Thank you, Mr. Chairman.
Ms. Fraser might be interested in what I am going to say, because she has already studied this file, as did her predecessor.
About a year and a half ago, I tabled a motion before the finance committee requesting that a special committee be struck in order to study the Canada-Barbados Tax Convention. Barbados is a tax haven for Canadian investors, and their investments continue to grow.
Formerly, the Department of Finance even promoted Barbados on its website, as the best place where Canadian investors can avoid paying Canadian taxes. In 1994, Mr. Martin, who was then the Minister of Finance, tabled a bill in order to clean up the tax conventions between Canada and countries deemed to be tax havens. He did not want either the Auditor General at the time nor his successor to say that Canada's tax base was harmed by too much permissiveness regarding the transfer of capital.
Mr. Martin then tabled a bill that dealt with all tax conventions, with the exception of Barbados. Afterward, he adopted some amendments that we will have the opportunity to deal with later if my colleagues accept to strike such a special committee. Time and time again he proposed fiscal provisions whereby companies like his company, Canada Steamship Lines — an international marine transportation company, which was inactive and based in Barbados following the decision not to amend the tax convention with Barbados — might benefit from a made-to-measure tax system. We estimate, as does ATTAC-Quebec, an international organization for fiscal fairness, that this made-to-order fiscal system allowed Mr. Martin and his family to benefit from tax savings amounting to nearly $100 million since 1998.
Mr. Chairman, I know that you do not want us to vote on this matter immediately, but I will ask my colleagues to discuss this motion later on. Let me remind you that last year, the Conservatives had supported the idea of such a commission, not in order to attack Mr. Martin's family directly, but mainly to regulate fiscal relations with Barbados and the growth of direct investments in that country. The Conservatives also wanted to look into the fact that a customized tax system had been set up so as to favour a specific kind of economic activity — international marine transportation — for Barbados, and that CSL international's head office had been set up shortly after Mr. Martin brought in the first fiscal amendments.
The analysis will yield further details, but many tax experts from Quebec and from all over Canada raise questions about Mr. Martin's doings, and about this made-to-measure tax system. In my motion, there is a list of people whom we could invite, which includes recognized specialists who would be ready to testify before the special committee.
Mr. Chairman, thank you for your attention. Also, thank you for having allowed me to be the first intervenor, and I apologize to the Auditor General for having taken five minutes of her time.
We thank you for this opportunity to speak to the finance committee about our experience with the Canada Revenue Agency, as you carry out the five-year review contemplated in subsection 89(1) of the Canada Revenue Agency Act.
Today I'm accompanied by Jamie Hood, the principal responsible for performance audits and the annual assessment of the agency's performance information, as well as Marion McMahon, the principal responsible for the annual financial statement audits that we conduct at the agency.
Mr. Chairman, we undertake a considerable amount of work each year in the agency — almost 43,000 staff hours are budgeted for 2006-2007. First, we conduct performance audits such as the status report on the collection of tax debts we tabled in the House on May 6. Second, the agency produces two financial statements that we audit on an annual basis. One financial statement presents how the agency has used its annual appropriations totalling about $3 billion, while the other presents the results of the activities the agency performs on behalf of other entities — primarily the administration and collection of more than $300 billion in taxes annually. Third, we assess the fairness and reliability of the information about the agency's performance that is included in its annual report. Fourth, each year we audit a statement showing the income and capital taxes assessed and paid to the provinces pursuant to federal-provincial tax collection agreements. Finally, from time to time the agency is included in other government-wide performance audits conducted by my office.
From a performance audit perspective, we have focused our efforts over the past five years primarily on examining how the agency manages the risk of non-compliance with tax laws. The agency has limited resources and cannot be everywhere at once. It must make trade-offs in deciding where to deploy resources to deal with competing threats to the tax base. We have found that, with some exceptions, the individual compliance programs are generally well designed but that the agency needs to improve its overall risk management framework and the manner in which it allocates its resources.
We have not yet completed any performance audits that look specifically at the new authorities granted to the agency. In 2004 we began an audit that was designed to assess the new competency-based human resources management regime being put in place. However, we found that progress was not sufficient to warrant an audit at that time. We felt, and other agency internal studies confirmed, that the agency had tried to do too much, too soon, without a full understanding of the cost, scope, and complexity of the task.
