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PACP Committee Report

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The Honourable Kevin Sorenson
Chair
Standing Committee on Public Accounts
House of Commons
Ottawa, Ontario
K1A 0A6

Dear Mr. Sorenson:

The Government of Canada welcomes the opportunity to respond to the fifth Report of the Standing Committee on Public Accounts, Chapter 3, Tax-based Expenditures, of the Spring 2015 Report of the Auditor General of Canada, tabled in the House of Commons on May 12, 2016.

The Standing Committee on Public Accounts conducted a review in June 2015 of the performance audit of the Auditor General of Canada, which examined whether the Department of Finance Canada, with the support of the Canada Revenue Agency and consistent with their respective roles and responsibilities, properly manages tax-based expenditures, and reports useful information on tax‑based expenditures to support proper scrutiny by Parliament and Canadians.  The Standing Committee made the following recommendation:

            RECOMMENDATION:

That the Department of Finance Canada provides the Standing Committee on Public Accounts with a report outlining its progress in addressing the Office of the Auditor General of Canada’s recommendations contained in Report 3 of the Spring 2015 Reports.

The Government of Canada is pleased to confirm that it has fully implemented the action plan that was put in place to address the Auditor General of Canada’s recommendations.

First, the Auditor General recommended that the Department of Finance provide additional information on tax expenditures, including cross-references of tax expenditures to spending programs and projected cost estimates.  It also recommended that the annual Tax Expenditures and Evaluations report be tabled in Parliament. 

Consistent with the Government’s commitment to provide information on tax expenditures in a way that is transparent and widely accessible, the President of the Treasury Board, the Honourable Scott Brison, tabled the 2016 Report on Federal Tax Expenditures in the House of Commons, on February 23, 2016.  The Report presents the fiscal cost of federal tax expenditures, sets out the approach used in developing cost estimates and projections, and provides detailed information about tax expenditures.  The improvements made in the 2016 Report on Federal Tax Expenditures place Canada as an international leader in the field of tax expenditures reporting, and go much beyond the recommendations made by the Auditor General of Canada.  Among other improvements, the 2016 edition:

  • enhances accessibility of the existing information on tax expenditures by combining in a single report the information that was previously published in distinct documents;
  • improves the online presentation of the fiscal cost estimates to help individuals access and use the information, which can now be downloaded in a database format;
  • provides, for ease of reference, separate summary sheets that combine in one table all key information for each tax measure, including: a short description of the measure, the tax base that it affects, the beneficiaries, the legal reference, the date of implementation and recent history, its objective, a cross-reference to other government programs, a reference to the Canadian Classification of Functions of Government 2014 code (which is the classification used by Statistics Canada in reporting government finance, fiscal and public sector statistics), the tax expenditure estimate by tax base, the estimation and projection methods, the source of data, and number of beneficiaries; and
  • presents cost information for an eight-year period, compared to six years previously. 

The Report on Federal Tax Expenditures will be updated and published annually by the Department of Finance Canada.

The Auditor General of Canada also recommended that the Department of Finance Canada conduct systematic and ongoing prioritized evaluations of all tax‑based expenditures, similar to the requirements imposed on all departments and agencies for direct program spending.

In Budget 2016, the Government announced that in the coming year, it will undertake a review of the tax system to determine whether it works well for Canadians, with a view to eliminating poorly targeted and inefficient tax measures. In this context, a systematic process and a rigorous evaluation framework are being used to assess tax expenditures in 2016, with a view to ensure that federal tax expenditures are fair for Canadians, efficient and fiscally responsible. In addition, as per the action plan presented to the Standing Committee on Public Accounts, a process to formalize and document the ongoing monitoring of tax expenditures conducted by the Department was put in place in October 2015.

Finally, the Auditor General of Canada recommended that pertinent information from evaluations be published 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.

The Department of Finance publishes high-quality analyses and evaluations of tax expenditures on an annual basis. For instance, the 2016 edition of the Report on Federal Tax Expenditures includes an evaluation of the response of individuals to charitable donation tax incentives, as well as a report on the Working Income Tax Benefit.  Upcoming editions of the Report on Federal Tax Expenditures will continue to include high-quality analysis on tax expenditures.

I would like to thank the Committee for its consideration of this important matter.

Sincerely,

The Honourable William Francis Morneau, P.C., M.P.