Tax evasion costs us $40 billion a year – or more

News from the House

Algoma Manitoulin Kapuskasing MP Carol Hughes
Algoma Manitoulin Kapuskasing MP Carol Hughes
A report from the Parliamentary Budget Officer released in late June has estimated the cost of the government’s failure to reduce overseas tax evasion at a number much higher than that provided by the Canada Revenue Agency.  The PBO report shows that we have, at bare minimum, $1.6 trillion dollars leaving the country each year, and that we may be losing $40 billion dollars in tax revenue annually. The number is an estimate because the full amount just isn’t available, and more data is required to fully understand the extent of the tax gap which could be much greater.

The PBO report came on the heels of one from the CRA showing that corporations likely avoided paying $11.4 billion in taxes in 2014. The PBO paints a more serious picture that includes massive sums of corporate money flowing to small countries known for being tax havens, including $47.6 billion transferred from Canada to the small European country of Luxembourg in 2016. It also shows that in 2018, Canadian corporations transferred $157.7 billion to Singapore, while Singapore only transferred $35.9 billion to Canada.

To fully understand how transformative capturing these revenues would be, consider that the government posted a budgetary deficit of $19 billion for the fiscal year that ended March 31, 2018. If we were able to capture this lost revenue, we would have been operating at a surplus.  Put another way, the money lost to tax havens is enough to fund universal pharmacare and universal child programs, both of which would benefit far more households than those who benefits from tax-avoidance schemes.

That should be enough to compel the government into action but so far, it’s business as usual. In four years, the government has not implemented any meaningful measures to stop this, or even to better understand the flow of money.  The problem goes back years and was exacerbated by the ten percent departmental cuts put in place by the previous government.  That took money away from the arm of CRA that investigates offshore tax cheats even though every dollar spent on those efforts returns five to the federal coffers.  That makes no sense whatsoever. The only reason for that is if there is no desire to pursue the financial schemes employed by the biggest political donors – the kind that can afford $1,000 a plate fundraisers. 

New Democrats have long supported a crack-down on tax havens and have urged government after government to see the benefit that would have for everyone.  One way to help would be to create a publicly-accessible registry of ownership information for federally incorporated corporations. That would shine a light on the tax evasion we know is taking place. Again, there appears to be no desire on the part of other parties to know more or contain the problem.

The Parliamentary Budget Officer has shown that the $11.4 billion reported by the CRA is likely just the tip of the iceberg. The difference between what our tax revenue is, and what it could be, is called the ‘tax gap’. The PBO report shows we don’t have a tax gap, we have a tax-avoidance calamity. Without those lost revenues, the burden falls on those who can’t afford to hide money off-shore. That creates fatigue on household budgets and limits our ability to grow the economy in a way that lifts more people up.  Child care, affordable housing, renewable energy…It’s staggering what we could fund if the government was taking this issue seriously.  The challenge is to have all political parties see this as an issue that deserves significant attention.