We provided the agency with a summary of concerns that we identified and indicated that we would return at a later date. We currently anticipate beginning an audit of human resources management in the fall of this year, with another human resources audit tentatively scheduled to begin about a year later.
From a financial audit perspective, we can say that the nature, quantity, and relevance of financial information being provided by the agency have improved since its departmental days. An important contributing factor to these improvements has been the legislative reporting requirements set out in sections 87 and 88 of the agency's enabling legislation. They require audited financial statements to be included in the agency's annual report, which is first submitted to the minister and then tabled in each house of Parliament. Our two annual audits of the agency's activities and its administered activities, as described earlier, have resulted in unqualified auditor's reports since the inception of the agency.
Although preparation and audit of these statements is not without significant challenges, particularly the statements addressing the agency's administered activities, we have observed incremental year-over-year improvement.
Our assessment of the fairness and reliability of the agency's performance information — another new reporting requirement included in the agency's legislation — has contributed to advances by CRA in developing its performance management and reporting framework. Corporate business plans now have clearer expected results, and the agency's performance information has steadily improved over the years in terms of providing more concrete, clear, and measurable results that are better linked to the agency's business strategies. Although much progress has been made, some improvements are still needed, for example, in reporting how the agency's administrative functions are contributing to the achievement of corporate objectives.
Mr. Chairman, there have also been positive developments in the tax collection arrangements with the provinces. These agreements were recently revamped and now include stronger accountability provisions — in particular, a requirement for my office to provide reports to the provinces on the proper design and effective operation of controls that have an impact on determining provincial revenues. The first of these new reports is expected to be issued sometime during 2007.
An important and unique aspect of the Canada Revenue Agency's CRA enabling legislation was the creation of a Board of Management. The Board of Management was given a mandate to oversee the organization and administration of the agency and the management of its resources, services, property, personnel, and contracts. Although we do not interact on a regular basis with the board as a whole, we believe that it has instilled a heightened sense of accountability in the agency. The board has also created several committees to deal with specialized aspects of its responsibilities, including an audit committee.
The audit committee has had a positive impact on financial oversight of the agency's operations. It is comprised of experienced, well-qualified financial professionals. The committee meets regularly, with meetings attended by representatives of both internal audit and my office. We have observed the members playing an important and effective role with both management and our staff.
What can my office say about the extent to which the agency has lived up to the expectations set out when it was created? Well, I believe we can say two things. First, we can identify areas where specific aspects of the agency's enabling legislation have led to positive changes. The legislative requirements for audited financial statements and for an assessment of the fairness and reliability of the performance information included in the agency's annual report have improved the quality of performance information available for decision-makers and the public at large. Further, the enhanced oversight provided by the board of management has contributed to strengthened business planning, a more rigorous performance measurement framework, and improved accountability to the minister and the provinces.
Second, in terms of the benefits anticipated from the agency's new human resource management and administrative authorities, there are indications that progress has been slower than anticipated. Our attempt to audit the agency's competency based resourcing initiative has been deferred to allow the initiative to reach a more mature state. And performance reporting related to the administrative areas where the agency was granted special flexibilities currently provides limited insight into the impact the agency's corporate services are having on the organization.
Mr. Chair, that concludes our opening statement. We would be pleased to answer any questions that committee members may have.
If I have any time that's not used, my colleague Mr. McKay will take that up. It seldom seems to happen that way, but....
Thank you, Madam Fraser, and the witnesses, for appearing today and for the work you've done as we have a look at these first five years.
In your comments you have been pretty specific in areas where you think there has been improvement. You also indicate some areas, such as human resources management, where it's generally been a little slower than you might have expected or wanted.
I wonder if you could just tell us, in general, how it's doing overall. If you were to give it a grade, how would you say it's done so far, as we review this?
As we mentioned, we wanted to begin an audit in 2004 to look at the new systems that were being put in place. The agency was really moving toward a very different system from what had existed previously when it was a department. When we got into that, we realized they were not as far advanced as we had initially thought they might be.
So even with things as basic as having a description of competencies that will be required for the different positions, we had sort of expected that people would have been doing this. But we found out in that initial review that in fact, people were describing the competencies for their own jobs only when there was a competition, because it was a very long and elaborate process to do that. So there weren't a lot of descriptions that had been done.
