:
I now declare this 60th meeting of the Standing Committee on Public Accounts in order.
Colleagues, I have no particular business to bring to you before we start, so unless someone else has an intervention, it is my intention to move directly to the public hearing at hand.
I see none, so we will move forward with the hearing, pursuant to Standing Order 108(3)(g), chapter 3, “Tax-Based Expenditures”, of the spring 2015 report of the Auditor General of Canada. It was sent to us on April 28.
Mr. Ferguson, our Auditor General, is here with us today to kick things off.
To begin with your opening remarks I'll turn the floor over to you, Mr. Ferguson. You now have the floor, sir.
:
Thank you, Mr. Chair, for this opportunity to discuss our 2015 spring report on tax-based expenditures. Joining me at the table is Richard Domingue, principal, who was responsible for the audit.
The federal government can attain its policy objectives either through direct program spending or through tax expenditures. In this audit, we refer to the tax expenditures that could be replaced by direct spending as tax-based expenditures. In support of this point the International Monetary Fund's fiscal transparency code states that:
...because the government policy objectives could be achieved alternatively through a subsidy or other direct outlays, [tax expenditures] are regarded as equivalent to budget expenditure.
[Translation]
Tax-based expenditures account for billions of dollars annually. We looked at how the Department of Finance Canada and the Canada Revenue Agency managed these expenditures. More specifically, we examined whether clear and useful information is reported, whether analyses are performed before the implementation of these expenditures, and whether existing tax measures are monitored and evaluated.
We selected nine tax-based expenditures. We found that the information provided by the Department of Finance Canada on tax-based expenditures does not adequately support Parliamentary oversight. Although these expenditures are similar to direct program spending, less information is provided to Parliament about these expenditures than about direct program spending.
For example, the Tax Expenditures and Evaluations report does not include future cost projections. Reporting practices in some international jurisdictions provided examples where additional details related to tax expenditures are disclosed. The number of beneficiaries, the administrative costs, and links between direct spending programs and these expenditures are sometimes reported in other jurisdictions.
We believe that Parliament needs comprehensive and consolidated information about tax expenditures to better understand total government spending.
[English]
We found that the Department of Finance did a good job of analyzing new tax measures before they were implemented. For the measures we selected, the department considered most key elements of its analytical framework, such as a need for government intervention, and efficiency, effectiveness, and equity.
Analysis on potential tax measures are prepared to support decision-making. We found that although the Department of Finance monitored existing tax-based expenditures, it did not systematically evaluate those expenditures to determine whether they achieved the expected results and whether they were performing as intended.
The policy requirement to evaluate direct program spending does not apply to tax-based expenditures. Also, tax expenditures are not included in comprehensive spending reviews such as strategic reviews.
We found examples where the Department of Finance identified issues in relation to certain tax measures before implementing them. Despite those issues, the department had yet to evaluate these tax measures after they were implemented. When the department evaluated tax measures, it did not publish the evaluations. For example, although the department evaluated the children's fitness tax credit, it did not make the information public.
We believe that information needs to be disclosed for parliamentarians to understand what the money spent through the tax system is accomplishing.
[Translation]
We also examined the monitoring of costs and the sharing of information. We found that the Canada Revenue Agency monitored costs to implement new measures and compliance issues. It also shared relevant information with the Department of Finance Canada on an ongoing basis.
The Department of Finance Canada has prepared a detailed action plan to address each of our recommendations.
Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have.
Thank you.
:
Thank you, Mr. Chair. Good afternoon.
I'm joined here today by Mr. Geoff Trueman, who is general director in the tax policy branch; Maude Lavoie, director of intergovernmental policy and evaluation and research; and Miodrag Jovanovic, the director of the personal income tax division.
I will begin my remarks today with a brief overview of the role of the tax policy branch. I'll then say a few words about the Department of Finance's reporting on tax expenditures and the steps we're taking to address the recent recommendations by the Auditor General to improve our reporting on tax expenditures.
