Madam Speaker, I am delighted to take part in today's debate on Motion No. 243, sponsored by my friend and hardworking colleague, the member for Guelph-Wellington, which calls on the government to develop a plan of action to counter the underground economy in Canada.
Participation in the underground economy and tax evasion represent significant loss of revenues to both federal and provincial governments. A precise estimate of the underground economy is not possible.
However, the most commonly accepted estimates of the size of the underground economy place it in a range of 10 per cent to 20 per cent of the GDP. That implies an economy of illegally hidden activities that is larger than the entire economy of Alberta and places the size of Canada's underground economy in a range of $75 billion to more than $150 billion.
Since taxes of all types represent nearly half of Canada's reported economy, this could represent a loss of anywhere from $35 billion to $75 billion every year. It also poses a serious threat to Canada's tax system which is based on self-assessment and voluntary compliance. This is not a victimless crime.
According to Revenue Canada, some of the causes of underground activity are recession, high tax levels, perception that government squanders tax dollars, perception of unfairness, high regulatory burdens, particularly for small business, perception that there is a low risk of being cause, perceived high cost of compliance and declining real incomes.
While too many Canadians will continue to view any of the above as legitimate reasons to continue operating in the underground economy, the fact remains we all need to be reminded of the implications of the underground economy to the country and to the Canadian way of live.
Huge revenue losses have many long reaching effects on the systems and programs that we take for granted. For example, essential programs and services are at risk. An unfair burden is placed on honest Canadians. Unfair competition occurs. Unfair access to tax credits and other social programs takes place and we are left with a legacy of higher deficit and a larger debt.
In November 1993 Revenue Canada concluded that the problem of the underground economy was so severe that its approach to solving the problem at hand must be different from the methods that have been historically employed.
In launching its underground economy initiative, the department chose to concentrate on the following three strategies: encouragement through education efforts of the underground economy to rejoin the legitimate economy, promoting voluntary compliance, and taking responsible enforcement action.
Under this strategy the department has been conducting a risk assessment to target its enforcement activities on identified areas of non-compliance and on files that are identified as high risk.
The department has also entered into co-operation agreements with all the provinces to exchange information, share audit strategies and co-ordinate audit and enforcement activities.
As part of its efforts to rehabilitate sectors that it has targeted as prone to non-compliance, Revenue Canada has consulted with more than 240 industry and professional groups to seek input from those concerned about underground economic activity.
While no single action is likely to markedly reduce the size of the underground economy in Canada, a series of actions to accompany Revenue Canada's initiative might prove to be more helpful.
For example, I believe we must attempt to link taxes more closely with the actual benefits enjoyed by taxpayers, who are more likely to comply when they can readily identify the direct benefit to them of the tax.
There is also much evidence that compliance, particularly for the small business sector, needs to be kept as simple as possible. This is a major issue for the GST and is related in part to a narrower base for the tax, a base which excludes some items and includes others.
This issue is even more important in provinces which have maintained a PST base that differs from that of the GST. The April 23, 1996 harmonization memorandum of understanding between the federal government and New Brunswick, Nova Scotia and Newfoundland suggests that we can make real progress in this area, but there still is work ahead before we can ever claim to have a truly harmonized tax system in Canada from coast to coast.
There is fairly good evidence that the underground economy in Canada has grown considerably in absolute size and relative to total economic activity. With this in mind, there is also a very good argument to devote more resources to the task of obtaining a better understanding of the underground economy's role in this country and the factors contributing to its growth.
I believe it is crucial that we not expend all our energies in merely attacking the symptoms of this very serious problem. To ensure success we must use creativity in addressing its underlying causes.