Madam Speaker, I begin by recognizing my hon. colleague from Guelph-Wellington for her work as chair of the subcommittee of the national Liberal caucus committee on economic development. In late December 1996 the subcommittee held hearings to examine the underground economy, taking the first of many important steps in the government's efforts to address the underground economy.
I welcome the opportunity the motion presents to review the government's continuing efforts to address the underground economy. The issue is fundamental to the integrity of the tax system. The government must ensure that taxes owed are taxes paid so that Canadians have faith in the fundamental fairness of our tax system.
The Canadian tax system is based on the principles of self-assessment and voluntary compliance. Most Canadians are honest and pay the taxes they owe. In fact about 95 per cent of tax revenues are collected without any direct enforcement action. There are areas of the economy where there is lower compliance and where the government has had to focus its efforts. The underground economy is one of those areas.
The underground economy we are talking about are those transactions, often cash transactions, on which income is not reported or is only partially reported for tax purposes.
There is nothing romantic or harmless about the underground economy. The simple fact is that all of us benefit from the economic and social programs funded by our governments. When some individuals do not pay their fair share of taxes to support those programs it is the rest of us who have to pay more.
The underground economy comprises business competing unfairly with honest firms, because they can offer consumers lower prices, as they pay no income tax and do not contribute to the Canada pension plan, the employment insurance plan or to workmen's compensation.
In this context, the honest firms paying their fair share of taxes may be forced to accept smaller revenues, indeed to lay off employees and even, in some cases, to close their doors.
Consumers themselves become part of the problem of the underground economy when they agree to pay cash in exchange for a better price, which enables the business or the tradesperson to hide the operation and avoid all taxes. This sort of behaviour hurts all consumers and all members of our society.
In fact, lost government revenues cannot be used for essential services benefitting all Canadians, such as health care, education and other social programs.
The problem of the underground economy is one we cannot and do not ignore. Let me expand on what our government and Revenue Canada have done and the progress we have made since 1993.
The action plan the government has developed and implemented puts heavy emphasis on voluntary compliance and the things that support it. It is a plan that balances partnership, education and service activities with enhanced enforcement. Let me emphasize that our strategy to deal with the underground economy is designed to promote the principle our tax system is based on, voluntary compliance.
From an economic point of view that is a smart strategy. It costs the government less to obtain taxes that are paid voluntarily than it does for Revenue Canada to go out looking for, auditing and investigating those who do not comply.
Given this context, education is a major tool in battling the underground economy. Through its education efforts Revenue Canada has raised public awareness of the consequences of the underground economy and tax evasion. Presentations have been made to local community and business organizations. Information sessions have been held at universities, colleges and high schools. Revenue Canada staff visits business people in communities across the country to inform them about their efforts to combat this problem and to encourage a level playing field for honest businesses.
During these visits they provide information on departmental services, answer questions and provide assistance to make it easier for businesses to comply with the various tax regimes. Overall I am glad to report that during the past two years Revenue Canada staff
has visited over 100 communities and met with more than 21,000 businesses.
Another important element of Revenue Canada's action plan is to inform individuals what happens if they have not reported all their income and they want to come clean.
Revenue Canada's voluntary disclosure policy enables all those who take part in the underground economy and those who have not complied with the law to correct any omissions in the income they declare to the department.
This policy is based on a simple principle: if a disclosure is made voluntarily, that is, before the department has begun an audit or taken other enforcement action, no penalty or sanction, such as prosecution for tax evasion, will be imposed. The individual will simply be required to pay the tax due plus interest.
It is has sometimes been suggested that a temporary tax amnesty would be useful in addressing the underground economy. The state of New York experienced some success recently with just such a program.
Revenue Canada's voluntary disclosure policy is better than any temporary amnesty program because it is permanent. Individuals who are drawn into the underground economy do not have to stay in hiding for several years hoping and waiting for an opportunity to change their ways without fear of criminal prosecution for monetary penalties. Revenue Canada's voluntary disclosure policy is a responsible approach to collecting the taxes rightfully owing to the government and has proven to be successful in recent years, borne out by the fact that voluntary disclosures have tripled since 1993. People can make voluntary disclosures by contacting any Revenue Canada office.