The main responsibility of the Department of Finance with respect to taxation is to support the government in the development of federal tax policy. For the tax policy branch, this involves developing, analyzing, and evaluating potential tax measures or adjustments to existing measures. It also involves drafting legislation and supporting its passage through Parliament.
Our analysis is guided by sound tax policy principles in line with the objectives of ensuring a competitive, efficient, fair, and simple tax system. The analysis, review, and evaluation of either new or existing measures are carried out by highly qualified Finance Canada employees with in-depth knowledge of the Canadian tax system.
The branch's analytical and evaluation work is systematic and thorough. Our analytical framework incorporates several elements. These elements include, for example, a detailed assessment of the need for policy intervention; an assessment of the effectiveness of a measure in meeting its policy objectives; assessment of whether measures meet fundamental policy objectives of efficiency, fairness, and simplicity; consideration of alternative delivery mechanisms; a review of gender or environmental concerns as well as potential provincial or territorial impacts; and assessment of potential fiscal implications.
We also consider administrative, compliance, and legislative concerns, and we consult other departments, stakeholders, and other jurisdictions.
[Translation]
After a measure is implemented, the department monitors the performance of the tax system on an ongoing basis, meets stakeholders, analyzes trends in relevant data, monitors jurisprudence, and consults the Canada Revenue Agency, other departments, agencies and the general public.
When issues are identified, they are carefully reviewed by the department and decision-makers are briefed when appropriate.
Although it may differ in some respects from the rules applicable to direct program spending, the review process for tax expenditures is effective in identifying potential issues with the tax system. It is also effective in leading us to the desired outcome, which is to ensure that the tax system performs as intended.
Allow me to give you a few statistics that illustrate the scope and breadth of the branch's work.
In the course of the four last federal budget exercises, the branch prepared detailed analyses of about 400 different tax proposals, and about 110 of these measures were either implemented or on course of being implemented. The department prepared 1,274 pages of new tax legislation in 2013, and 363 pages in 2014. Since 2006, more than one third of all existing income tax expenditures were either adopted or modified to some extent.
[English]
Let me speak now, briefly, about the department's reporting on tax expenditures. The department first reported on federal tax expenditures in 1979 and was one of the first countries to do so. Since then the department has been proactive in providing extensive information on tax expenditures to Canadians in a manner that contributes to transparency and accountability.
Through its annual “Tax Expenditures and Evaluations” report and its companion reference document “Tax Expenditures: Notes to the Estimates/Projections”, the department provides valuable information to the public. This includes information on the objectives and design of federal tax expenditures as well as their actual and projected costs.
Canada is also one of a handful of countries that publish evaluations of tax expenditures on a regular basis. The Organisation for Economic Cooperation and Development and the International Monetary Fund have recognized the high quality of Canada's reporting on tax expenditures.
We're pleased with the Auditor General's finding that the department does a good job of analyzing new tax measures and monitoring existing ones. While the department is of the view that we have a robust approach to the management of tax expenditures, we recognize there is always room for improvement, and it's in this spirit that we welcome the Auditor General's recommendations.
Starting next year the department will be providing two additional years of information as recommended by the Auditor General. Also, as recommended, the department will add information in the companion reference document to better inform readers on government spending programs.
The department is committed to continuously improving the public information available on tax expenditures. We'll make sure that high-quality analyses and evaluations of tax expenditures continue to be performed.
Thank you, Mr. Chair.
:
Good afternoon, Mr. Chair.
[Translation]
Thank you for the invitation to testify before the committee today.
[English]
I'm here today to answer questions relating to the CRA's work with the Department of Finance on tax-based expenditures, as examined in the Auditor General's report released on April 28, 2015. The CRA is pleased to note that no points of concern were raised by the Auditor General with our administration of tax-based expenditures and that there were no recommendations specific to the Canada Revenue Agency.
By way of background, the Canada Revenue Agency is responsible for administering Canada's tax laws, including the Income Tax Act and the Excise Tax Act. We undertake a wide range of activities to assess and process tax returns, information returns, and payments for individuals and businesses. Additionally, we are also responsible for ensuring compliance with tax laws, which we do through a variety of means, including risk assessment, third party data matching, verification, and audits.