I'm just trying to remember what some of the others were. There were staffing actions, as well. I know through the assessments, the competency profiles, there was a lot of work that had to be done to get the system the way it had initially been foreseen, and that work wasn't very far advanced.
So we raised a number of issues that we saw in this initial survey and brought them to management's attention, but we felt it wouldn't have been warranted at that point to go in and do an audit, because they weren't at a phase yet where it was really implemented. But now we think they've had sufficient time, given that it's been two years since we raised those issues, and we will be beginning an audit on that within the coming months.
The major issue we were raising in that audit was that they manage a very large sum of receivables. The amount, in and of itself, is always going to be large, because they're collecting, essentially, $1 billion a day. So any amount outstanding is going to be in the billions.
What we were saying is that they aren't paying enough attention to which collection methods are the most efficient. They have various methods that they could use. They need to have better information, too, to identify the higher-risk taxpayers earlier, and, if necessary, take action more quickly on those. I think the taxes of the average citizen--in fact, most citizens--are already paid through deductions at source, but they need to be able identify those taxpayers who have....
In the hearing we had before another committee, the agency agreed with that. They say they're starting to develop the data-mining techniques so that they can identify that people around an organization may have gone bankrupt three or four times in the past--which should be a flag to them if ever they start to become late in their payments--so that they have better information to manage the risks around that.
They need better tracking of those accounts, and also, we said they need to better understand the makeup of that $18 billion. Were there certain sectors where they needed to do more education programs or different kinds of programs to encourage those people to pay their taxes? So it was really around the management of it.
We have indicated that at the present time our resource level is appropriate. We may go back, and we've indicated to Parliament--to the public accounts committee and to government--that we will have to reconsider our resourcing level after this year, because we were given new mandates.
There are certain crown corporations, for example, that we are auditors of for the first time this year, and we wanted to go through the first year to see what level of effort was involved in that. We had, quite frankly, sufficient carry-forward from previous years to be able to absorb it this year, but we will be reassessing that.
Just to make the other point, our universe is unlimited. The number of audits we could do is unlimited, in a way, except that we have to judge what we think is an appropriate level for Parliament to be able to deal with, and for government departments to be able to deal with as well. So we do about 30 performance audits a year, in addition to the 100-and-some financial audits that we do, and we have quite a process to decide which ones we're going to look at.
We have a financial audit every year that is in our performance report.
We consider ourselves a bit of a professional organization. We had a peer review done of our financial audit practice, and I believe the report came out in 1999-2000. Excuse me, the first one on the financial audit was done by a private sector firm.
We also wanted to do one on our performance audit practice, and the challenge there was who would adequately do a peer review, because the private sector doesn't really do this kind of work.
We were the first country to ask an international team to do a peer review of our performance audit practice. It was an audit led by the National Audit Office of Great Britain, with the participation of the audit offices of Norway, the Netherlands, and France. That came out in the spring of 2004.
We will be planning to do another peer review, which I hope will cover the whole office before the end of my term.
Thank you, Mr. Chairperson.
Thank you, Madam Fraser, and your staff for being here today.
This issue of tax debt gets a lot of Canadians riled up. We all got mail, I'm sure, after your report came out, and it was duly reported by the media.
A typical response that we get is like the one I got from a Mr. Kapz on Pickley Crescent in Winnipeg. He says:
||When Auditor General Sheila Fraser presented her most recent report, the item that irritated me the most was the fact that the federal government is owed some $18 billion in back taxes. I have to pay my income tax quarterly, and if my annual tax return is inaccurate, Canada Customs and Revenue is immediately after me to make up any shortfall. Yet there are apparently thousands of citizens, businesses, and corporations who owe far more than I do....
This person goes on to say that we've got the law, there just doesn't seem to be the will to collect.
I'm wondering, since you were at this in 1994—it's 14 years later, and we've gone from $5 billion or $6 billion in taxes owed to $18 billion—is it a question of the law not being strong enough? Do we need to make amendments to the CRAA? Or is it a question of the will to collect taxes? And is that because there are consequences for decision-makers if we go too hard after certain bodies for tax evasion?
It's not only a perception of people. We hear more and more stories about the shift taking place in terms of tax evasion, and I know this isn't tax evasion. This is a case of taxes owing. You hear about the shift in the neighbourhood of about $11 billion to $88 billion going offshore in terms of revenue or income, and no taxes being paid according to Canadian laws. You hear about studies out all the time suggesting that there's a much higher percentage in high-income groups than in low-income groups of those who don't pay their taxes. When we raised this issue with the department last year, there was a report out by Brigitte Alepin showing that.
