Finance Committee on April 29th, 2014

[Mostafa Askari]

As I said, in principle, yes, but I think we do have an issue with the trade and exports in Canada. When you look at the trend in the contribution of exports to Canadian GDP since 2000, we have not actually seen any contribution from exports to the Canadian economy, which is somewhat odd because we are in a small, open economy and are highly dependent on exports. Many will look at the level of real exports from 2000 to 2013. In fact, real exports are almost at the same level now compared to the year 2000. Part of that is because we went through a very huge recession obviously, and we have not completely recovered from that yet.

[Andrew Saxton, Conservative, North Vancouver, BC]

Since the onset of the recovery in late 2009, the PBO has noted that economic growth has modestly outpaced its potential growth rate, and as a result, the output gap has gradually narrowed with approximately two-thirds of the gap being eliminated since the second quarter of 2009.

What additional areas can the government make improvements in to continue this strong trend?

[Mostafa Askari]

We normally do not make political recommendations to the government. It's not part of our mandate to actually comment on policy and what the government can and cannot do.

[Andrew Saxton, Conservative, North Vancouver, BC]

Okay.

Finally, I just want to ask you this. Some members of the opposition have suggested that we should not be focusing on balancing the budget at this time. However, the benefits of having a balanced budget are immense, including lower taxes, lower interest rates, lower borrowing costs, and lower interest expense for government, leaving more funds available for programs. Therefore, shouldn't we move as quickly as possible to balance the budget?

[Mostafa Askari]

What is really important in terms of the fiscal situation is the long-term sustainability of the fiscal structure.

The studies that we have done in providing a fiscal sustainability report—and the last one was issued in November—show that in fact with the government cuts, the current fiscal structure is sustainable. If nothing is done from now until 2040, the debt will be completely eliminated based on the current fiscal structure.

Whether or not we will see a fiscal surplus in one year or a small deficit in another year, it doesn't really have much significance in terms of the long-term sustainability of the fiscal structure. From an economic perspective, those kinds of minor fluctuations from one year to another do not really have any economic significance, because if the trend is toward a balanced budget and elimination of the debt, that essentially indicates that the fiscal structure is in good shape right now.

[Andrew Saxton, Conservative, North Vancouver, BC]

When you say that if nothing is done we will pay off the debt, the accumulated debt, by 2040—and I think that's what you said—what you're basically saying is if the status quo is maintained, in other words, the current situation with low taxes, low business taxes, low taxes on middle income and in fact on all Canadians, if we maintain that tax regime, we will pay off the debt by 2040.

Is that what you're saying?

[The Chair, Conservative, James Rajotte]

Just a brief answer, please.

[Mostafa Askari]

Yes, based on a sustainability analysis. Yes.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Saxton.

Mr. Brison, please.

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

Thanks to the entire PBO team for your work on an ongoing basis and those of you who joined us today.

In early May 2013, about a year ago, I asked you to analyze the closing tax loopholes measures in recent budgets. A year has passed now and I want to know what the fiscal impact would be. Has CRA provided you with the information you need to do this analysis?

[Jean-Denis Fréchette]

Thank you for the question.

I wasn't there in May 2013, but I followed the file. It is now under my leadership that we continue working with CRA to have access to this kind of information, and not only that one. We also received another similar request back in November 2012. We are working on that. We're making progress with CRA. I'm not saying that it's easy, but we do make progress. We have openness with them. We have a good relationship. Do we have to be patient? Yes, we have to be patient with that.

Before I ask Mostafa to talk a little bit about the details of it, I would note that we developed another approach. We developed another methodology to look at these data with the kind of information we can receive from CRA. We're building bridges there. I will ask Mostafa to maybe talk a little bit more about the details of the procedure.

[Mostafa Askari]

In order to do the study that you requested and also a study that a senator requested us to do on the tax gap, we requested information on the microdata from CRA. Essentially, we wanted to look at the taxpayer data.

CRA takes the view that it is not permitted to give us that information, because there is tax information there.

We do not agree with that assessment, because we believe that under the Parliament of Canada Act, we have the right to information that would allow us to fulfill our mandate, and given that doing a tax analysis is part of our mandate, we felt that would be permitted. In fact, the CRA uses section 241 to deny us the information, but in fact, section 241 of the Income Tax Act allows the CRA to provide:

taxpayer information to...any person otherwise legally entitled to it under an Act of Parliament solely for the purposes for which that person is entitled to such information.

We believe that section 79.3 of the Parliament of Canada Act allows us to have access.

However, after about a year of back and forth and negotiations with the CRA, they recently informed us that they are willing to provide us data, but they are going to anonymize the data and stratify the data. They're asking for $141,000 as the cost of doing that and they need six months to provide that information to us.

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

But given that you're covered under section 79.4 of the Parliament of Canada Act and you are required to keep any financial or economic data that you receive confidential, isn't it redundant for CRA to delay six months and to spend tax dollars to anonymize information that you are required by law to protect in any case?

[Mostafa Askari]

In our view, you are right, but we are taking a pragmatic approach, in the sense that we want to get the data one way or another to do the work for you and for Parliament. We have reached a point where we have essentially no choice but to agree to the conditions that they have proposed.

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

In your view, the arguments made by CRA were contrary to the arguments by CRA. Your access is not contradicted by either the Income Tax Act or the Privacy Act.

[Mostafa Askari]

That's right.

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

Do you have a legal opinion to that effect?

[Mostafa Askari]

We do not have an official legal opinion. We have done some legal analysis. Jean-Denis may want to comment.

[Jean-Denis Fréchette]

In our negotiations with the CRA, we in effect agreed to have an agreement with them, so that they will provide the information. At least it's going to be a beginning. We make clear in my discussions and the team discussions with CRA that it is a beginning. We can see what we will do with that. Then we clearly mention in the letter that we may go back and ask for more information to pursue that context.

I want to mention something. Tomorrow you will be called to vote on private members' business that was tabled in early April asking the PBO and the OAG to do that kind of study jointly. It's a long motion. I think the vote, according to the journal, is tomorrow.

I'm in discussion with the OAG about that as well. We do exchanges because we are kind of colleagues. We are looking at what he thinks about that. It's an interesting motion and we will see after that. We will see what will happen with that, but there is some interest from both sides, from both the OAG and the PBO.

As I'm saying, right now I'm kind of happy. That's a big word, but I'm happy with the CRA. I'm not saying that I will always be happy, but for the moment we have good progress with them.

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

Given the size of the CRA team and resources, you have quite a skeletal organization. There's a delaying and a dragging out of providing information for you to do your jobs. That doesn't strike me as being a good use of your time.

Are you prepared potentially to go to court to defend your right to bring in timely information from CRA?

[The Chair, Conservative, James Rajotte]

A brief response, please.

[Jean-Denis Fréchette]

I would simply say my heart is bleeding, as a reference to the heartbleed bug.

The team, to be very short, will develop five strategic priorities over the next five years. Number four is exactly about defending the legislative mandate to have access to information, with all the means that will be required.

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

Potentially going to court.

[The Chair, Conservative, James Rajotte]

Is that a yes or...?

[Jean-Denis Fréchette]

Yes. As a manager, I have to be careful to say yes to that. All the means, and it's going to be on the Internet, it's part of the priority.