Finance Committee on May 25th, 2010

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm a bit lost here. You're going from $180 million. How do you get up to $479 million? That's a $300-million increase.

[Filipe Dinis]

Yes. The $180 million, that was actually paid out to the provinces, was based on a projection at that point in time of $429 million, hence the $50 million increase. So we--

[John McKay, Liberal, Scarborough—Guildwood, ON]

I don't understand. If you paid $180 million and you projected...what did you say, $400 million?

[Filipe Dinis]

It was $479 million.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So $479 million: why the discrepancy?

[Filipe Dinis]

Well, I think that's the need for us to work with our good colleagues in the departments of finance and foreign affairs to--

[John McKay, Liberal, Scarborough—Guildwood, ON]

You can work with me for $300 million; I'm a happy guy.

[The Chair, Conservative, James Rajotte]

We can come back to this in the next round.

Thank you, Mr. McKay.

Mr. Carrier, you have the floor.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Dinis. Good afternoon, gentlemen.

When we met during our study of the main estimates 2009-2010, I asked a question about cigarette smuggling. I wanted to know how much revenue the government was losing as a result of the smuggling. You could not give me detailed information at the time, and you were supposed to send us your answer, which we received last week, I believe.

But those answers are evasive. You do not include any estimate of the revenue being lost. The Canada Revenue Agency seems to be minimizing the problem. You end rather tersely by saying: “In cooperation with various other government organizations, the Canada Revenue Agency will continue to maintain and enhance compliance with Canada's tobacco laws and to support its partners...”. There are many good intentions, but that does not really prove that the government intends to take the issue in hand.

I want to point out that the Canadian food retailers association estimates that it is currently losing $2.5 billion in sales. That gives you a sense of just how big the problem is. Some recognized agencies have estimated the loss of revenue. The Quebec Employers Council, for example, estimated that the federal government was losing $1.1 billion annually, which is no piddling amount. The federation of Quebec chambers of commerce estimates that a total of $2.4 billion is being lost by both the Quebec and federal governments.

I would like to know why the Canada Revenue Agency, which is in charge of collecting the country's revenue, is not doing more to find a solution. I know you rely on the RCMP, among others. Have you discussed the issue seriously? Have you reported this loss of revenue to the government? In times of budget surplus, it is easy to think that losing $1 billion is not so bad, even though it is a significant amount of money, but today, there is a deficit. I cannot understand why you are not paying more attention to the problem. Can you comment on that?

[Filipe Dinis]

Mr. Chair, I will ask my colleague, Mr. McCauley, to answer that.

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

I would make two or three observations.

First, the agency has acknowledged, and certainly does acknowledge, that contraband is a serious problem. We differentiate from the fact that we don't do revenue projections. We don't do revenue projections on any of our.... Whether it be the income tax or GST or corporate side, revenue projections are the responsibility of the Department of Finance.

That being said, I think we're clearly on the record of having identified contraband as being a serious problem. The agency, as you know, is responsible for essentially the control of legal tobacco, and in that regard the agency has significantly tightened the licensing regime for manufacturers across the country in the last couple of years. I think we're down now to 33 licensed manufacturers in Canada, down from a high of over 70, I think, four or five years ago.

We are also, hopefully, when the budget bill is passed, introducing a new stamp, which will--hopefully, again--enhance control across the country. Provincial partners hopefully will be coming on board with that.

We've also introduced a growers program where there is outreach to growers--primarily in Ontario, but a few in Quebec as well--who grow tobacco, and putting in place measures that ensure that any tobacco that is grown has to find its way to a legal manufacturer.

At the same time, we are participants on the task force that Public Safety has created that I'm hoping will probably provide recommendations soon publicly to take further actions. And you're right, we do work closely with the RCMP and the provinces on the enforcement side of things.

It's not that we don't take it seriously. Certainly our minister and ministers before have made sure that it is and always is seen as being a priority for the agency.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you. I would remind you that we do not have much time.

In the notes I gathered, there was a Bloc Québécois publication from 2005. At the time, I thought that it was looking rather far into the future. Back then, it denounced the situation, estimating the loss of revenue to be $2.5 billion. So the problem is not a new one that the agency is trying to solve.

Can you at least confirm the figures being put forward regarding the lost revenue? Do you agree with that estimate, as experts in revenue collection?

[Brian McCauley]

I probably don't consider myself an expert in any area, perhaps, but in terms of revenue--

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Why are you here?

[Brian McCauley]

I'm here to answer as best I can any questions you have.

I think what we have said is that it's very clear when one looks at what has happened to the revenue slope for tobacco, both for the federal government and for provinces, there has been a very steep decline. The revenue losses, if you look at actuals, are certainly in the hundreds of millions, if not greater.

That being said, we have a program that's in place, a strategy that was introduced. It is having certainly some effect, and in fairness we are seeing some growth in the legal market in tobacco, which is showing some early signs....

But is the problem fully dealt with? No. Is there more work to be done? Yes. Certainly that's what we'll be doing.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

I want to come back to the matter of the amount allocated for the reimbursement of softwood lumber collection costs.

The $400 million figure was one of the answers you gave me in response to questions about the supplementary estimates. According to the figures you gave us earlier, $180 million was actually spent last year. And this year, you are giving us $50 million in supplementary spending in addition to the $425 million—those expenditures were also mentioned by Mr. McKay.

I want to know where those figures came from; they seem rather out there and somewhat undermine the credibility of the information you gave us overall.

[Filipe Dinis]

Mr. Chair, as I said earlier, we, at the Canada Revenue Agency, want to work very closely with staff at the Department of Finance and the Department of Foreign Affairs and International Trade to produce more accurate figures. We have already entered into discussions with them, and we hope to be a little more accurate in our projections.

But it is a program that we administer for the government, and they are, in fact, projections that we receive from our colleagues.

[The Chair, Conservative, James Rajotte]

Okay.

Mr. McCauley, briefly.

[Brian McCauley]

Just to clarify, the projections there are only estimates of the amounts that might be levied on exporters. The program is fairly simple. The money is levied on the exporters and then collected by the Canada Revenue Agency, costs are removed--which are somewhere between 6% and 10% depending on the year--and then all of that money is given back to the provinces from where the moneys came. So if, for example, a number ends up being 760, or 220, the actual number is what is actually collected by exporters and then remitted back to the provinces. So there is never any differential that is left with the agency or with the producers or the provinces.

As you can well imagine, the lumber market, given what's happening in North America, has been very volatile. That's probably why you are seeing some wild swings in the projections.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Wallace, please.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Thank you for coming this afternoon and providing this opportunity to talk to you.

The $136 million for capital expenditures: what are you spending the money on?

[Filipe Dinis]

Mr. Chair, the $136 million is something new to the agency vis-à-vis how we're showing it in our main estimates. Previous to that it was part of our operating vote. This year, for the first time, we're establishing a dedicated capital vote and that's the $136 million.

[Mike Wallace, Conservative, Burlington, ON]

So it was in there before and you just pulled it out.

[Filipe Dinis]

That's right. So it's not an increase in our authorities. It's really moving the $136 million from our operating vote into our dedicated capital expenditures, which would be spent on IT systems and projects.

[Mike Wallace, Conservative, Burlington, ON]

Can I ask you why you did that? Was somebody asking you to do that or did you do it on your own?