Mr. Speaker, I want to first congratulate the member for Mississauga South on Motion No. 382, which addresses the ongoing problem of the underground economy. The motion demonstrates his interest in the problem. It encourages debate on something that really has bedevilled the government in our attack on both the deficit and our desire to pursue and maintain our social programs, because the collection of revenues is impeded.
I hope this debate allows Canadians to focus as well on the problem and to reflect on the difficulties created by the underground economy. In my constituency of Windsor-St. Clair I hear regularly from constituents who understand the problem and who resent their neighbours who operate within the underground economy.
Cash business transactions, cheap smuggled beverage alcohol, under the table employment, and other practices of this type shortchange all of us. When we do this we do not remit taxes. The taxes themselves would help to maintain our health plans, our roads, our universities, our social programs. When we do this we help to create unfair competition for honest businesses who do remit taxes. When our neighbours do it, they help ratchet up our own tax bills.
This motion calls on the government to consider establishing initiatives to address the underground economy that exists in Canada today. A great deal has been written about this phenomenon: its size, the social and economic costs, the reasons people abandon the legitimate economy in favour of under the table transactions, and suggestions for dealing with the problem.
The issue is of concern to me and it should be of concern to all Canadians because the underground economy has significant implications for all of us. The greater the activity in the underground economy, as I said earlier, the less revenue available to governments. The creation of unfair competition for honest businesses has driven some small new businesses, marginal businesses, out of operation. This results in lost jobs and in us paying more taxes.
I agree with the hon. member for Mississauga South that Canadians must act on the problem of the underground economy. I say all Canadians because the responsibility for dealing with the issue does not rest entirely on the shoulders of the government. We all have a responsibility and a role to play. Public confidence in Canada's tax system depends on all of us paying our fair share and having the confidence that our neighbours are doing so as well.
Individuals and businesses involved in underground economic activity are not playing by the rules. Governments cannot afford to allow the practice to go unchallenged. People have to know there is fairness in the tax system. They have to know that honest businesses have a level playing field and that people who try to cheat are going to be dealt with appropriately.
Public confidence depends on effective government measures as well. It is for this reason that our government has introduced measures to address the underground economy and other forms of non-compliance. Revenue Canada has put in place a compliance strategy that supports self-assessment and voluntary compliance through assistance, education, services, and responsible enforce-
ment. It seeks to ensure that revenues legitimately owed to the government are collected. The strategy is comprehensive, covering the entire portfolio of Revenue Canada and all dimensions of revenue administration. It is also dynamic because it is sensitive to modern business practices and the changing forces at play in both the national and local economies.
It is a targeted program which makes use of modern technologies, compliance research and a cross-matching of information from Revenue Canada's extensive databases, other federal departments and provincial revenue administrations.
The department's approach also recognizes there are many different kinds of taxpayers, individuals, corporations, salaried employees and others.
The department has launched special projects as well to address areas of systemic concern, as in the case with its underground economy initiative announced by the minister of revenue in November of 1993. The department has established special audit teams to focus on construction, home renovation, jewellery, hospitality, auto sales, repairs and other service sectors which are areas of high non-compliance. Under this initiative we have put agreements into place with all of the provinces to co-ordinate actions and to ensure progress.
The government's underground economy initiative also involves working closely with business, unions, industry and professional groups to identify ways to further strengthen Revenue Canada's enforcement efforts and to encourage voluntary compliance. During the last year departmental officials consulted extensively with more than 240 groups. They know that tax evasion cheats honest workers out of steady, secure employment and compromises the ability of governments to provide service. They want to help.
Specifically I will address that part of the motion which suggests some relief or limited forgiveness on interest and other penalties which would be payable when a taxpayer voluntarily declares previously undeclared income. This section of the motion calls for an amnesty. The suggestion is an interesting one in terms of how it might facilitate the return of individuals and businesses from the underground economy to the legitimate economy. In no way, however, should it be possible for taxpayers to get away with not paying the taxes they owe. There is merit to the thrust behind the suggestion but I think there are some problems with it as it is framed here.
Opportunities already exist for Canadians who may have deficiencies in their tax reporting to come forward and get a clean bill of health from Revenue Canada. The preferred approach to non-compliance is voluntary disclosure. The department has a voluntary disclosure policy which I as a lawyer in my previous life was able to use to assist clients who had been following business and personal tax practices which did not comply with the law.
This policy allows individuals, partnerships, corporations, trusts, non-profit organizations, charitable and other organizations to come forward to correct deficiencies in their reporting to the department. When a disclosure is made voluntarily before the department has started its audit or other enforcement action, then no penalties or other sanctions such as prosecution for tax evasion will be imposed. The taxpayer will have to pay the amount of taxes or duty owing plus interest. This is a fair policy. It is a form of amnesty which has been available for some time.
I do not agree, however, that interest should be set aside. The interest owed reflects the true value of the money. It also recognizes the fact that those who have not paid their taxes on time have had the use of these funds, which essentially they were holding in trust for the government.
Revenue Canada under its voluntary disclosure policy takes a responsible approach to collections. Arrangements can be worked out so that the taxes owing to the government are paid in a manner which does not cause undue hardship for the taxpayers. This aspect is particularly important to those individuals or businesses operating in the underground economy for some time that feel they would face onerous penalties if they were to come clean and operate honestly.
A person can make a voluntary disclosure by contacting a Revenue Canada office directly or by having someone do it on their behalf, such as an accountant, a lawyer or a friend who wants to assist. A disclosure will be considered voluntary so long as it is made before Revenue Canada has basically started its audit or any other enforcement action.
As a result of co-operative agreements Revenue Canada has with the provinces, we are working toward developing a co-ordinated voluntary disclosure policy with all of the provinces. It is our view that a consistent policy among the federal and provincial governments with respect to disclosure will make it easier for taxpayers who have decided to rejoin the legitimate economy.
I believe we need to be careful about tax amnesties. When tried in the past, more extensive tax amnesties than what are available under the voluntary disclosure program, they have had only limited effect. They may actually create more non-compliance. This happens because people believe that once an amnesty is in place others will follow and so they can wait and delay co-operation. The result is less compliance, not more.
People also believe that when there is an amnesty policy in place that will forgive interest it becomes their right to avoid paying interest on taxes.
A great deal has been accomplished since the Minister of National Revenue introduced his action plan for addressing the underground economy. The initiative has resulted in more than $860 million in additional taxes assessed. Revenue Canada's ability to identify non-filers and non-registrants has been strengthened. The department has put co-operation agreements in place with all of the provinces and is working in partnership with private sector groups.
It is clear Canadians are concerned about the underground economy and that Canadians are willing to work together to find solutions. I thank the member again for this motion. I congratulate him on it because it demonstrates a desire on his part and on the part of his constituents to get Canadians talking about the negative consequences of the underground economy and to find ways of encouraging as many people as possible to return to the legitimate economy.