Finance Committee on May 8th, 2006

[The Chair, Conservative, Brian Pallister]

Order. We'll proceed.

I welcome our guests and thank the committee members for being here.

Pursuant to Standing Order 81(4), I now call vote 1 under the Canada Revenue Agency, main estimates 2006-07, referred to the committee on Tuesday, April 25, 2006.

To our guests today, thank you for being here. I would invite you to introduce yourselves to the members of the committee.

Following that, Monsieur Dorais, I understand you're going to make a brief presentation.

[Michel Dorais, Commissioner, Canada Revenue Agency]

Thank you very much, Mr. Chairman.

Let me introduce my team. Brian McCauley is responsible for legislative and regulatory affairs. Jim Ralston is the chief financial officer for the Canada Revenue Agency. Barbara Slater handles most of our operation. All of the returns and the service to taxpayers associated with the returns are handled through Barbara.

First, I would like to thank you and your colleagues for this early opportunity to appear before this committee. The Main Estimates that are before you for consideration call for an appropriation of $3.2 billion for the Canada Revenue Agency. That is an increase of $189 million over last year.

Before I respond to questions, please allow me to briefly provide some context for the $3.2 billion we plan to spend on tax and benefit program administration for the coming year. In 2004-2005, the Agency collected over $300 billion in revenues. That's an average of over $1.2 billion for every working day of the year.

The $3.2 billion we're seeking is a large amount, but it represents slightly more than one penny for every dollar of revenue collected.

The agency also distributed close to $12.5 billion in benefit payments to millions of families and individuals on behalf of the federal, provincial, and territorial governments as well as first nations.

In the coming year, we are poised to administer many of the new measures announced in budget 2006, such as the proposed universal child care benefits and the reduction in the GST rate to 6%.

In 2004-05 the agency processed more than 24 million individual and trust tax returns and 1.5 million corporate tax returns. It provided joint program delivery for 141 client governments and agencies, answered approximately 22 million public inquiries over the phone, peaking at times, such as during the recent tax season, to more than 35 calls per second.

We recorded 24 million tax-related visits to the CRA website. We're also very proud of having trained over 15,000 volunteers, who completed more than 458,000 simple tax returns for low-income eligible taxpayers.

To accomplish all of this, the Canada Revenue Agency has approximately 44,000 full- and part-time employees across Canada; 81% of our workforce is located outside of headquarters.

As the Main Estimates indicate, it will cost slightly more to maintain Agency services to Canadians in the coming year. The main reasons the authorities are going up include: the impact of recent collective agreements; the cost of providing additional services to the Canada Boarder Services Agency, which are being fully recovered from them; increased costs associated with administering measures in the 2004 and 2005 federal budgets; and changes to the Children's Special Allowance Statutory Vote.

These increases are partially offset by savings, including a reduction in government-wide employee benefit plan rates, as well as by program savings resulting from the expenditure review exercise.

As I mentioned earlier, in 2004-05 the agency collected over $300 billion for Canadian governments. As of May 4 of this year, we had received about 21 million tax returns from individuals. That is up by more than 600,000 for the same time last year.

This year we were able to accommodate increases in workload within our budget, in part by realizing internal economies and reallocating the savings. We remain committed to serving Canadians within the budget provided while ensuring that our tax system generates the revenue needed to deliver the government programs that Canadians expect.

Mr. Chairman, my colleagues and I would be pleased to answer any questions the committee may have.

[The Chair, Conservative, Brian Pallister]

Thank you very much, Mr. Dorais.

We'll proceed with Mr. McCallum. Seven minutes, sir.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

I'd be badly placed to offer any kind of criticism of the agency, since I not too long ago was the minister, and I think it was, at least in those days, very well run.

Certainly, to be serious, I do believe that. Having worked with the people at the end of table, I know they manage the operation with a high degree of professionalism, with which I was always proud to be associated while I was there. I do have three questions nevertheless.