There is no question that enforcement has to be a fundamental element of our fight against the underground economy. That is why Revenue Canada has currently dedicated over 1,200 auditors to strengthen its efforts to identify non-filers and GST non-registrants and to conduct audits of small businesses in sectors of high non-compliance. Special audit teams have been established to focus on the construction, home renovation, jewellery, auto sales and repairs, hospitality and other service sectors, areas that can lend themselves to underground tax evasion.
Revenue Canada makes extensive use of state of the art technology to cross match data from numerous sources including municipal and provincial databanks to identify non-filers and GST non-residents. Last year this helped identify over 500,000 non-filers and GST non-registrants.
To enhance these activities the Minister of Finance announced in the 1996 budget that 800 more auditors would be devoted to Revenue Canada's audit program for unincorporated businesses and self-employed individuals. This will increase the audit coverage rate for these groups and bring it more in line with the continued growth in this sector.
I would add that this co-operative effort is not limited to audits for provinces that have concluded tax collection agreements. Quebec, for example, collects its own taxes, but we co-operate closely with officials in joint strategies and we co-ordinate our activities with their own business audit activities in the fight against the underground economy.
I would also point out that Quebec has invested significant resources in this problem and taken a very focused approach in the fight against tax evasion and the underground economy. These are positive measures that will add to our strategy in the fight against the underground economy.
What about the bottom line of our enforcement initiatives? I am glad to report that since 1993 our enforcement efforts have yielded more than $1.7 billion of additional revenue for the government.
Another important facet of Revenue Canada's audit activities is the information it gets from other federal departments and from the provinces and territories. Statistics Canada, Transport Canada, Public Works and Government Services Canada provide important information that facilitates audit selection and enforcement. Human Resources Development Canada works closely with Revenue Canada to identify links between employment insurance fraud and tax evasion. Revenue Canada also has an extensive network of provincial co-operation agreements that provide for information exchanges, joint enforcement action, shared experience and compliance.
These co-operative agreements are not limited to the public sector. During the past few years Revenue Canada has consulted with over 400 national and local industry groups and professional associations. These consultations are extremely effective in providing a common understanding of issues and obtaining private sector co-operation. These groups and associations include Canadian Institute of Chartered Accountants, the Canadian Construction Association, the Canadian Home Builders Association, the Canadian Jewellers Association and others. Each industry has its own unique character and issues. For that reason Revenue Canada is not applying blanket solutions. Instead, the department is working with industries on an individual basis to develop workable solutions.
One result of these partnerships was the announcement by the Minister of Finance in the 1996 budget of a new contract payment reporting system for the construction and home building industry.
Key industry groups and various trade unions are working in partnership with Revenue Canada to encourage these businesses to voluntarily report all payments made to contractors and to subcontractors.
For the small percentage of Canadians who feel they are above the law, Revenue Canada uses another effective tool, the widespread publication of successful prosecutions.
Bringing this information to the general public's attention has a major impact on the number of leads of potential tax fraud that the department has received. Since 1993, these have increased substantially to more than $28,000 annually.
Revenue Canada is taking an analytical approach to identifying and addressing non-compliance issues to ensure enforcement resources are used efficiently and effectively. The department is using technology to analyse data and assess the risk of non-compliance in specific sectors. Audits are then directed to those areas.
We have come a long way, but we still have a long way to go. Revenue Canada has developed a long term strategy for the fight against the underground economy, which strikes a fair balance between measures promoting voluntary compliance and enforcement action.
Certain elements are essential to the success of this strategy. We must make the public aware. We must work with industry and other levels of government. We must take effective enforcement action.
We must ensure that every Canadian understands the underground economy threatens government services and programs. It imposes an unfair burden on honest taxpayers.
In conclusion, I commend the hon. member for Guelph-Wellington for bringing this matter once again to the floor of this House, supporting the government in its efforts to address the underground economy.
