3.33 To adequately support parliamentary oversight, the Department of Finance Canada should adopt improved reporting practices for tax-based expenditures to provide additional information, including

§  cross-references of tax expenditures to direct program spending, so that readers can understand total government spending; and

§  projected cost estimates in future years.

Also, in order to support parliamentary oversight, the annual Tax Expenditures and Evaluations report should be tabled in Parliament.

Agreed. The Department of Finance Canada agrees with the objective of continuously improving the information on tax expenditures that is provided to Canadians. The Government of Canada provides extensive information on tax expenditures through its annual Tax Expenditures and Evaluations report. This report helps inform the public debate on tax expenditures and contributes to transparency and accountability. Along with its companion reference document, Tax Expenditures: Notes to the Estimates/Projections, this report provides valuable information to the public on the objectives, design, and actual and projected costs of federal tax expenditures. International organizations have recognized the quality of Canada’s reporting on tax expenditures.

Starting with the next edition of Tax Expenditures and Evaluations, the Department will provide two additional years of cost projections, to the extent that sufficient information exists to develop reasonable projection assumptions. The Department will also add information in the companion reference document, Tax Expenditures: Notes to the Estimates/Projections, to better inform readers on government spending programs.

Two additional years of cost projections will be provided beginning with the 2015 edition of the Tax Expenditures and Evaluations report. Cost information will therefore be provided for years 2010 to 2017 (eight years in total).

Information on government spending programs will be added in the companion reference document Tax Expenditures: Notes to the Estimates/Projections. This information will provide background information on government spending programs relevant to the policy areas reported in the Tax Expenditures and Evaluations report.

The two additional years of cost projections will be provided beginning with the 2015 edition of the Tax Expenditures and Evaluations report, which will be published in February 2016. Cost projections will be prepared in the fall of 2015 as per the existing production schedule.

Information on government spending programs will be added in the next edition of the companion reference document Tax Expenditures: Notes to the Estimates/Projections that will be made public in February 2016 along with the main report.

Tax Policy Branch

3.61 The Department of Finance Canada should conduct systematic and ongoing prioritized evaluations of all tax-based expenditures, similar to what all departments and agencies are required to do for direct program spending. These evaluations should include

§  assessing the measure’s ongoing relevance and appropriateness;

§  determining whether the tax system is the most effective and efficient way to meet policy objectives and deliver outcomes; and

§  establishing whether to abolish, modify, replace, or retain the tax-based expenditure.

Agreed. The Department of Finance Canada agrees that tax expenditures should be properly evaluated. Consistent with the Department’s responsibility of supporting the Minister of Finance in the development of tax policy, the Department analyzes all key aspects of all measures prior to their implementation and monitors and evaluates the key aspects of existing tax expenditures on an ongoing basis.

Since 2006, more than one-third of all existing income tax expenditures were either adopted or modified to some extent.

Tax expenditures differ from spending programs. The Department’s approach to the evaluation of tax expenditures is tailored to their characteristics, and takes into consideration how these interact with the overall tax system, notably interactions among tax measures, tax policy objectives—for example, fairness, competitiveness, and simplicity—as well as provincial and international considerations, fiscal implications, potential market reactions, and system integrity.

Going forward, the Department will document the process by which it regularly and systematically reviews all tax expenditures. Evaluations will be prioritized on the basis of any gaps identified in the analysis conducted by the Department.

The Department’s ongoing monitoring of tax expenditures will be formalized and documented in order for the Department to identify possible gaps in the analysis it conducts, as well as to be better able to demonstrate that all tax expenditures are subject to scrutiny by the Department. This systematic process will be used to inform decisions regarding the selection and prioritization of tax expenditure evaluations.

The design of the process to be followed by the Department will be finalized in the summer of 2015.

Implementation of the proposal will take place during the fall of 2015.

Tax Policy Branch

3.63 Similar to reporting for direct program spending evaluations, the Department should publish, in a timely manner, pertinent information for all tax-based expenditure programs that have been evaluated to facilitate consideration by parliamentarians and Canadians on the ongoing relevance and performance of tax-based expenditures.

Agreed. The Department of Finance Canada agrees with the objective of continuously improving the public information available on tax expenditures. The Department has been proactive in providing valuable and detailed information on tax expenditures to parliamentarians and the public at large, in particular through its Tax Expenditures and Evaluations report. In recent years, the Department published five analytical papers on the eight tax expenditures that the audit team reviewed. Evaluations of the administrative aspects of tax expenditures are also made public by the Department and the Canada Revenue Agency. Canada is one of a handful of countries that publishes evaluations of tax expenditures on a regular basis.

The Department will make sure that high-quality analyses and evaluations of tax expenditures continue to be performed and that pertinent information be made available to the public as appropriate.

The Department will continue to publish evaluations and pertinent information about tax expenditures on an annual basis. Topics of future publications are selected at the beginning of each year’s production process. The selection of future evaluations will be informed by the new process by which the Department will regularly and systematically review all tax expenditures (see second recommendation).

The 2015 edition of the Tax Expenditures and Evaluations report will be published in February 2016.

Tax Policy Branch