Public Accounts Committee on May 25th, 2015

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I'd like to know a little bit—

[The Chair, NDP, David Christopherson]

You have 15 seconds.

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

I understand that you can cherry-pick particular issues on which to report or not report. “Cherry-pick” is my word, by the way, in that some things we decide to report and some we don't. But overall, what does the IMF, for example, or the OECD say about our Canadian reporting on tax expenditures as compared to reporting of tax expenditures elsewhere in the world, in an overall basis?

[Maude Lavoie]

As Mr. Marsland alluded to earlier, the OECD frequently notes that we're providing information on a very wide range of tax expenditures. It is seen as being very transparent that we list not only information on the types of tax expenditures that were part of this chapter, but information on a lot of other tax measures.

The way we document the methodology has been noted by the OECD. The number of years for which we provide projections has been noted by the IMF. The fact that we do publish some evaluation also has been noted as something important by the OECD, because not many countries do so.

[The Chair, NDP, David Christopherson]

Thank you. We're done.

By the way, you had 20 seconds when you asked.

Mr. Allen, you have the floor, sir.

[Malcolm Allen, NDP, Welland, ON]

Thank you, Chair.

Mr. Marsland, I was sort of distracted, so I wanted to be sure about the eight that were looked at. You talked about that and said that seven, in your view, were evaluated or things were done to them. Was the one that was missing the first-time home buyers' tax credit? Was it the one that you said wasn't in the eight?

[Andrew Marsland]

That's correct, but we did provide evidence and monitor it.

[Malcolm Allen, NDP, Welland, ON]

That's okay.

Mr. Ferguson, you looked at that, and I believe that in your report you talk about the issue of it not being done. Can you tell us what you found from that and why you thought it was important and should have been done?

[Michael Ferguson]

What we were looking at was whether, after implementation of these tax measures, monitoring and evaluation were done. We have defined in paragraph 3.55 what we mean by “monitoring” and in paragraph 3.56 what we mean by “evaluation”.

The reason we felt it was important to consider the evaluation aspect was that this type of evaluation is what is done for direct program spending, and there's a Treasury Board policy on direct program spending around evaluation. We felt that this type of evaluation work would be important when you're dealing with a tax measure that could be a substitute for direct spending.

Certainly, I think we have identified that Finance has done a good job with the monitoring. In only four of the eight cases did we feel they had covered off everything that we would expect them to cover off in terms of being able to say that it was evaluated. Certainly, we have agreed that they have done monitoring of them, but not to the full extent of what an evaluation would cover.

[Malcolm Allen, NDP, Welland, ON]

Mr. Ferguson, at the tail end of paragraph 3.60, which is on page 15 of the English text, you talk about the first-time home buyers' tax credit and also the textbook tax credit, which was one of the ones you flagged. The department said at the outset that there were potential risks. Your report says, “The Department does not have complete information to determine if these tax measures are relevant and performing as intended.”

From your perspective, is that a weakness in how this system operated? Is this a systemic thing? Is it an issue of how they monitor but don't really evaluate? It's like counting things: this month so many went past, and last month so many went past, but we didn't bother to evaluate what went past. It just went past. It's just a number. I find that really quite striking, to be truthful. I know that it's taxes and we count taxes, but this is actually not counting money. It's actually money that we're not getting because we're letting it go somewhere else.

It just strikes me, sir, that at the tail end of that program.... This brings me to exhibit 3.3 on page 12 of the English text. I believe you touched on it. It talks about “Direct program spending” and “Tax-based expenditures”. It actually says under “Evaluation” that with “Direct program spending”, it is required, and with “Tax-based expenditures”, it's not required. Under “Subject to expenditure reviews”, direct programming has a “Yes” and tax-based expenditures has a “No”.

Does that seem appropriate to you? Do you think we should actually evaluate it? Should we have a policy that says “thou shall evaluate” rather than a policy that presently says you don't have to if you don't want to, or that says you may but you don't have to?

[Michael Ferguson]

The recommendation we made in paragraph 3.61 was that “The Department of Finance Canada should conduct systematic and ongoing prioritized evaluations of all tax-based expenditures, similar to what all departments and agencies are required to do for direct program spending.” Then we list what that should include.

I think the fact that in paragraph 3.60 we talk about the fact that there were some risks identified in these tax measures speaks to the importance of doing later evaluations once they have been implemented, understanding that all tax measures, all of these tax-based expenditures, have risks associated with them. But all government programs have risks associated with them. I think the fact that programs have risks associated with them, whether they're tax-based expenditures or direct spending programs, is exactly the reason why there need to be systematic evaluations covering all aspects of the evaluations. That's why we made that specific recommendation in paragraph 3.61.