Mr. Dorais mentioned the expenditure review process. I chaired the committee that oversaw this exercise. I recall the discussions that took place and the ensuing cuts stemming from the review process. My question concerns the measures that will eventually be implemented.

During the election campaign, the Conservatives announced cuts in the order of $22.6 billion over five years. Compared to the cuts made by the Liberal government, these cuts are going to be much deeper. The Agency had some problems dealing with the cuts made by our government. It should have an even more difficult time with the new government, since we've already identified the reductions that will be the easiest to make.

Looking forward to the next round of expenditure review, or cuts of a much greater severity, what will this imply for the services of the agency, the regional distribution of jobs in the agency, and things of that nature?

My two remaining questions have to do with the GST. I'll begin with the overall cost. I'd like it if Monsieur Dorais could confirm or deny reports that the government was out by $500 million to $700 million in its estimate of the cost of reducing by one percentage point. My understanding is that they didn't display great competence, in the sense that they were looking at the net numbers after the cost of the credit. When you look at it properly, the cost was out by $500 million to $700 million per year, which is a lot of money.

To Monsieur Dorais, can you tell us the true cost of the 1% reduction in GST and the degree to which that differed from the estimate that the Conservatives put forward during the election?

Finally, this is really a tax administration question. I know that the CRA is administration rather than policy. When you change the GST by one point or two or whatever, there are large costs imposed on businesses to change all of the systems to make this happen. Certainly there are costs imposed on the CRA itself to make this happen.

Are the businesses going to be ready in time for the announced date of the cut? Do you have any idea of the order of magnitude of the dollar costs that businesses will have to pay to make this change? And do you have any idea, or an approximation at least, of the dollar costs in terms of resources that the agency will have to pay to make this change?

I think the question about the private sector is more important, if more difficult. A change of this nature is not simple. How many person-hours of work, how many dollars of costs, are involved in making such a change? Will it be so onerous a risk that a number of businesses won't be ready on the prescribed date?

[Michel Dorais]

Thank you, Mr. Chairman.

I'll answer your first question concerning spending cuts.

As was mentioned earlier, the CRA has reduced costs. Next year, $110 million will be trimmed from our budget. I wouldn't qualify this exercise as easy. On the contrary, the task is a very difficult one for the CRA. As for speculating about the future, the government has not to date issued any directives regarding additional cuts.

As for the GST, I'm not familiar with the estimates the member refers to that are supposedly off by a number of millions, but I suppose we're referring to the Department of Finance estimates. Frankly, Mr. Chairman, the question would be better addressed to the Department of Finance for those estimates.

As for the cost imposed on the agency, I will ask my colleague Mr. McCauley to talk on this. The cost of business is very difficult to establish. The government has announced the first of July as the implementation date, which was far enough to allow the necessary time for business to adjust, and also not too long to have a negative impact due to the lag time between the announcement and the implementation. July 1, as the member knows, is a very important date for business. A number of changes are brought to systems at that date, so it makes life a little easier for business.

I'll ask Mr. McCauley to add on the specific costs to the agency.

[Brian McCauley, Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Very briefly, Mr. Chair, our current estimates are about $10 million to implement the GST reduction over two years. That's on a reduction of approximately $10 billion, which is the $5 billion projection of the lower tax rate for Canadians, or it works out to about $1 to administer every $1,000 of tax reduction. Those numbers, of course, will disappear, because after the two years in which we have implemented the rate reduction we will fall back to our regular budget.

We don't have any estimates in terms of costs on the private sector. We are fairly confident, working with Finance and in fact, over the last few days, with the private sector and with industry associations, that we will be ready and they'll be ready. There are obviously some transitional rules we will be putting in place, and we'll be working with industry to make sure they're ready to make the changes. So far, what we've seen is that they see the ramp time to July 1 as being reasonable, not so long that it's going to have an effect on retail sales or the economy, but long enough for them to be ready.

That's our current assessment.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. McCauley.