The Canada Revenue Agency works with the Tax Policy Branch within the Department of Finance to provide administrative considerations on tax changes in two ways. First, when the legislation is being developed we provide analysis around administrative, compliance, enforceability, and costing matters. Second, once legislation has been implemented, we assess on an ongoing basis the administration of tax measures to identify any unforeseen consequences or issues in the practical application of the legislative measure.
An ongoing dialogue helps ensure that the Department of Finance is in a position to fully consider potential compliance issues and implementation costs of tax-based expenditures. To support this, the Canada Revenue Agency examines a number of operational aspects, including impacts on our internal operations, provincial or territorial tax administrations and, where possible, the number of taxpayers affected.
In addition to the information provided to support Department of Finance analysis, the Canada Revenue Agency's analysis also allows us to identify issues important to our effective administration of the tax change, including changes to our information technology systems, the expected number of inquiries the change will generate, and necessary changes to our publications.
After tax measures have been implemented, the Canada Revenue Agency provides the Department of Finance with further comments and analysis on issues such as compliance or additional costs related to the tax measure.
In closing, I would like to reiterate that the Canada Revenue Agency works closely with the Department of Finance to assist the administrative aspects of new tax-based expenditures. I'm happy to take questions on this process.
Thank you, Mr. Chair.
:
We were looking at a couple of different aspects in the audit. We were looking at what the Department of Finance does before a tax measure is put in place, and then we were also looking at what it does once a tax measure has been implemented.
As for what it does before a tax measure is put in place, we cover that starting in paragraph 3.34, which is where we say the following:
...when analyzing tax-based expenditures before they were implemented, the Department of Finance Canada considered most key elements of its analytical framework, such as the need for government intervention, and efficiency, effectiveness, and equity.
Throughout that section we do say, for example, in paragraph 3.42, that:
We found that the Department analyzed the issues related to policy need, efficiency, effectiveness, equity, and forgone revenues for most of the selected tax measures. However, the Department did not consider spending alternatives for the tax measures we examined.
Overall, in the area of looking at measures before they're implemented, we felt that the department was doing a good job of analyzing them and doing most of the things that were in its framework. We did say, in paragraph 3.42, however, that we found in some cases that it hadn't considered spending alternatives for the tax measures we examined.
:
I will begin by saying that every country makes its own choices with respect to this. Some countries provide additional data that Canada does not provide at the moment, and some don't provide some of the data that Canada provides.
I think there is a variety of approaches, but I think the starting point really has to be how you define a tax expenditure. An important thing from Canada's perspective is that we.... Essentially, a tax expenditure is a deviation from the benchmark tax system, so how you define the benchmark tax system is very important for how you define the scope of expenditures on which you report. We take a very broad approach in Canada, which means that we report on a very wide selection of tax expenditures, and I think the OECD, in particular, has noted the breadth of the number of tax expenditures that we report.
I think it's fair to say that there are examples in other countries or other jurisdictions of data points that are provided—for example, more projections of revenues—but none of the jurisdictions provide all of those. What I'm saying is that they make particular choices.
We welcome the Auditor General's recommendation to provide more cost projections, and we've committed to providing an additional two years, where appropriate.
I think the challenge in that respect is the ability to project forward on tax expenditures. Some tax expenditures are related, for example, to business cycles or the market, and it's quite difficult and could be misleading to provide too long a projection of costs going forward. But we will try to provide as much as possible.
:
I understand that, but I'm looking at the specific ones that the Auditor General looked at. Either you do know or you don't know.
If you don't know, that's fair because it's a pretty specific question and I don't expect you, Mr. Marsland, to have every document in front of you. I appreciate the fact you may not know exactly why it didn't happen, but you may want to tell the committee at some point in the future why it didn't. It may well fit inside those parameters. That's fair.
The Auditor General also talked about the department “not systematically evaluat[ing] these expenditures to determine whether they achieved the expected results and whether they were performing as intended”. If I look at page 2 of the text of your opening remarks, sir, you say, “After a measure is implemented, the Department monitors the performance of the tax system on an ongoing basis...”.
