Yes. Thank you for the opportunity to address this finance committee.
Today I'd like to speak to five points.
The first point I want to make is that the size of the tax havens problem, we believe, is much bigger than you might think, and it is growing. We are recommending that the federal government publish an official estimate of the size of tax evasion and avoidance problems. We feel that if policymakers and political leaders realize how grave the situation is, it will spur them to take more decisive action.
I acknowledge that this is not an easy thing to do. It's partly why we want the government to do it, because it's hard for us to do that. We don't have access to the same kind of information.
However, let's look at some of the information that is available. There was a World Bank study done in 2010, entitled “Shadow economies all over the world”, which estimated that Canada had a shadow economy of 15.7% of GDP, which is right in the middle of the pack of the OECD countries. Using figures from this World Bank study, the Tax Justice Network calculated that Canada's total tax revenue lost to all levels of government was $79 billion a year. Now, this figure is not limited just to tax havens. It includes GST fraud and all the other kinds of tax evasion, but the key point I want to make is that tax havens are one of the key factors that help facilitate tax evasion.
The Tax Justice Network also published another exhaustive study last July, entitled The Price of Offshore Revisited. It put the estimate of wealth hidden in tax havens at between $21 trillion to $32 trillion. Assuming, conservatively, that global offshore financial wealth earns a total return of just 3% a year, and would have faced an average marginal rate of 30% in the home country, this unrecorded wealth may have generated tax revenues of between $189 billion to $280 billion per year. Given that Canada's economy is 2.8% of the global economy, we can estimate, based on this, that Canada may be losing between $5.3 billion to $7.8 billion a year to tax havens.
Statistics Canada figures confirm that tax havens are a huge and growing problem for Canada. A report last year on Canadian direct investment abroad, by country, shows that now 24% of Canadian direct investment overseas in 2011 went to the top 12 tax havens, up from 10% in 1987. This totals more than $170 billion.
While there could be a debate about what this might translate into in terms of tax revenue lost, there is no question it would amount to billions of dollars.
The second point I want to make is that tax havens and secrecy jurisdictions facilitate crime, impoverish developing countries, and undermine the integrity of the tax system.
The problem with tax havens is not just limited to the loss of Canadian tax revenue. Tax havens play a key role in facilitating organized crime, the illegal arms trade, bribery and corruption, and the financing of terrorism. It is the secrecy of tax havens, not just the low tax regime, that is the main problem in terms of crime.
Banking secrecy rules in many of the tax haven countries allow criminals to set up accounts without having to declare the beneficial owner and move huge sums of money in and out without any scrutiny. This is the perfect system for money laundering. If the government is serious about its tough on crime agenda, it needs to take much stronger action to curb the use of tax havens. Jailing the street-level drug dealer for a few more years will do nothing to curb the drug trade if tax havens are free to help ensure that crime pays, at least for the kingpins.
By making it easier for larger companies and wealthy individuals to avoid paying their fair share of taxes, tax havens also undermine the integrity of the tax system itself, which relies on the principles of voluntary compliance and everyone paying their fair share of taxes. They also create an unfair advantage for large multinational corporations over medium and smaller businesses that don't have the same capacity to take advantage of tax havens.