For Mr. McCallum's benefit, I will note that there are officials coming from Department of Finance on Wednesday who will hopefully be able to address your question.

Mr. Loubier, seven minutes, please.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Chairman, I'll be brief, unlike my Liberal colleague. I merely have a question for Mr. Dorais.

In passing, I'd like to congratulate you on your staff's professionalism. Each time we need to contact the Agency about some problem a taxpayer is having, we receive top-notch service.

I'd like to verify something. About a year and a half ago, a journalist reported on an incident of fraud involving telephone solicitation businesses that were soliciting funds on behalf of charitable organizations. The reporter mentioned several cases in which inquiries were conducted. He even went so far as to put himself in the shoes of someone being solicited. The businesses in question would ask taxpayers if they would like either to make a cash donation or purchase some promotional items. In many cases, they would choose the promotional items, but would not receive a tax receipt, even though they had been led to believe by the solicitors that they were making a charitable donation.

In other cases, the solicitation operations amounted to out and out theft because only a minute portion of the funds collected were turned over to charitable organizations. Even the directors of these charitable organizations knew that there was a problem, but solicitation represented their only source of regular funding.

Since the CRA is authorized to inquire into similar incidents, would we be well advised to suggest that you take a close look at these types of operations? Basically, they are misrepresenting themselves to the taxpayers with false promises of tax receipts. Could you not investigate their operations, on behalf of all taxpayers? I can give you the background material supplied by the reporter from the Journal de Montréal.

[Michel Dorais]

Thank you, Mr. Chairman.

If you're referring to an incident that took place 18 months ago, then that was probably before I arrived at the CRA. I'm not very familiar with the case. But based on your description of the events, this is a clear case of fraud. In cases like this, our colleagues at the RCMP and the CRA conduct a hard-nosed investigation. Obviously, that's what we will do if you provide us with the details of this incident. One of our divisions is responsible for conducting investigations of this nature.

As far as charitable organizations are concerned, two concrete measures, albeit of a more general nature, have been taken. Each year, the CRA audits the operations of some 600 charitable organizations. In the process, we collect a significant amount of information about a great many agencies. Recently, we issued some notices warning taxpayers about various things, including the possibility of fraud. We issue the warnings on our website and we also send them to all of the country's weekly newspapers. Regardless, we'll proceed with an investigation once we've received the information from you.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

I promise to get that information to you.

[Michel Dorais]

Thank you.

[The Chair, Conservative, Brian Pallister]

Mr. Christopherson, over to you for seven minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Merci.

Thank you very much for appearing before us today.

For the benefit of colleagues on the committee, I am subbing for Judy Wasylycia-Leis on the revenue piece because I'm the revenue critic for our caucus. But other than that, Judy will return to her rightful place.

If I can, through you, Chair, the Liberals started a process of cutting $110 million from the ministry as an expenditure reduction process. Can you tell me if that is still expected to continue under the Conservatives?

[Michel Dorais]

I have no instruction to the contrary. The first two years of expenditure reduction have been taken out of the base of the agency and we fully expect that the next year's base will be affected similarly, unless the government decides otherwise.

[David Christopherson, NDP, Hamilton Centre, ON]

Right. So Liberal plan and Conservative plan, it's the same thing.

Moving forward, it's my understanding, and please correct me if I'm wrong, that from some moment in time forward, and you can tell me whether that's in effect now or sometime soon, it's actually going to be the policy of the government--and please correct me if I'm wrong, because I find this astounding, so I'm sure I'm wrong--that at Revenue Canada offices, Canadians will no longer be able to go in and use Canadian currency to pay for anything at all that they either owe the government, owe the ministry, or are purchasing. For any kind of cash transaction, the Ministry of Revenue, for the Government of Canada, will no longer allow or accept Canadian currency presented by Canadians to pay any kind of bill or debt with their own government. Please tell me I'm wrong.