I guess I'm just trying to figure out who the culprit is here and why we aren't going after them. Is it just technology? Is it just the fact that our systems aren't keeping pace? Or is there something else? And how do hard-working Canadians who are struggling day to day feel good about the fact that they're obeying the law when they hear about others who aren't? I don't know if there's an answer to that question, but it is a concern.
I will go back to the final area of attention of our committee, and that is the department, the way it's organized, the way the staff is being allocated to this, and the way it trains staff. I'm wondering if all of these changes associated with going from a department to an agency and now a stand-alone and this constant movement and reorganization with respect to this organization within government don't take away from the need to actually get down to work and collect taxes owing. If that's part of the problem, when will that ever settle down?
Secondly, with respect to staffing, we asked the department last year--because they got a lot more money in the budget--if it was a question of staff or, as the union said, of proper training of individuals and their capacity to deal with the problems. At that time Michel Dorais said,
|...we have a lot of money and we're putting a lot of effort into that; $30 million is not insignificant. It means we will assign 250 people to these files over the next while, and that is a huge amount of manpower.
He said they've got amazingly qualified people and so on, but they have to learn more, and they're going to Dublin to learn more, etc.
Is it a question of being preoccupied with reorganization? Is it a question of training staff? Is it a question of actually making this a priority within the department?
My experience in receivables is the older they get, the harder they are to collect; the more current you are with things....
I was talking to the officials when they were here about the GST, and I said that the system is still quite cumbersome, actually. There's no electronic system for submission of GST, and it's actually quite slow in industry, if you're owed GST, to get that refund back.
I also found out, as you've indicated, that they may have a bit of a challenge directing their resources. When the CFIB was here the other day, they indicated that companies are getting audited much more frequently, and the audits that were taking about five days are now taking up to nine days. So it would seem that if we redirected our resources there a little bit, we might be able to be a little more current checking up on accounts, and we might be able to make some technology investments. All these things could lead to a much more responsive system, and we may not need a 1.5% allowance.
Thank you, Mr. Chairman.
Welcome, Ms. Fraser. We didn't have a chance to get you before the committee last year; we were very busy. So thanks for coming.
Can we go back a step? We are here for the five-year review. What happened, exactly? I wasn't here. Revenue Canada went from being a department to being an agency. What is the difference? We're here looking at the five-year review of the CRAA, but it sounds as though we're making all kinds of excuses: there's a transitory period in terms of how they collect and how their staffing is done; we've had the unions here, and they seem to have an issue with how some of their hiring and firing and promotions and demotions are done, and with how they're closing certain areas of service they're offering.
We seem to be offering lots of excuses, so I'm not sure where we're going with this. Our question here is, do we review the mandate, or do we accept...? It seems as if it's a fait accompli, where we're just going to say we'll do the five-year review and are going to renew it.
I think it's a broader question, a much more complex question than what we're addressing here. Can you help me with this?
What I can say is that generally in government there are three agencies that have been created with a different structure, if you will, from government departments.
I would say the revenue agency is probably the most different of all. Rather than having a department with a deputy minister who reports through a minister, you have a very different accountability regime. You have a board of management with people from outside government who have an oversight responsibility for the administration part—not the tax policy area, but the administration—and with a commissioner who has much more specific kinds of responsibility, or more clearly-defined responsibilities, than does a deputy minister and who has also been given more flexibility in the human resource regime than you have in a government department.
On the one hand there are more flexibilities; on the other hand, there are more accountabilities. They have to produce a performance report on which there is an assessment; they have to produce audited financial statements. There are a number of conditions that were put on them when they were created as an agency.
What is, I think, the most striking difference in the governance is the role of the board of management and the impact of its oversight on the administration. Obviously, such things as the Income Tax Act and the Excise Tax haven't changed; it's how the administration of these is carried out. I would say the board of management has put more attention to the administration of the business than was there previously.
In the audit on writeoffs, we were talking about accounts deemed uncollectable that are completely written off. Some efforts could be made in future if the account were to be reactivated, but the agency won't continue trying to do a lot of collection.
