. Ministers of line departments are responsible for implementing cost recovery for programs under their area of responsibility and for assessing the economic impacts of specific initiatives.
I cannot over-emphasize the role that clients will have to play in any such exercise. The specific impact of user charges will vary greatly across clients, depending on their particular circumstances. Therefore, open dialogue between clients and departments is crucial to understanding and resolving inequitable situations which may arise.
Ronald J. Duhamel St. Boniface, MB
Madam Speaker, again, the question I asked on February 11 was the following:
What will the Minister of Canadian Heritage do to counteract budget cuts such as those made at Radio-Canada and more specifically those affecting the news program Ce soir . Could she expand on that?
The minister's response was, and I quote:
-Radio-Canada has decided to reconsider its decision to terminate programming of Ce soir . In fact, programming in Saskatchewan and Alberta would be maintained.
I hope that, after the government, or Radio-Canada in this case, has been persuaded to change its mind, the principle will have been established that, when a decision is made by an organization, this decision can always be overturned, reviewed, reconsidered if necessary.
This point of principle I just raised is an important point because the decision in question has widespread implications in terms of the services provided to francophone minorities outside Quebec and particularly in western Canada. In spite of the protection they
are afforded, these communities always have to fight for their basic rights, in this case, access to news in French. That is unfair.
I am very happy for francophone communities in western Canada that Radio-Canada decided not to terminate programming of Ce Soir . There is a need, however, for the government and Radio-Canada to understand their respective role, which is essential to Canadian unity. Radio-Canada is essential to the continued existence of the French language as a living language, spoken and written in western Canada and, to this end, it must do everything in its power to provide local programming and access to news programming to francophones across the country.
Does the federal government have a role to play in ensuring that Radio-Canada can go on producing quality programs in French? I think so. In fact, I am convinced that it does. I might add that, in my view, the government should provide the necessary financial support to its minorities, be it for television or radio programming, education, or whatever else is required to improve their well-being.
I do not want the government to save money at the expense of our French language institutions any more, those institutions that provide us with the infrastructure we need in order to be able to live and prosper in French. The government has a duty to make sure the necessary tools are in place so that our communities can not only live in French but also improve their quality of life. That is what I expect from the government this evening.
Barry Campbell Parliamentary Secretary to Minister of Finance
Madam Speaker, as the Minister of Canadian Heritage mentioned, the CBC makes all the decisions concerning its programming and its daily operations. This includes the decisions concerning French language television programming.
That having been said, I am pleased to provide details to the hon. member regarding the measures announced by the CBC on January 30, regarding its French language radio and television. These initiatives will improve services provided by Radio-Canada to French speaking communities outside Quebec.
According to the CBC news release:
The half-hour French language news bulletin Ce soir , which is aired at dinner time, will be maintained in the four western provinces, and will have a new format as of this spring.
As for other programs from western stations, services will remain essentially the same and regional teams will continue to produce news stories and information programs that will be broadcasted by Radio-Canada and RDI.
The French language radio will provide $500,000 in additional support to the stations most affected, namely Regina, Edmonton, Vancouver and Windsor, to focus on regional and local programming.
Except in Vancouver, there will be at least 36 hours per week of French language radio programs. Regional programming on the national network will be maintained and, in some cases, increased.
In Acadia, special arrangements will allow the Moncton station to maintain infrastructures to preserve regional and network programming. These infrastructures will also be made available to independent producers.
Radio-Canada has been present for a long time in Canada's regions, and it is an integral part of the communities that it serves. These measures reflect the public broadcaster's determination to provide regional programming and, particularly, to meet the needs of minority French language communities outside Quebec.
On February 11, the Minister of Canadian Heritage announced that, as of April, annual additional funding of $10 million would be provided to CBC's French and English language radio, as well as stable multiyear funding.
Rose-Marie Ur Lambton—Middlesex, ON
Madam Speaker, in the January 11 edition of the Canada Gazette , Part I, the Pest Management Regulatory Agency, PMRA, of Health Canada published its proposals on cost recovery which are part of the current review of Canada's pesticide registration system.
Since that time, I have received at least 50 copies of responses to the PMRA proposals by individual farmers and agricultural organizations. Not one of these responses has been favourable.
On February 21 I asked the Parliamentary Secretary to the Minister of Health if the minister was prepared to revisit the many concerns voiced by Canada's farmers and farm organizations and make further changes to cost recovery and the PMRA proposals.
By and large, the main concern which has been conveyed to me is that the PMRA is not taking into consideration the cumulative effect its proposals will have on producers.
