Public Accounts Committee on May 25th, 2015

[Andrew Marsland]

Yes. As I said in my opening remarks, I think we have a robust approach in both respects. We provide the information to Parliament and the public through the tax expenditures report. Having said that, we welcome the Auditor General's recommendations on improving that information going forward.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Do all jurisdictions provide cost projections and direct program spending, as Canada does?

[Maude Lavoie, Director, Intergovernmental Tax Policy, Evaluation and Research Division, Tax Policy Branch, Department of Finance]

Yes. Most OECD countries have publications that are similar to ours.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Okay.

The IMF has reported that countries typically report estimates for only one year. Currently, I believe we report for two years. Is that correct?

[Maude Lavoie]

Our report has six years of data. That is four years of historical estimates and two years of projections.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

All right. I appreciate that.

This question is for the Auditor General. With regard to paragraph 3.34, when you looked at the children's fitness tax credit, for example, what did you find specifically to determine that the government had properly analyzed it?

How did you arrive at your conclusion, Auditor General?

[Michael Ferguson]

In that whole section starting at paragraph 3.34, we talked about whether the department considered the key elements we had identified. I think in paragraph 3.40 we talked about its analytical framework and the various types of things that it would consider when it's doing an analysis before the implementation of an item. The particular ones we were interested in and selected included the policy need or relevance, efficiency, effectiveness, equity, spending alternatives, and foregone revenue. We wanted to see whether it was examining those before recommending the implementation of a measure. As we say in paragraph 3.42, we found that it had done most of those, the one exception being the consideration of spending alternatives for the tax measures that we examined.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Going back to Finance, how does the department analyze tax-based expenditures that you've implemented to ensure that they're helpful to Canadians?

[Andrew Marsland]

I believe that takes a number of different strands. In terms of the tax expenditures report, every year we re-cost every single expenditure. That allows us to see if there are divergences from what we would expect, and then we look at those. So that's a monitoring approach.

We also continually look at proposals that come from various quarters to change tax expenditures. So when we look at an adjustment to a tax expenditure, we effectively treat it as a new proposal. We take that opportunity to apply the analytical framework the Auditor General referred to to the whole measure, with the benefit of some data in that case.

We also select particular tax expenditures for an in-depth evaluation. This year we published an evaluation of the charitable donations tax credit. We selected that measure because there's a widespread interest in it throughout the voluntary sector; it's an expensive tax measure if you calculate it in tax expenditure terms; and it's one that we believe is particularly important. So we did an evaluation of that and published it.

I'd say there's a wide range of approaches. I think the Auditor General's observation that there's a requirement to be systematic, we take to heart. We are going to look at ensuring that across all of those approaches, we're covering all of the bases, and that to the extent there are gaps, we will make sure they are filled.

[The Chair, NDP, David Christopherson]

The time has expired. Sorry. Thank you, Mr. Albas.

Over now to Monsieur Giguère.

You have the floor, sir.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you, Mr. Chair.

I thank the witnesses for having come here to meet with us.

Mr. Marsland, on page 1 of the report you say something very important about tax exemptions, reports, deductions and credits. The purpose of all of these tax expenditures is quite well-defined in the report entitledTax Expenditures and Evaluations 2013 and what it says on flow-through shares.

I read and analyzed that document. I would like to draw your attention to page 51, where it says that the $1.4 billion yearly amount generated by these activities particularly benefits the high-income people who invest in flow-through shares.

Regarding that measure overall, not only do you not say whether this $1.4 billion amount could be financed in some other way than through flow-through shares—your report does not talk about that—but you say that the rich are the ones who mostly benefit from that tax deduction, which poses a problem.

I have a question on this. Tax measures have as their objective the reduction, so to speak, of wealth inequality. With these measures, the opposite is being achieved. And that is in fact noted on page 1 of the document provided by the Parliamentary Budget Officer who says this: “Over time, as inequality has increased, and as various tax and transfers have been added or removed, their impact on inequality has also changed.”

We have noted that since 1980—with a peak in 1991 and another in 2000— financial iniquity has only increased and continues to grow. Why do you not intervene to improve that situation rather than making it worse through your decisions?

