Tax haven crackdown could boost Liberal books by billions

[The Canada Revenue Agency headquarters in Ottawa is pictured on Nov. 4, 2011. THE CANADIAN PRESS/Sean Kilpatrick]

The Liberal government’s crackdown on tax havens and tax avoidance will be a boon to its revenues as it hopes to balance the books in about five years.

The Justin Trudeau Liberals have said they are working on an estimate for the amount of taxes that go unpaid annually in tax evasion, a figure expected to be in the billions and that will help pay down the government’s near-$30-billion budget deficit.

Liberal Sen. Percy Downe, who has advocated for action on tax evasion, plans to table a bill in the Senate next week that, if passed, would report the “tax gap” in unpaid taxes.

“It could be $40 billion. It could be $90 billion. We don’t know,” he said, noting that California has estimated its tax gap at about US$10 billion. “There’s all kinds of money that should be paid in taxes that they’re not collecting and this would certainly help reduce the deficit. There’s no question about that.”

Finance Minister Bill Morneau has said he hopes the government can balance the budget in about five years, though the budget plan released last month forecast a deficit of $17.7-billion in 2020-21.

The budget allocated C$444 million over five years to the Canada Revenue Agency (CRA) to crack down on tax evasion and aggressive offshore tax avoidance.

Downe said such investments pay off for tax agencies. He said the former Conservative government’s allocation of $30 million to the CRA yielded about $4 billion within four years.

The Liberals’ 2016-17 budget also allocated $352 million to the CRA to collect outstanding tax debts, revenues that the Finance Department estimates will amount to $7.4 billion over five years.

Revenue Minister Diane Lebouthillier has also told Downe that the government will work with the Organisation for Economic Co-operation and Development (OECD) on targeting tax evasion.

Governments around the world are making efforts to fight tax evasion after a leak called the Panama Papers has implicated banks, celebrities and political leaders in tax avoidance schemes. The massive store of documents leaked from a Panamanian law firm that helped create tax haven shell companies.

The CRA said in a statement on Tuesday that it was actively seeking the leaked Panama Papers to find taxpayers who have concealed money offshore for tax purposes. The agency said that, since January 2015, it has been collecting data on all international funds transfers over $10,000, including “those to Panama and other jurisdictions of concern.”

“This brings new attention to it,” said Kevin Milligan, an economics professor at the University of British Columbia. “I hope that Canada will show leadership at the OECD and other international forums where we try to set these international tax rules.”

As part of the Liberal budget plan, the government is also planning to review the tax system for boutique tax credits that should deliver a few billion dollars in additional annual revenue through the cancellation of credits. Morneau has reiterated a Liberal pledge not to increase the GST to help balance the books.

“The government is paying a lot of attention to inequality and the middle class, and it’s certainly the case the GST is not one that scores well on those fronts,” economics professor Milligan said.

He said the Liberals would not need to generate new sources of revenue to pay off the deficit unless the fiscal shortfall deepened.

“I would be extraordinarily surprised if they moved to raise new (taxes) over the next couple of years,” Milligan said, adding that the Panama Papers leak will help the Liberals in their efforts on tax evasion.

The government may also consider cutting program spending as a way to help bring the books to balance.

Sen. Downe said addressing tax avoidance fits with the Liberals’ approach to inequality.

“I see it as a two-tier system. A group of Canadians who have the resources are being treated differently than the rest of us,” Downe said.

His private member’s bill to be introduced next week, called the Fairness for All Canadian Taxpayers Act, would require the national revenue minister to report Canada’s tax gap annually.

Downe’s bill comes after the senator asked Canada’s parliamentary budget officer to calculate the tax gap but found the budget watchdog couldn’t reach an agreement with the CRA to share the necessary information.