The tax system is very broad, I understand, but he said that you didn't evaluate a certain number of these programs and you seem to be alluding on page 2 that you in fact do. Was this just a question of oversight or was this a question of what we're getting to this one or what exactly happened? The Auditor General was clear that you didn't. You're suggesting that you do.
It would be helpful to know whether.... Obviously it didn't get done because you're not refuting it. The issue is, why wasn't it done if that was your intention, because you said you'd do it. And if you didn't do it, as the Auditor General said, then why didn't you?
And, sir, when I say “you”, I don't mean you personally, of course.
I believe the Auditor General selected eight tax-based expenditures and concluded that we evaluated four of them and didn't evaluate the other four.
I guess our position is that, in effect, we did evaluate seven of those measures and we provided information in relation to those measures in terms of how we did it. I think where we differ is whether or not there is a single document that evaluates that as opposed to whether we looked at all of the components over a period of time that would go into an evaluation.
I believe the measures that the report indicated that we didn't evaluate included the mineral exploration tax credit for flow-through shares. We provided documents, and again I stress—not a single document or evaluation, but documents that went to an evaluation, including an evaluation we published on flow-through shares, which explicitly accounted for the mineral exploration tax credit. The two measures are very closely related in that the mineral exploration tax credit builds on the flow-through share regime. That evaluation dealt with that.
:
I'm going to run out of time.
You know what it's like at this committee, the taskmaster over here has a big gavel.
I hate to cut you or anybody off, but the bottom line is that it is time-limited around here.
I get all that. I appreciate that, sir. You're saying it's in other places.
The other point that the Auditor General makes is about reporting to Parliament. At the end of the day, you folks in the department work extremely hard to try to figure these things out that are requested of you. We have to approve them or not. We don't know what we've approved because we don't really understand the long-term implications necessarily, because there's no reporting back to us in any official way in a report. The Auditor General in his report is saying that there is no tabled report that talks about tax expenditures going forward.
I know you agreed with that. Why wouldn't we have done it in the past?
I just want to thank all of our witnesses here today for the work you do through your quite different roles.
I'd like to go back to where Mr. Falk left off, Mr. Chair, specifically where he talked about the international community and how we rank. Sometimes comparative analysis is helpful in pointing out the bigger picture, although I do understand Mr. Marsland's point that while some countries may have specific measures in place, maybe they have a much different comprehensive system compared to ours.
The Inter-American Center of Tax Administrations described Canada's tax expenditure reports as containing “the greatest possible amount of information”. Given the information Canada already provides, Mr. Marsland, would you say that we have an appropriate proactive process in place to analyze new tax expenditures and to monitor the existing ones?
:
I believe that takes a number of different strands. In terms of the tax expenditures report, every year we re-cost every single expenditure. That allows us to see if there are divergences from what we would expect, and then we look at those. So that's a monitoring approach.
We also continually look at proposals that come from various quarters to change tax expenditures. So when we look at an adjustment to a tax expenditure, we effectively treat it as a new proposal. We take that opportunity to apply the analytical framework the Auditor General referred to to the whole measure, with the benefit of some data in that case.
We also select particular tax expenditures for an in-depth evaluation. This year we published an evaluation of the charitable donations tax credit. We selected that measure because there's a widespread interest in it throughout the voluntary sector; it's an expensive tax measure if you calculate it in tax expenditure terms; and it's one that we believe is particularly important. So we did an evaluation of that and published it.
I'd say there's a wide range of approaches. I think the Auditor General's observation that there's a requirement to be systematic, we take to heart. We are going to look at ensuring that across all of those approaches, we're covering all of the bases, and that to the extent there are gaps, we will make sure they are filled.
I thank the witnesses for having come here to meet with us.
Mr. Marsland, on page 1 of the report you say something very important about tax exemptions, reports, deductions and credits. The purpose of all of these tax expenditures is quite well-defined in the report entitledTax Expenditures and Evaluations 2013 and what it says on flow-through shares.