[Andrew Marsland]

I think I'd respond by saying that when we analyze particular tax measures—and you referred to one and our work on flow-through shares and the mineral exploration tax credit—we apply a whole range of considerations.

Firstly, what's the policy objective of the measure? What's the policy gap in that case? The objective of the measures overall, stated broadly, is to encourage investment in the junior mining sector. So we look at that policy objective there. We look at the efficiency of the measure—its effectiveness in achieving its objective. We look at both the horizontal and vertical equity issues and how those apply. We look at the complexity, simplicity, and so on. So we apply a whole range of those. They are all important in looking at individual tax measures.

I think the second part of your question went to the overall distribution of the tax system, and I guess the equity considerations are important there when you're looking at particular measures.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

If the objective is that important, explain one thing to me.

In theory, Registered Education Savings Plans were supposed to increase the number of university students. However, Canada Revenue Agency studies indicate that this is a total flop, that the plan has not increased the number of students in our universities, and that the people who benefit from it would in any case have paid for their children's higher education. However, this measure is renewed year after year, to the point where the objective of increasing the number of university students has been totally lost. It is simply a legal tax avoidance measure.

If the objective has absolutely not been reached according to your own analyses, why are you maintaining a measure that in fact increases financial iniquity?

[The Chair, NDP, David Christopherson]

Somebody answer, please.

[Miodrag Jovanovic, Director, Personal Income Tax, Tax Policy Branch, Department of Finance]

Part of your question obviously referred to a positive decision that the government has made. I can't tell you much about the results of the study you are pointing to.

[Andrew Marsland]

It's not clear specifically which measure you're referring to, but there are a suite of measures in the Income Tax Act that touch upon education, one of which was covered by the audit: the textbook tax credit. There's an education credit.

The point made appears to be that these measures are not meeting the policy objective. I think our view would be that they are meeting the policy objective in supporting education. They're designed in a way that facilitates the claiming by the student; if the student has income...the transfer to a supporting person...or if he or she doesn't have any income...or carried forward to future years. They provide important support to assist students, but they're part of a suite of federal programs. And when we look at the operation of these tax credits, we look at them in concert with the other programs such as the Canada student loans program.

[The Chair, NDP, David Christopherson]

Okay.

Mr. Giguère, you're on the list, so you'll get a second chance if you want to pick up where you left off, but the time has expired.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Okay.

[The Chair, NDP, David Christopherson]

We need to move along now to Vice-Chair Carmichael, who now has the floor.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair.

Madame Lavoie, with regard to your answer to my colleague Mr. Albas, you talked about the historical record-keeping that's posted on your website. I believe it's,s six years, one year, and two years. Is that correct?

[Maude Lavoie]

Our report presents six years of data in total on tax expenditures every year. Four of those are historical estimates and two years are projections.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you.

As I read through the report, and we look at the two years of projected data, Mr. Marsland, I wonder if you could talk about the benefit of the additional two years now, if you would. Then I would ask maybe Mr. Ferguson to offer his opinion on that as well.

[Andrew Marsland]

I would suggest that the objective of providing those measures will be to allow a better sense of how the tax expenditure will grow in importance over a few years.

I think you can do that in many tax expenditures by looking at the four years of historical data and the two years of projections, but I guess an additional two years would allow you a little more understanding of how they are growing.

Some tax expenditures would broadly follow growth in the economy or the growth in employment income, for example. That is relatively predictable, but I wouldn't say completely predictable. Others may have a higher degree of volatility, and in those cases we're more cautious about projecting out. We don't have a crystal ball and we can't tell with a degree of accuracy how the markets are going to perform over the next two years and what the business cycle will be.

I think in answer to your question, in some cases it would allow a better sense of the trend in the expenditure. In other cases, we would certainly want to provide a caveat about those additional two years to make sure that we don't mislead people.

[John Carmichael, Conservative, Don Valley West, ON]

So is there value in adding these extra two years?

[Andrew Marsland]

I think there's always value in information. As I say, if I sound cautious, it's because we wouldn't want to give a false degree of assurance as to what those expenditures would be in particular cases where there's more volatility expected.