Mr. Speaker, it gives me great pleasure to address the House this afternoon on Motion No. 382 sponsored by the member for Mississauga South. I would also like to take the opportunity to commend my hon. colleague for his work in this area.
The underground economy that is the focus of this motion is of major importance and has implications for Canadians right across the country. There has been a great deal written about the size, extent, nature and causes of the underground economy.
As members are probably aware, estimates on the size of the underground economy vary widely, depending on the methodology that is used, from 2.5 per cent to 3 per cent of GDP to over 20 per cent. That translates into $20 billion to $140 billion a year.
The greater the activity in the underground economy the less revenue is available to governments. Underground economic activity creates unfair competition for honest businesses. Jobs are lost. Therefore, honest taxpayers are forced to pay more than their fair share of taxes.
We all know that deficit elimination and the eventual repayment of the federal debt will depend primarily on long term economic growth and job creation. While spending cuts may contribute to deficit reduction, why should we continue to cut programs when the collection of legitimate tax revenue could be substituted?
We need to seek out options and solutions. It is imperative that an attack on the underground economy be part of the overall solution.
For many individuals and businesses the underground economy has become a convenient way to avoid paying taxes. When these people take their financial transactions underground they are failing to make their contribution in support of Canada's social and economic programs. These people do not pay for the services they use. Instead, other Canadians are forced to pay more.
People who deal in the underground economy may feel that their financial situation justifies their actions. It may be because it has been several years since their last raise. It may be because they feel the tax system is too complex or unfair. Or it may be just basic greed. They see cheating the tax department as a victimless crime. Let me say that, whatever the reason, underground economic activity makes victims of us all. Indeed, all Canadians are victims and this does not sit well with me.
I ask members as well as all Canadians to consider the real cost of underground economic activity. The cost is large. It shows up in reduced essential services, taxes higher than they would otherwise be, unfair competition and a reduced standard of living for the honest taxpayer.
How does the underground economy affect a legitimate business which is trying to be competitive? The Canadian Homebuilders Association is concerned. Indeed, home renovators who evade taxes have an unfair advantage over honest contractors. Honest businesses are at a competitive disadvantage because they cannot offer a customer the same deal as that offered by someone who will do the work but not collect the taxes. The end result is that the legitimate business faces unfair competition and job loss.
I ask the members to put themselves in the place of an entrepreneur who plays by the rules and who diligently collects and remits tax to the government. How would they react if they lost work because someone dealing under the table outbid them for a contract? I would certainly be upset and I would insist that the government do something to restore fairness to my situation.
We must not forget the dishonest consumer. The dishonest consumer who takes the lower price and pays cash is cheating the
system and becoming a party to the evasion of taxes. These consumers benefit from the full range of government services but do not pay their fair share. All they have done is take part in a transaction which jeopardizes our health, education and other essential economic and social services. This is simply shortsighted and unfair. It is illegal and criminal.
The underground economy results in lost revenues for the government which, as I have said, jeopardizes essential social and economic programs and forces honest Canadians to pay more taxes.
The motion before the House is a three-pronged motion. It suggests that the government educate the public and encourage their participation in addressing the problem. I agree that Canadians need to know the facts about the seriousness of the underground economy, how it affects each and every one of us and what can be done to reduce it. I also agree that governments cannot solve the problem alone. We, the citizens of Canada, all must do our part and fulfil our responsibilities.
We must tell Canadians the facts about the seriousness of the existence of the underground economy and how they can help to eliminate it. We must address the myth that everyone is doing it. We must emphasize that tax evasion is a crime and that it is not a victimless crime, as it is often argued. All Canadians are victims. Tax evasion leads to job losses, an increase in the deficit, honest taxpayers carrying more of a burden and legitimate businesses operating in an environment of unfair competition which often leads to bankruptcy. We must stress that people who evade taxes are cheating honest taxpayers and those in need. We must publicize the fact that 14,000 calls are received by Revenue Canada each year from Canadians who know tax evaders. Many more would call if they only knew that the follow-up would take place.
To ensure that everyone is aware that the government is serious about prosecuting those who deliberately defraud the tax system, the Minister of National Revenue publicizes convictions for tax evasion. The increased publicity and resulting embarrassment of a fine or imprisonment coupled with the payment of taxes, interest, and penalties, has had a deterrent effect.
During the past year, officials of Revenue Canada have been actively consulting with individuals and associations across Canada on the issue of tax evasion, the underground economy, and smuggling. Revenue Canada has sought and received the support of these groups. With the Canadian Institute of Chartered Accountants, for example, the department established a working committee to investigate the causes of the underground economy, examine audit techniques and identify training that would assist in tracking down unreported or under-reported income, and identify opportunities for reducing the cost and administrative burden of compliance for businesses and individuals.
These groups are taking the message of the risks of dealing in the underground economy back to their membership. Every citizen and every business has a role to play in eliminating the underground economy. Individuals can start by refusing to deal with businesses and tradespeople who ask for cash payments. Businesses can do their part by turning down demands to do work off the books. Yes, all Canadians must do their part, individuals and businesses. Simply put, they must say no.
The second prong of the hon. member's motion calls for a limited amnesty on interest and penalties otherwise payable when a taxpayer voluntarily declares income previously undeclared. My colleague has stressed that the amnesty pertains only to interest and penalties, not to the taxes owing. The preferred approach is to encourage voluntary compliance. It does work, as 95 per cent of all revenues are collected without the need for enforcement action. Revenue Canada currently has a program in place for voluntary disclosure which would waive penalties if an official audit had not yet been initiated. However, interest would still be payable.
We must encourage an amnesty because it is very important to give underground economy operators the opportunity to come clean. We must be clear that underground economy is not normal business and that Canadians will not continue to tolerate dishonest business practices at their expense. Here is a chance for the business person to come out.
The third prong of my hon. colleague's motion is a tax credit for taxpayers on home improvements and renovations in order to provide an inducement to create the essential paper trail and to serve as one of the primary vehicles for the information campaign. By offering an input tax credit for the GST paid on home improvements or renovations, the taxpayer would be required to submit the original invoice as part of their income tax return. The objective would be to create a real paper trail in an area of abuse with which most people are familiar. It is a good vehicle through which we could educate the public on the crime and discourage action under the table. It would also help to support the honest businesses that are prepared to provide an invoice.
I have spoken to the people of my constituencies about the underground economy. Those who follow the law and pay their taxes do not like having to pay higher taxes because others are trying to cheat the system. Entrepreneurs who are trying to make an honest living say they do not like being at a competitive disadvantage from businesses and tradespeople who ask for cash payments to avoid paying tax. My constituents are also worried about how lost revenue is affecting the government's ability to maintain the social and economic programs so important to our well-being.
I will support my colleague's motion. I want to see that all legitimate taxes are collected so that the honest taxpayer does not
have to bear the burden of both higher taxes and lessening of programs. The underground economy is not the norm and it is not acceptable to Canadians.