I read and analyzed that document. I would like to draw your attention to page 51, where it says that the $1.4 billion yearly amount generated by these activities particularly benefits the high-income people who invest in flow-through shares.
Regarding that measure overall, not only do you not say whether this $1.4 billion amount could be financed in some other way than through flow-through shares—your report does not talk about that—but you say that the rich are the ones who mostly benefit from that tax deduction, which poses a problem.
I have a question on this. Tax measures have as their objective the reduction, so to speak, of wealth inequality. With these measures, the opposite is being achieved. And that is in fact noted on page 1 of the document provided by the Parliamentary Budget Officer who says this: “Over time, as inequality has increased, and as various tax and transfers have been added or removed, their impact on inequality has also changed.”
We have noted that since 1980—with a peak in 1991 and another in 2000— financial iniquity has only increased and continues to grow. Why do you not intervene to improve that situation rather than making it worse through your decisions?
:
I would suggest that the objective of providing those measures will be to allow a better sense of how the tax expenditure will grow in importance over a few years.
I think you can do that in many tax expenditures by looking at the four years of historical data and the two years of projections, but I guess an additional two years would allow you a little more understanding of how they are growing.
Some tax expenditures would broadly follow growth in the economy or the growth in employment income, for example. That is relatively predictable, but I wouldn't say completely predictable. Others may have a higher degree of volatility, and in those cases we're more cautious about projecting out. We don't have a crystal ball and we can't tell with a degree of accuracy how the markets are going to perform over the next two years and what the business cycle will be.
I think in answer to your question, in some cases it would allow a better sense of the trend in the expenditure. In other cases, we would certainly want to provide a caveat about those additional two years to make sure that we don't mislead people.
My understanding is, yes, if you look at the “Tax Expenditures and Evaluations” report, you will see that it contains four years of actuals. For example, if you look at the 2014 report, the four years of actuals go up to 2012. The projections are for 2013 and 2014. What they really represent is the fact that the final numbers are not known for 2013 and 2014 at the point in time that the 2014 report is prepared. They are not providing projections into the future, which would be what you would see, for example, in a report on plans and priorities of a department—what that department is expecting to spend a couple of years into the future.
In this conversation about projections and providing projections, I think we've got two different definitions of “projections” happening. What we're talking about essentially is the same type of information. In spending programs there's lots of lack of precision in those estimates going forward as well, but in spending programs it's possible to provide those projections beyond the year in question. So we're saying that because a number of these programs are similar to spending programs, that type of projection information would be useful for the reader to understand what the costs of these tax expenditures are going to be into the future.
:
I'm not aware of the specific risks referred to in the report.
But I guess what I would say as a general statement before I come back to the specific is that I don't think there is any case where there aren't risks, in my experience, when looking at a tax measure. There are always risks, whether they be compliance risks or risks that the reality will be different than our anticipation of the reaction of taxpayers. There are always risks. I guess our role is to identify those risks, analyze them, and mitigate them or provide ways of mitigating them.
We did monitor the first-time home buyers' credit. The government reported out on that in its reports on the economic action plan, and we continue to monitor that in the context of developments in the housing market, but we did not do a single evaluation on that measure.
:
Mr. Ferguson, at the tail end of paragraph 3.60, which is on page 15 of the English text, you talk about the first-time home buyers' tax credit and also the textbook tax credit, which was one of the ones you flagged. The department said at the outset that there were potential risks. Your report says, “The Department does not have complete information to determine if these tax measures are relevant and performing as intended.”
From your perspective, is that a weakness in how this system operated? Is this a systemic thing? Is it an issue of how they monitor but don't really evaluate? It's like counting things: this month so many went past, and last month so many went past, but we didn't bother to evaluate what went past. It just went past. It's just a number. I find that really quite striking, to be truthful. I know that it's taxes and we count taxes, but this is actually not counting money. It's actually money that we're not getting because we're letting it go somewhere else.
