Honourable senators, I rise today to speak to Bill S-243, An Act to amend the Canada Revenue Agency Act.

[English]

In the last decade, numerous events have impacted and damaged the confidence of the public in governments, financial organizations and corporations around the world. Among these: the economic crisis of 2008, triggered by sub-prime mortgages in the U.S., which was followed by a banking crisis and solved by massive government bailouts. More recently, the big data leaks of the Paradise and Panama Papers, as well as offshore Swiss, Luxembourg and WikiLeaks, revealed the systemic use of tax havens by individuals, corporations and trusts, exposing greed beyond limits, huge losses of government revenues, corporate irresponsibility, social inequality, the growth of white-collar crimes, and the rise and fall of leaders and political parties around the world.

During the 2012 World Economic Forum, global risks were identified as priorities requiring solutions due to their impact on socio-economic stability and deep interrelations across all sectors of society. They are: one, chronic fiscal imbalances; two, greenhouse gas emissions; three, global governance failure; four, unsustainable population growth; and five, critical systems failure.

The WEF recommended governments initiate and collaborate in designing programs that will map, monitor, assess, manage, mitigate and minimize these global risks which affect us all.

The good news is that these problems are solvable. When one problem is redressed, this action corrects the others, creating a positive domino effect.

To show how these risks are interrelated, I offer the following chain of events.

Tax evasion causes loss of government revenues and lack of liquidity. It leads to chronic fiscal imbalances, income disparities and systemic financial failures, which may end in governance failure, which encourages corruption and brings volatility and instability to essential economic sectors such as natural resources, energy or infrastructure, making climate change adaptation more difficult and resulting in increased emissions of greenhouse gases.

Last April, in my capacity as Vice-President of ParlAmericas Canada, I participated in the Eighth Summit of the Americas held in Lima, which hosted meetings of heads of state, CEOs, parliamentarians, civil society representatives and Indigenous peoples. The central theme was “Democratic Governance against Corruption.” The outcome was a set of measures called the Lima Commitment, which forces movement from words to action, undertaking specific commitments for which governments and corporations will be accountable to citizens. They include appropriate accounting, promoting accountability, increasing fiscal transparency, protection of whistle-blowers, creation of financial intelligence units and administrative authorities to investigate offences of corruption, money laundering and transnational bribery in order to identify, trace, freeze, confiscate, seize and recover assets.

Many real-world cases were used to illustrate other cause-effect chains as the one I described before. One worth noting is the Odebrecht scandal, initiated by information from the Panama Papers, which resulted in the U.S. Department of Justice accusing the Brazilian engineering firm of fraud, collusion, bribery, corruption and tax evasion in 2016. Hundreds of government officials from 12 countries were implicated in the scandal. The investigation revealed a complex web of influences that began in the 1990s. Whistle-blowers and investigative journalists were essential to uncover the systemic illegal scheme.

[Translation]

These same leaked Panama Papers revealed that 3,000 Canadian companies, trusts, foundations and individuals use offshore accounts as tax havens. The Royal Bank of Canada closed more than 40 accounts as a result of the audits carried out after the leak. However, to date, the agency has only disclosed one case where action was taken.

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Bill S-243 will result in specific and effective action to help identify, monitor, assess, and manage the chronic fiscal imbalance. As explained by the bill’s sponsor, Senator Downe, Bill S-243 would require the Canada Revenue Agency to disclose all convictions for international tax evasion and would have the Minister of National Revenue present a report to Parliament on the tax gap. The bill would also have the agency provide the Parliamentary Budget Officer with the data it has collected on the tax gap, and additional data that the Parliamentary Budget Officer would deem pertinent to carry out his own analysis.

Honourable senators, tax evasion does occur in Canada and causes economic and social instability. Taxation is the basis for the federal government’s capacity to provide services to Canadians. Canada is the only developed country that does not have an official estimate of its tax gap. However, many organizations have tried to estimate the extent of this loss of tax revenue.

[English]

Based on Statistics Canada information, tax fairness estimated assets of $198 billion were officially held by Canadian corporations in the top 10 tax havens in 2014. Statistics Canada also estimated the size of Canada’s shadow economy at $45 billion in 2013. Dennis Howlett of Canadians for Tax Fairness told the parliamentary Finance Committee that the growing use of tax havens may be costing Canadians an estimated $8 billion annually. Another evaluation suggests $80 billion per year on use of loopholes, tax evasion and tax avoidance. Applying estimates from other countries, the Conference Board of Canada estimated that the federal tax gap could range between $8.9 million and $47 billion annually.

Under the access of information, Postmedia News revealed that in 2014 the federal government cut programs and staffing at the CRA which resulted in reduced capacity to investigate the growing problem of tax haven usage. Federal spending cuts from the 2012 and 2013 budgets meant the CRA was going to cut over $310 million annually and more than 3,000 full-time positions by 2017.

Unsurprisingly, in his 2014 report, the Auditor General of Canada, Mr. Ferguson, noted the lack of efficiency of the CRA at detecting and deterring aggressive tax planning, a technical term for forceful schemes to reduce or eliminate the amount of tax owing.