A constructive environment where there is a will to collaborate, revise and improve must prevail by all participants before any progress can be made on PMRA efficiencies. Regardless of the particular suggestions put forward, it must be understood that such advice is given by Canada's farm organizations in the spirit of making things better.
For years now, farm organizations have been telling the PMRA that it has overestimated the number of product registrations. This means that the overall budget is still too high. The PMRA's budget forecast for five years does not reflect the full potential for efficiency gains, including international harmonization and tech-
nological innovation. In other words, the PMRA's proposed budget contradicts federal government policies such as program review to do more with less.
Because Canada is not normally the first market for pesticide products, the PMRA could have substantially reduced costs and speeded up approval times by better utilizing information gained through the approval process in other countries. Despite repeated urging from farm organizations across the country, the PMRA chose not to follow this route.
Despite Health Canada's 40 per cent reduction in the original fee structure, the current cost recovery target of $12.3 million still puts the international competitiveness of Canada's pesticide producers and users, who are primarily Canada's farmers, at stake. This is because the proposed fees are still not substantial, given the high level of fees and the relatively small size of the Canadian market. Canada's farmers and farm organizations predict that these fees will lead to significant product withdrawals and will reduce the ability of Canada's farmers to compete internationally.
When PMRA's cost recovery target is compared with other Health Canada initiatives, it becomes readily apparent that this target is still too high. For example, the drugs directorate cost recovers is 28 per cent of its total budget and the medical devices program cost recovers only 14 per cent of its total budget. Yet the PMRA is asking industry to pay 45 per cent of its total budget. Obviously this places the international competitiveness of the Canadian farmer at risk.
According to the PMRA proposals industry will be charged $2,690 a year to maintain each product registration on file. Even at this point in time it is still unclear what services industry is actually paying for here.
I have seen studies which show a high level of price sensitivity to maintenance levels, particularly for pesticides with low volume sales that cater to what is commonly referred to as the niche markets.
These studies suggest that the proposed maintenance fee would lead to a 71 per cent withdrawal rate of products with sales of less than $5,000. That would be a terrible blow to the niche markets I was referring to.
It has also been brought to my attention that the PMRA has not set performance standards for other submissions such as new pesticide use or formulation changes. This is contrary to Treasury Board policy which stipulates that performance measures should be set and agreed to by stakeholders. This is in contrast to other international agencies committed to developing their performance times on an ongoing basis.
The PMRA must commit to developing and meeting performance standards that are competitive with the best in the world on an ongoing basis.
I conclude with one further observation. Unless there are changes to the PMRA's proposal the Canadian farming community will suffer enormous consequences in the global marketplace. It is time for the agency to move forward for the good of Canadian farmers and consumers.
Joe Volpe Parliamentary Secretary to Minister of Health
Madam Speaker, I am delighted to speak on this matter. I know the member will be delighted to hear me repeat some positions.
The member for Lambton-Middlesex has a concern regarding the PMRA. As I stated in my response to her on February 21, the Minister of Health has been reviewing the various proposals of groups interested in the matter.
The member will no doubt be happy to learn that on February 27, a mere six days after my response to her query, the Minister of Health wrote to the president of the Canadian Federation of Agriculture. In that letter he addressed a number of issues. I will be happy to table a copy of the letter for the member and for the House.
The member will see from the letter that the PMRA will be co-operating with the Canadian Federation of Agriculture on a post-implementation impact analysis. This would monitor prices and product withdrawals and assess the impact of the two factors on competitiveness.
The PMRA has actively participated in the pesticide program of the OECD which is working toward global harmonization of test protocols and data requirements leading to reduction in industry costs.
The minister also indicated in his letter that the PMRA has no intention of re-evaluating all the products every three to five years, nor of re-evaluating products that have acceptable data bases to support their safety and effectiveness. The purpose of re-evaluation is to bring older databases up to modern standards, identify and examine human safety and environmental concerns, and ensure continued efficacy. I am certain the member will and does support these goals.
It is also important to note that the PMRA has made significant improvements to the review process for new submissions. Based on these improvements the PMRA has projected a 40 per cent reduction in costs for reviewing new product submissions over the next six years and has already built this into its proposed fee schedule.
There are other issues addressed in the letter. The member for Lambton-Middlesex has been aggressive, insistent and persistent on the matter. Others who like her have an interest in the issue should review the correspondence. I think they will find it to their satisfaction.
The Acting Speaker (Mrs. Ringuette-Maltais)
The motion to adjourn the House is now deemed to have been adopted. Accordingly, this House stands adjourned until tomorrow at 10 a.m., pursuant to Standing Order 24(1).
(The House adjourned at 6.43.)