It just strikes me, sir, that at the tail end of that program.... This brings me to exhibit 3.3 on page 12 of the English text. I believe you touched on it. It talks about “Direct program spending” and “Tax-based expenditures”. It actually says under “Evaluation” that with “Direct program spending”, it is required, and with “Tax-based expenditures”, it's not required. Under “Subject to expenditure reviews”, direct programming has a “Yes” and tax-based expenditures has a “No”.
Does that seem appropriate to you? Do you think we should actually evaluate it? Should we have a policy that says “thou shall evaluate” rather than a policy that presently says you don't have to if you don't want to, or that says you may but you don't have to?
Again, we have obviously our tax code here, and we have other jurisdictions. Specifically, I'd just like to ask about the part in the spring Auditor General report where it states that in some international jurisdictions, they have adopted reporting practices where they provide short descriptions of a tax measure, a discussion of its purpose or objective, the future cost of each tax expenditure, and the number of beneficiaries.
The Auditor General listed Australia, France, and Pennsylvania as examples. Do they all provide such information or is it just a little bit? Can you tell us about a few areas where Australia, France, and Pennsylvania may also be falling behind our approach?
:
It rather goes to the issue of what's a tax expenditure. As I mentioned earlier, we define a tax expenditure as any deviation from a benchmarked tax system. We define our benchmarked tax system as broadly as possible, so we report on as many tax expenditures as possible really.
In that context, we capture a whole range of different measures that serve different purposes in the tax system. Some, as the Auditor General observed, are closer to substitutes for direct spending, but many are not. They go to the accurate measurement of income. They go to simplicity. For example, we report as a tax expenditure the taxation of capital gains on realization as opposed to accrual. We do that for practical purposes. It would be extraordinarily complex to tax capital gains as they accrue before the property is sold.
I say that to point out that there is not a homogenous nature to a tax expenditure. There's a vast range of measures, and in looking at them in terms of how you evaluate them, you need to take into account and look at the risks associated with them, the expenditures, whether or not they're really an integral part of the tax system and whether the risks are perhaps not as high. You need to understand the cost of them and how they're performing but to look at them in slightly different lights.
I hope the witnesses are not too surprised by my questions. In any case, I think that they will be able to answer them quite easily.
In point 3.58, it says that the issue also represents a global vision. There is a paradox here; we saw what Professor Léo-Paul Lauzon said. I hope you are familiar with his research work on this. He says that gradually, we are seeing the richest 5% of the population not have to pay any income tax whatsoever. A large proportion of these highest-income people manage from one year to the next not to pay any income tax, or to pay very little.
The question we must ask ourselves is the following: Is what you are doing to the Canadian tax system, overall, not going to result in a situation where our grandchildren are going to have to pay for the tax credits we have at this time? The problem is serious, and we note that tax expenditures increase constantly. These tax expenditures systematically favour the richest group of the Canadian population. We don't want our grandchildren to have to pay our bills. As point 3.58 indicates, there is a some kind of flaw in the overall analysis.
Please do not all answer at the same time.
:
Mr. Chair, you understand the problem we have.
If the witnesses cannot answer these questions, how can we correct a situation we feel is unacceptable, through legislation?
Still on this topic, I will refer to Mr. Marsland's opening statement. He stated that in 2014, there were 364 pages of legal, tax and financial legislation. For the majority of Canadians, the Income Tax Act is a madly complex legal document. I'm referring to the report of the Ordre des comptables professionnels agréés du Québec, the Quebec CPA Order. Their report stated that the Income Tax Act had become an Aladdin's cave in which people get lost. Here again, the officials from the department are worsening the problem. They are increasing the size of the Income Tax Act rather than simplifying it.
Here is the best example I can give. All we have to do is look at page 17 of the document on tax expenditures and evaluations published in 2013, regarding the tax credits for disabled persons. Still today, many members have to inform disabled persons regarding the definition of a disabled person and the rights they have. It is all well and good to have a law—and I echo Mr. Albas' statements on this—but it has to be accessible to the vast majority of Canadians. Canadians have to know that this is accessible and they have to know how to access these credits. Once again, in all of these documents that were submitted and in all of the report, there is a problem. The whole issue is the accessibility of tax deductions or credits in this maze of tax legislation.
