Finance Committee on Feb. 3rd, 2011

[Mike Wallace, Conservative, Burlington, ON]

Another topic you've been quoted as speaking on is transparency. I believe your view—and you can tell me whether I'm wrong or not—is that what's important for governments around the world is that we communicate with other governments and that concerning information about individuals or corporations who happen to be doing business or having accounts in that area, transparency is the key to success in being able to track down the money of someone who is using those systems for tax evasion. We've been active in signing TIEAs or information exchanges. We have 11 signed and 14 on the go, or something like that or in that range.

What's your view of the role of the TIEAs that now exist? From your experience, do you see anything that we should be doing to either improve that system or be more active? Do you have any opinion on TIEAs?

[Donald Johnston]

I think you should be active on it. The important thing is to bring that process to a satisfactory conclusion. There will always be tax evasion; there's no question about that. There will always be fraud; there will always be bank robbers. The fact is that the progress that has been made, I would say over the last five years, from what I read and in my discussions with OECD officials, is really quite remarkable. I think it's been inspired by the fact that suddenly people realize we're talking not just about money at the margins but about billions and billions of taxpayers' dollars. Some of it, of course, also plays into corruption. We have another organization we created, the financial action task force, which has basically tried to identify money laundering, which could be from the drug trade, could be from gambling, trading in humans, counterfeit goods, all sorts of illegal activities.

All of this is getting, I think, better and better, but we still have a long way to go. I think the role for Canada is to continue to be very active at the OECD and in other fora, although I have a bias towards the work at the OECD, and especially the committee supported by Jeffrey Owens, and I'll tell you why. I mentioned all the committees we have, but the committee on fiscal affairs was manned by decision-makers at the bureaucratic level, people who could actually go back and make the difference. We had William McCloskey, who was head of the CRA—he actually chaired it. We had Joe Guttentag, who was one of the most senior in the Treasury of the United States; Gabs Makhlouf, from the Treasury in the U.K.

These people were basically operating back in capitals at the decision-making level, making recommendations directly to the ministers, and to the Secretary of the Treasury in the case of the United States. In fact, you would meet them all together. Rubin and Guttentag and others would be there. These were the meetings you would have. It was the same thing in the U.K.

That's why that committee is so important. That committee is important because it will get things done. It won't just be somebody going back and making a report that gradually filters up through the bureaucracy on a particular subject.

So I lay great emphasis on the role that committee is playing and the role it has played. I think the results have been very effective.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Wallace.

We'll go to Ms. Hughes for seven minutes, please.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

Thank you.

I'd like to give the regrets of my colleague, Thomas Mulcair. He was really hoping to be here today, and unfortunately he wasn't able to be.

There's been a lot of hype on this, and rightly so. Basically, we've seen Canadians and corporations invest over $80 billion just in the Cayman Islands, Barbados, and Bermuda. This government has been pushing through a lot of free trade agreements. There's some confusion or there are some questions about whether we should be signing trade agreements with countries who have turned a blind eye to this type of tax evasion. I'm wondering what your comments are on whether we should be. I think that when we are looking at trade agreements, we should not only be ensuring that they are fair, but secondly, we shouldn't be signing something with a country that is not going to abide by the rules we want to put in place to make Canada a better place in which to live.

I'm wondering what your comments are on that.

[Donald Johnston]

The question is a bit difficult, because you have to have trade agreements. I'm a great believer in multilateral trade agreements, as opposed to RTAs, as they're called, bilateral trade agreements. But the latter have become necessary because of the failure or slow-down in completing the Doha round of negotiations on trade.

Still, if you have a major trading partner and that major trading partner is encouraged to make its best efforts, for example, to clean up its corruption, tax, human rights, or labour laws, you can incorporate these conditions into the trade agreements.

We're venturing a bit afield here. We have the multinational enterprise guidelines at the OECD, and these are being more and more incorporated into trade agreements. The guidelines essentially require corporations to behave as good citizens of whatever country they are operating in. That's whether it's a Canadian company or an American company or whatever, and there's a system of sanctions and reporting. You're looking for transparency in their activities in these countries. But I think you have to be cautious about mixing the two.

We know there's a lot of corruption in some of the major economies of the world. Now, are you going to not sign a trade agreement with them because of that? That's a judgment the government has to make. I would not be in a position to second-guess what the government would do, but you have to be realistic about these issues.

That's why I'm so keen on the OECD's getting Russia at the table. Russia has a lot of internal problems. I tried to get Russia into the OECD, because when Russia's at the OECD, sitting at the table like this with other countries and people are pointing their fingers at them, they are much more apt to be moved to make some changes. You get things changed by engaging them rather than isolating them.

I'm not very enthusiastic about isolating countries or saying that we're not going to trade with them. I'd rather have them at the table and be able to constructively criticize their domestic policies. And that's what the OECD is very good at.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

I appreciate your frankness on this.

I think I still have some concerns. For example, a trade agreement is being signed with Colombia, and it is one of the many countries in which human rights abuses are known to take place. Yet so far nothing has been done to ensure that this won't happen. That's where my concerns lie with respect to that.