Two federal budgets identified fighting aggressive tax planning as a key action, and the CRA itself identified aggressive tax planning as one of the highest risks to its mandate. Yet National Revenue ministers have been silent about how CRA layoffs and department reorganizations have affected the CRA’s mandate to ensure taxpayer compliance.

Statistics obtained by the Toronto Star in 2016 showed the Canadian government convicted only 49 people and levied only $13.4 million in fines for what it calls offshore activity since 2010. These numbers are far lower than in comparable countries and show that the CRA recovers only a small, tiny fraction of the estimated billions in taxes Canada loses to offshore tax havens each year. While other governments have devoted significant resources to cracking down on bank secrecy and offshore tax schemes, Canada’s results appear to pale in comparison. For example, Australia’s Project Wickenby has collected more than $600 million from schemes using tax havens since 2006. The U.K. has recuperated more than $3.5 billion from offshore tax evasion since 2010.

Journalists from the Toronto Star revealed a six-year-long fight between parliamentary budget officers and CRA officials over requests for federal data to calculate the tax gap. Compare this to the U.S., where the tax gap has been calculated and publicly declared for more than 50 years or to the U.K. where they have done it since 2009. More than a dozen Western countries — including Australia, Sweden, Poland, Belgium, Portugal, Mexico and Denmark — follow OECD recommendations and calculate their tax gap. On its 2017 Tax Administration report, the OECD stated that more countries are measuring the tax gap. Why is Canada lagging on this important issue?

In 2016, the government directed $444 million to the CRA aimed at rooting out offshore tax evasion. The government’s 2017 budget reserved another $523.9 million over the next five years to prevent tax evasion and improve tax compliance with a focus on wealthy individuals and multinational corporations. But this injection of funds has not accelerated the processes, and the tax gap remains unknown. One thing for certain is that time is necessary to operationalize these recent investments, but this should not be used as an excuse for further delay.

A recent investigation by the Toronto Star and CBC explains how Canada is becoming the world’s newest tax haven called “snow washing” or “winter paradise.” Extremely troubling, among the Panama Papers leak was a memo from law firm Mossack Fonseca stating that “Canada is a good place to create tax planning structures to minimize taxes like interest, dividends, capital gains, retirement income and rental home.” Attracted by Canada’s prudent reputation and stable economy, companies are creating a sprawling tax avoidance industry using Canada as a jurisdiction for hiding financial wealth. This is facilitated by the secrecy and relative ease in registering corporations in Canada.

Honourable senators, yesterday I conducted a web search and found dozens of disturbing advertisements offering services to non-residents, including how to incorporate and set up partnerships in Canada and how to open an account in Canadian banks. The following text was extracted from one of these sites:

How can you minimize the chances of losing assets? By becoming a smaller target. How can you become a smaller target? By shrinking the size of your estate so that you are no longer the legal owner of the assets to be controlled and enjoyed. How can you shrink your estate? By getting as many assets out of your personal name as possible. One of the best ways to do this is to transfer money, investments and assets into a corporation, a legal entity that you control.

While tax lawyers may claim that sheltering money in tax havens is legal, they help keep funds beyond the reach of tax authorities, regulators and criminal investigations. Loopholes have been illegally used to get around sanctions and hide collusion. The built-in secrecy attracts money launderers, drug traffickers, kleptocrats and others who want to operate in the shadows.

Recently, a copy of Calgary-based businessman Wentao Yang’s passport was found among the Panama Papers, sparking a CRA investigation and raids on his luxury homes. Mr. Yang was brokering deals worth hundreds of millions for Chinese investors to buy Alberta’s oil and gas assets, including old wells. The CRA alleges that the Shanghai-born financier evaded paying more than $860,000 in income tax and GST on the nearly $2.7 million in income he pocketed from brokering one of the biggest Chinese purchases in the West Canada petroleum industry in recent years. He was involved in a number of companies buying up resource assets including Calgary-based Sequoia Resources Corporation, which acquired thousands of gas wells in Alberta but filed for bankruptcy last March.

The investigation of Yang is the first and only case the CRA has divulged the existence of public records on any particular Panama Papers probe.

The lost revenues in the form of tax evasion or tax avoidance could assist in solving many pressing needs of Canadian taxpayers such as health care, education, environmental protection, law enforcement or national defence. Canada ranks 11 out of 145 countries surveyed in the total amount of tax evaded. To give some perspective, a loss of $80 billion per year from tax evasion represents half of Canada’s total health care spending.

That’s amazing.

Honourable senators, the vast majority of Canadians pay the taxes they owe on time.

That is why it is unfair that the vast majority of Canadians face a massive tax gap, which robs us of a better quality of life.

Like Senators Bovey and McIntyre, I urge you to support Bill S-243, an important step towards promoting the transparency and accountability that Canadians rightly expect from their government.

I sincerely thank Senator Downe for his courage and tenacity on this file.

[English]

Dear senators, if we cannot measure a problem, how can we expect to solve it? Thank you.