Evidence of meeting #2 for Finance in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was budget.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
To your knowledge, does the government still encourage this type of direct investment in countries like Barbados that are generally known to be tax havens? Is this still happening? Are there measures in place to recover these tax revenues?
Commissioner, Canada Revenue Agency
Thank you, Mr. Chairman. The member has asked a very important question. I've been concerned about this very subject since I started working at the CRA. I've begun to look into this matter and to initiate some changes.
Canadians invest substantially abroad. As a rule, the level of investment abroad is a positive indicator for a nation's economy. Moreover, it's wholly legitimate for different countries to put in place tax measures to encourage or attract investment. Here in Canada, as members well know, there are a number of tax measures in place to attract foreign investment to this country.
Where I have a problem is with aggressive tax planning. This issue is also of much concern to the CRA. Occasionally, aggressive tax planning involves the use of tax havens. There are not many of them left. As a result of pressures brought to bear by several OECD countries, the number of tax havens has declined.
A country is recognized as a tax haven when its banking laws are designed to preserve anonymity and when it refuses to share related information with other countries. Because of aggressive tax planning, occasionally funds are funnelled through some of these countries and that can pose a problem. The whole question of aggressive tax planning is a much broader issue.
Last year, we invested $30 million to hire 250 people and to set up 11 centres of excellence with a view to dealing with the problem of aggressive tax planning. This year, our $30 million investment will see a return of over $60 million in the form of direct additional revenues.
Over the next few years, we hope to be able to increase the revenues generated. Already in year one we are recovering twice what it cost to put these measures in place. However, it's hard to tackle the problem of tax havens other than by resorting to international agreements and by exerting pressure at the international level. That's why we've opted to focus our attention on aggressive tax planning measures.
Bloc
Yvan Loubier Bloc Saint-Hyacinthe—Bagot, QC
I'd like to clarify something, Mr. Dorais. You stated that the number of tax havens is dwindling because countries have clamped down, loosened their bank secrecy policies and become more transparent. However, as recently as four years ago, Canada's ambassador to the OECD demanded that one of the worst offenders, Barbados, be taken off the list of delinquent countries. I think a word of caution is in order. The number is declining because countries like Canada - countries that may be pursuing different interests -- have decided to put pressure on other OECD countries to amend the list.
The fact remains, however, that Barbados is, of all countries with questionable practices, the one that sees the highest volume of direct investments from Canadians. We'll have an opportunity in the months ahead to revisit the subject.
Mr. Dorais, with respect to the service cuts expected by next April 30, some discussions have taken place with your Agency's unionized employees. Concerns have been expressed that direct services to the public will be affected, for example, services such as answering questions about GST refunds and so forth.
Are their concerns well founded? If so, where do you stand on this matter?
Commissioner, Canada Revenue Agency
I do not think their concerns are well founded. We have discussed cost-cutting measures at great length with the unions. In fact, we even made some changes further to suggestions received from the unions.
For example, our plans were to do away completely with the payments desk, but after hearing from the unions, we decided only to do away with the cash payment option. In my opinion, we're going to be in a position where we can offer taxpayers better targeted, quality service at a lower cost.
Conservative
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Thank you, Mr. Chair.
Mr. Dorais, did I understand you correctly to say that there was no communication between the Finance Department and your Agency prior to the drafting of the budget?
Commissioner, Canada Revenue Agency
That's not quite what I said. Some Department of Finance colleagues are in contact with CRA officials to ensure that the government's planned budgetary measures can in fact be implemented.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Mr. McCauley, on the 1% reduction, I think you answered that the cost is one dollar per $1,000 of revenue savings. Or is there an additional cost for every $1,000 of adjustment to a tax measure?
Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
What I said is that to effect the 1% rate reduction, we have put in cost estimates for the CRA of approximately $10 million. That covers two years where the revenue that would have been collected.... In other words, the savings back to the taxpayers is about $10 billion. So that's the $10 million over the $10 billion, which gives you the one dollar for the $1,000 in savings.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
But we're talking about $29 billion net. Where do we get the $10 billion from? Wouldn't the cost be based on the $29 billion?
Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
You can do it that way too, if you want. It's not much of a difference; it's $10 million to effect the changes over two years.
Liberal
Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It would be $10 million over two years.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Or $30 million. Which one is it? If it's one dollar per $1,000, is it $1,000 on $10 billion or on $30 billion?
Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
It's $10 million to put in place all of the changes required because of the GST rate reduction. Those expenditures are in this fiscal year, the year just finished and the one coming up.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Then what happens? Do the costs come down or do they remain neutral? How does that work?
Acting Assistant Commissioner, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency
At the current time, for that $10 million we will get the funding over those two years, and then we will not be seeking funding, for example, in the third year. We fall back to a steady state.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
Okay.
For the other tax measures that are passed, we're working on the 2006-07 estimates, so that would have to include some of the tax measures that were in the budget. Where is all the extra money going to come from?
I see you nodding your head, Mr. Ralston.
Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency
The amounts in the main estimates that we're considering today include implementation costs related to the 2004 and 2005 budgets. For the 2006 budget, those measures will be determined, and for the costs related to those we'll obtain authorities through the supplementary estimates. But today we're talking about the main estimates, so they're not in there. They will be part of a supplementary estimate.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
So all the extra costs incurred for the child tax or the famous day care are going to be in the supplementary estimates. The Liberal tax incentives will only cost an extra, if I look at the difference, $200 million, and most of that is going to go for labour costs? That was in agreement? Because I'm looking at just the total numbers, $3.2 billion versus $3 billion.
Is that the gist?
Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency
May I continue?
Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency
In terms of the net increase you're referring to, the main estimates between the two years, the portion of that relating to the budget measures of 2004-05 is $56 million. A number of other factors account for the remainder of the increase, but strictly related to the budget measures it's $56 million.
Liberal
Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC
And we haven't made any projections as to what the new budget, the 2006 budget, is going to cost the agency?
Chief Financial Officer and Assistant Commissioner, Finance and Administration Branch, Canada Revenue Agency
We'll be doing those very shortly and submitting them for supplementary estimates.