In the last year, as Mr. Hood mentioned, there was a little over $2 billion of writeoffs, which was about double what it had been in previous years. The agency made a concerted effort to try to clean up their accounts, and encouraged the people looking after the accounts to write off those that were deemed uncollectable.
Our previous audit indicated that there was a sufficiently rigorous process in place, so accounts wouldn't be written off unnecessarily, and that is of course one of the dangers in the tax administration system. Should there be weaknesses in that system, somebody could just write off accounts inappropriately, but our audit was generally positive on the framework there. What we were saying again, and it comes back to a recurring issue, is that they needed better information. They needed to understand related accounts and how much is involved in that. You would hope that kind of information would help them going forward, so if these accounts or the people related to them reappeared, they could track them a little more closely.
Thank you, Mr. Chairperson.
This motion is in response, first of all, to the rapid growth of payday lenders in all of our communities, and the commensurate lack of regulations to help control this area in terms of consumer protections. A number of attempts have been ongoing at the federal-provincial level to try to find a way to solve this and to provide some sort of regulatory framework. They haven't produced much fruit to date, so a number of provinces have started to review this area on their own, and one of them is Manitoba. It has proposed legislation to control issues around rollover loans, with a definition of payday loans, cooling-off periods, and so on, and to do it through an established agency—in this case, the Manitoba Public Utilities Board.
But in order for a province like Manitoba to proceed, it needs a change to the Criminal Code that sets aside section 347 of the code. Provinces like Manitoba, with legislation ready to roll and a plan for regulating the industry, and who have actually requested an exemption from the Criminal Code on payday loans, do require commensurate action at the federal level.
So all I'm asking is that we send a motion to the House asking the Minister of Justice to amend the Criminal Code at an early date to make this possible for provinces like Manitoba and indeed for others that are starting to follow, like British Columbia.
This motion looks a lot like previous motions and incarnations of this motion.
I see it as political theatre, grandstanding, and pretty well anything but a useful exercise of the committee's time.
I notice, first of all, in the motion that he wants it to be televised. I can't imagine why. I guess I'm just an innocent in this game. He then wants the former Minister of Finance, presumably Paul Martin, to be his first witness. Again, I can't imagine why. Then he wants the members of the board of directors of Canada Steamship Lines to be here, and again, I can't imagine why. The members of the board of directors of CSL International.... Do you think there's something going on here? Do you think there's a pattern? And how about André Lareau, a tax lawyer, who's already written in this area, a forensic accountant, and a tax expert, all of whom have previous publications in the area? Apparently not interested in OECD, or their efforts with respect to the whole issue of tax treaties.... He's certainly not inviting any of the CARICOM nations. He's not interested in the Barbados high commissioner, on either side--
To add a little bit of history, we looked at this motion. Originally, the motion, during the last parliamentary session, read simply to have the Department of Finance officials in so that we can review the treaty. Everybody was satisfied. Nobody determined that we should look at prolonging the treaty that we have with Barbados, then all of a sudden the motion came through where he was going on a fishing expedition. So I'm not sure where this is going.
We have to keep in mind that this is not an exhaustive list. If we're to go back and review the Barbados tax treaty...it's up for renewal anyway, so even if we did do it, I don't think it's anything that's pressing. But I don't think these witnesses would be enough to get both sides of the story, so we'd be looking at this whole story for not much reason.
Mr. Chairman, I think we have to get to the bottom of this. The Office of the Auditor General has already issued five warnings about this, but we have always refused to really get to the bottom of things and clarify this issue. It would be irresponsible for committee members not to delve further into this matter.
In terms of the relevance of this, I would simply say that it's a matter of public confidence. I don't know whether my colleagues from the Liberal Party campaigned door to door like I did, but I was able to observe that people have a persistent perception — perhaps wrongly, but we will find that out if we do the study — that some people who should pay tax aren't paying and that some legislation gives certain individuals and elected officials an unfair advantage. This needs to be brought into the light of day. If we refuse to do so, we run the risk of seeing public confidence continue to dwindle. However, if we feel that the list is incomplete, at this point, I quite agree.
That is why the motion provides for the addition of people whom we consider it appropriate to consult. This motion was presented in the last Parliament. The Liberals were opposed to it, and I'm not surprised today that they've changed their minds. I hope the Conservatives are still in favour of getting to the bottom of things as far as this matter is concerned and that they are going to support us again.