[The Chair, NDP, David Christopherson]

I'm sorry. The time has expired.

Mr. Albas, you now have the floor again, sir.

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

Thank you.

[Technical difficulty--Editor].... My question is for the CRA. Specifically when we're talking about implementation of a new tax expenditure, can you talk about the monitoring and how that is important? I would imagine that, just like for any new measure, certain documentation would be required. The CRA may or may not see certain patterns when taxpayers are filing for certain tax credits and whether they have the proper documentation. Can you explain the importance of monitoring that?

[Costa Dimitrakopoulos]

Yes, when we're looking at new measures, we're monitoring them to see how they affect enforceability, the compliance aspects, and our internal operations. We're also looking at whether there's an impact in terms of the size of the measure and at how many taxpayers are affected, which could impact the number of tax enquiries we may get on our phone lines and the number of objections or appeals. There is also an impact on verification.

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

There's a continuing conversation, I imagine, between Finance and your department to ascertain these things and to share information.

[Costa Dimitrakopoulos]

Yes, there's an ongoing dialogue. When we see something that causes us concern, we have discussions at the officials level to make sure the Department of Finance is kept fully apprised.

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

Okay.

Auditor General, when we look at implementing a new tax measure, that obviously can affect the tax system's complexity. It's important, I think, that CRA and Finance communicate when they consider implementing a new tax measure. Can you tell us a little bit about the finding in paragraph 3.64 of your report?

[Michael Ferguson]

We did indicate that CRA monitors the cost of implementing the new measures, and that it monitors the compliance issues and shares the relevant information with the Department of Finance on an ongoing basis. I think we say further on—for example, in paragraph 3.73—that according to the agency, adding one line to the T1 tax return related to a new non-refundable tax credit can involve significant effort and cost the agency up to a million dollars.

So they've done analysis of what the administrative impact and the administrative costs are, as well as the issues related to compliance.

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

Thank you.

Again, we have obviously our tax code here, and we have other jurisdictions. Specifically, I'd just like to ask about the part in the spring Auditor General report where it states that in some international jurisdictions, they have adopted reporting practices where they provide short descriptions of a tax measure, a discussion of its purpose or objective, the future cost of each tax expenditure, and the number of beneficiaries.

The Auditor General listed Australia, France, and Pennsylvania as examples. Do they all provide such information or is it just a little bit? Can you tell us about a few areas where Australia, France, and Pennsylvania may also be falling behind our approach?

[Maude Lavoie]

Sure. Well, all these countries have very good tax expenditure publications and provide a lot of information. We all make different choices in terms of what we provide as information. Certainly in Canada we do have descriptions of the objectives of the tax measures. We provide six years of data. We provide integral products.

In Australia they have a lot of that, but they would not provide information on the objectives, for instance. In France they also do a quite comprehensive report, but they do not include a description. Those are just examples that show that we all make different choices. I do want to underscore the fact that all those countries have very high-quality publications as well. It's just that the choice in terms of what is presented differs across countries.

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

It sounds to me like a lot of monitoring goes on. Both departments are constantly checking to make sure that the integrity of the tax system is there.

For constituents in my area, Okanagan—Coquihalla, where would they go online to be able to view some of these tax expenditure reports? How could they find out the information themselves?

[Maude Lavoie]

The Department of Finance has two publications. The one that we update annually is available on our website. Every year it provides six years of cost projections, and also typically provides two analytical papers on topics of interest. Accompanying that is another document that's available on our website. It provides more information on the methodology, the objectives of each tax expenditure, and a description of all those tax expenditures. That one is not updated every year. The last time it was updated was in 2010. When there are changes to any of those measures, it's noted in the annual report.

The CRA, I would add, also provides extensive statistical information on tax expenditures on the personal income tax side, and all the tax expenditures are noted there. You can have information by income level, by major source of income, by age, by sex. A wide range of statistical information is also available on CRA's website.

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

Thank you very much.

[The Chair, NDP, David Christopherson]

Thanks. You were on time. I appreciate it. We will move over to Mr. Vaughan.

[Adam Vaughan, Liberal, Trinity—Spadina, ON]

I want to go back to the first-time homebuyers. The question is for Mr. Ferguson.

The report says, “the Department does not have complete information to determine if these tax measures are relevant and performing as intended”. That surely has to raise some red flags as to whether or not the goals are being met and whether or not you're tracking impact. That has to be beyond just a significant concern. That has to be a worry, doesn't it?