[Michel Dorais]

The policy that has been put in place--in fact it is not a policy, it's a management decision that has been put in place in order to reduce expenditures--is to transform what we refer to as our cash counters. The decision that has been taken is that all revenue cash counters will be able to accept payments in various forms, but not in the cash form. We will be inviting taxpayers to use the banking institutions across the country to pay their taxes in cash.

This simple measure allows some very significant reductions of expenditures, because the handling of cash is very difficult. We made the decision on the basis that fewer and fewer people every year actually carry cash to pay at our counters and the use was going down quite dramatically. So we are now directing people to banking institutions when they have to pay in cash, but we will accept payment in other forms.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Are you still calling it the cash counter?

[Michel Dorais]

Payment counters.

[David Christopherson, NDP, Hamilton Centre, ON]

I see.

Now, you said handling cash is very difficult. That's really strikes me as kind of funny, quite frankly, coming from the revenue ministry. I still find it hard to believe that you can't go into a revenue ministry outlet anywhere and pay with Canadian currency. It boggles the mind.

Let me move on, though, because one of the things I want to ask is this, Chair. On April 21, this committee was seized of this same issue, and at that time Ms. Wasylycia-Leis asked a question in two parts, when she had the floor, to government representatives—Mr. Dorais, I think. She said, “Could you tell us how many sites across the country are affected, what the 7% of revenues translates into in terms of dollars”--and this is my question--“and what kind of impact analysis you did?”

Mr. Dorais answered, “I don't have all the figures at my fingertips, but we'll undertake to provide you with the exact figure.”

Then Ms. Wasylycia-Leis went on before she relinquished the floor and said, “Mr. Chairperson, I would just like you to make sure that we request and get a full impact analysis of this decision, as well as a gender impact analysis.”

Chair, can you please advise whether that report was indeed tabled?

[The Chair, Conservative, Brian Pallister]

I'll have to consult, as of course I wasn't the chair at that point in time, so I can't recall. We'll have to take it under advisement, Mr. Christopherson, and get back to you with the information. Unfortunately, I don't have an answer for you right now.

[David Christopherson, NDP, Hamilton Centre, ON]

Okay. I'm sure it's there, because it was requested and it's just a matter of getting it to us.

Moving on, then, to the counter closings, this is for the public. Right now, as I understand it, the public can walk into any Revenue Canada government building and there will be a counter they can walk up to, there will be a person there, and they can immediately ask any questions they have, get any clarification, or get anything they need. It's my understanding that again sometime, either already or soon, that will no longer be allowed. Is that the case, through you, Chair?

[Michel Dorais]

That's absolutely the case, and in fact, if I may, Mr. Chair, this measure, depending on how one presents it, has a very different meaning. We see this measure as an improvement in the service to taxpayers.

In other words, at this point in time, the member is right, anybody can walk into any office and sit down for half an hour or more, waiting for an agent to be available. What will happen in the future is that anybody will be able to phone and get an exact appointment, and they will be assured they will not be waiting. Their special needs, if they have special needs, will be met, and the experts in their field of business or their requirement will be available for them to meet. The cost of maintaining an office open just in case someone walks in is just unbearable at this stage. So we'll organize differently.

This does not have a huge impact locally. If we have not provided the report, we will, but I think we did provide the report in the previous committee. But we did provide the impact analysis to the unions, and we will provide it to the committee again, if necessary. The impact will be, in the end, an improved level of service.

Also, we'll be using the outlets of Service Canada across the country for simple requests. So people will be able to walk into those offices and get answers to their simple requests, and get the appropriate expert when they have a complicated question.

[The Chair, Conservative, Brian Pallister]

Thank you, Mr. Dorais and Mr. Christopherson.

Sir, your time is up. It's Madame Ablonczy's turn.

[David Christopherson, NDP, Hamilton Centre, ON]

That's a shame, because I wanted to pick up on where I've heard that from Mike Harris before.

But thank you very much for your answers.

[The Chair, Conservative, Brian Pallister]

Mr. Christopher, you'll have another opportunity.

Madame Ablonczy.