Moreover, the corruption within some of these governments is very difficult to swallow.

Could you elaborate a little more about what we should be doing to address tax evasion? I think that you touched on a few things. Right now, reductions are being planned in the CRA, and tax evasion is one of the areas where they do investigations. I know you're not the government of the day, but I'm wondering if you think it makes sense to cut back where we're looking to find dollars that are being hidden.

[Donald Johnston]

Those are probably questions for the Treasury Board to address, as I did when I was there. In other words, what is the optimum number of employees you need in a particular area of activity without prejudicing that activity? Perhaps there are other ways of addressing the same problem with less human power.

It's very difficult to judge. With the communication technology and ITC we have today—which didn't exist in my day—I would have thought that one could look to a lot of reductions and efficiencies and exchange of information with fewer people. But I don't know what the CRA is proposing to reduce. I just have no idea.

[Carol Hughes, NDP, Algoma—Manitoulin—Kapuskasing, ON]

But normally when you are investigating, especially when we're looking at this amount of money.... I mean, we're talking billions of dollars here.

[The Chair, Conservative, James Rajotte]

Just a brief response, Mr. Johnston.

[Donald Johnston]

We don't know how much money. That's one of the big questions, isn't it? I don't think anybody knows how much money we're talking about, but we're beginning to suspect that it's very substantial. And how much is being recovered out of the total mass through voluntary disclosure? I don't know if anybody has a handle on that either. You may have asked Jeffrey Owens that question, but from what I know, I don't think anybody can really tell. But most of us have been surprised at the amounts we've seen so far.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Hughes.

We'll go to Mr. Brison, please, for five minutes.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much.

It's a pleasure to see you here today, Mr. Johnston, and welcome back.

Your work at the OECD was very important in terms of shaping the agenda and important to the OECD, and the OECD continues to provide a lot of good public policy ideas and input and guidance to public policy makers in governments here and around the world.

A question: during your time, the international mechanism that would have most likely looked at this kind of issue would have been the G-7. It would have been one of the bodies at the time. Today, with the G-20 having emerged as probably the most powerful forum for economic and financial reform post-crisis, do you believe the G-20 could play an important role in terms of this issue on international tax measures and governance?

[Donald Johnston]

I think on the G-20, judgment is still out in a sense. It has obviously a very significant role, because it brings all the big players together, but whether it can effectively play the role has yet to be seen. The G-7, in my experience, actually didn't really do much. It basically mandated others to do things, like the OECD. That's what the G-20 is saying. They're saying “we want you to go further with your work on harmful tax practices”, or “we want you to set up this financial action task force at the OECD to cover money laundering”, or “we want to change some of the procedures with respect to foreign aid”, and so on and so forth.

You don't expect the G-7, nor do I expect the G-20, actually, to have a very active kind of secretariat like the OECD, which is kind of becoming a secretariat in a lot of these issues. So the actual mechanisms of getting it done should come from there, but the political will has to come from the G-20.

[Scott Brison, Liberal, Kings—Hants, NS]

With the G-20 finance ministers, does the G-20 not represent a more binding authority in some ways than the OECD on this kind of matter?

[Donald Johnston]

When you say binding, in what sense?

[Scott Brison, Liberal, Kings—Hants, NS]

The capacity to actually bring in a protocol and enforce it in each country. The OECD has developed more into a public policy generator and advocate in some ways in recent years. Is the G-20 not more of a practical binding authority in terms of imposing on governments a common approach on issues like this?

[Donald Johnston]

I haven't been at any of the G-20 finance.... Probably I was at some of the earlier ones, but I haven't been at the G-20 summits. I don't know how that could be the case. At the G-7 it was not the case. What additional mechanisms have been introduced to the G-20 that would differentiate it from the G-8, for example? I am not aware of that. In other words, they—

[Scott Brison, Liberal, Kings—Hants, NS]

I think the crisis has created a bit of a role for the G-20 that wasn't probably as strong in the past. I think we've seen during the financial crisis a greater commonality of purpose. My understanding is, and in fact realistically, the G-20 has played a greater role post-crisis than the G-7 played during its period.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Donald Johnston]

Well, I just don't know. Remember, we have bodies that execute. For example, at the G-20 meeting you have the OECD, the Royal Bank, and the IMF. You have the financial stability forums that--

[Scott Brison, Liberal, Kings—Hants, NS]

But there's a difference between bodies that can advocate policy and ones where finance ministers sit down, make accords, and say they're going to do this together. I think there would be a general consensus that the G-20 has emerged as a powerful vehicle in order to actually effect legislative change in individual countries that would create a consistent approach to issues like this, in terms of international tax protocol, for instance.

[Donald Johnston]

It would be good if that were the case, but I haven't seen it yet. For example, with the financial crisis countries have taken quite different views about stimulus programs, as opposed to tax cuts--

[Scott Brison, Liberal, Kings—Hants, NS]

But I would argue that there has probably never been a more coordinated approach to a national challenge.

[The Chair, Conservative, James Rajotte]

Thank you. We'll come back to that in the next Liberal round.