:
I'm happy to respond to that one, Mr. Albas.
To recap some of the material that I think has already been covered today, in order to respond very directly to the comments in the Auditor General's report, we will be adding those two additional years of cost projections. What that will do is give those two forward-looking years that move beyond the backward and the present, and we'll be able to have some forward projections for a couple of years, subject to any caveats that are necessary about the robustness of those estimates.
We'll also undertake to provide additional information on government spending programs so that we can add that into the companion document, the somewhat more in-depth explanatory document that accompanies the tax expenditures. Also, we'll try to provide links to relevant programs, so that when individuals do go to look at the tax expenditures they'll be able to undertake a comprehensive approach. For example, if you look at information about the scientific research and experimental development tax credit, there could also be information then directing you to certain programs that are offered by Industry Canada that also target research and development. That would be an obvious one to add there.
We've also certainly committed to the ongoing monitoring of tax expenditures and to undertake that in a more formalized systematic process. That will help to inform the breadth and depth of our analysis. Where possible gaps are identified, we'll be able to move to address those gaps more quickly by undertaking relevant evaluation reports.
Finally, I would note that we certainly are committed to continuing to publish pertinent information. In recent years, we've been able to publish at least two evaluations per year over the recent past, and we would certainly like to be able to continue to do that going forward, providing that kind of robust analysis and quality information and making that available to the public and parliamentarians.
:
I'll attempt to do that.
I believe the question related in a general sense to the complexity and growing complexity of the tax system, specifically the disability tax credit as an example of that.
In terms of the complexity of the tax system, I can't sit here and tell you that it's not a complex tax system. Any tax system is complex in that it's the application of somewhat complicated rules to extremely complicated economic and social activities. To some extent there's an inevitability about the complexity. But in looking at a specific tax measure or the tax system as a whole, there's a balancing of a number of considerations—for example, its relevance in addressing a policy objective, its effectiveness in doing so, its economic efficiency, its equity considerations in terms of vertical equity and horizontal equity, and its simplicity in terms of its simplicity for our colleagues at CRA to administer. More importantly, there's the compliance burden it places on individuals. Any tax policy consideration requires a balancing of those considerations. Simplicity is an important one.
In the context of a measure such as the disability tax credit, this is a generous measure in the context of the tax system. It's focused on people who are suffering severe mental or physical impairment. It's important that it be appropriately targeted, because if it weren't, it would be extraordinarily expensive. It needs to be targeted to the appropriate group of people who unfortunately suffer from those impairments. There have to be rules. That's inevitable. I think our colleagues at CRA make great efforts to try to explain those rules, not in legislative language but in language that's accessible to people.
I guess the point I'm making is that this complexity is to some extent inevitable, but the search for simplicity should continue.
I hope that's helpful, Monsieur Giguère.
:
That's very good. Thank you very much.
Thanks to the committee.
I have one quick question, not so much on this but relative to the whole issue of tax expenditures. The Economist just did a major front-page story on tax-free debt, making the case that the ability to deduct interest payments on debt is a little-known problem and a ticking time bomb within the world economy.
By the way, no one has to answer this. I'm just asking for any feedback if it's there.
They make the case that it's so damaging. It's why Britain has moved from the American style system, where you are allowed to deduct your mortgage payment interest, to the Canadian style, where you're not.
They make the case on the corporate side that it would be worthwhile. Does anyone here agree with this or have any thoughts on it? The Economist was making the argument that switching away from allowing debt to be deducted, interest to be deducted, and even changing the tax rate to make it revenue-neutral, would be an improvement in the way we run our national economies.
I wonder if anybody has any thoughts on whether this is an issue, because it is a tax expenditure. Any time there's a tax deduction, we're talking about the same as if we were spending money.
Has anything been said about this in the Canadian context or, quite frankly, has nobody talked about it? Did anybody even see the article? I'm throwing it out there to see if there's any take-up.