Wednesday, April 1, 2009

Auditor General and the $500 million collected from the underground economy.

Elizabeth May wrote:


See the AG report from yesterday. One of the areas identified as "unsatisfactory" in making progress, was the CRA Underground Economy Initiative. Sheila Fraser reports that CRA has collected far less than the $500 million reported. Strangely, she reports that CRA spends a disproportionate amount of time pursuing "low risk" tax payers and far less on those identified in their risk assessment programme as high risk for unreported large earnings.


You raise a very important issue that I would like to elaborate on.....the underground economy......and how the HST will serve to increase this problem.

There is a massive underground economy that was spurned by the GST, especially in the construction and home renovation area. Consumers were happy to pay cash to unscrupulous trades people and service providers, if it meant saving themselves 7%. Meanwhile the other side of this “trade” meant these revenues weren’t being declared as income and so no income taxes or GST taxes were being paid. When the GST was lowered to 5%, I am certain that this practice went on unabated, and no material dent in the underground economy occurred. However, now that McGuinty and Flaherty have harmonized PST with the GST, under the euphemistically termed HST, the incentive to cheat the voracious government has gone up by 260%, since the 5% GST tax that was being evaded before, has now ballooned into a 13% tax that many more will now seek to evade, resulting in an increasing percentage of income going unreported and untaxed

Aside: I wonder whether Brian Mulroney’s Montreal home renovations upon leaving office entailed the payment of GST, given they were all funded with payments of cash gleaned from sources like KHS?

All of this HST and the burgeoning underground economy that it is sure to spawn, from our idiot Minister of Finance who talks in terms of “Tax Fairness” and who will do anything in his power to enrich corporations at the expense of those saving for retirement or those seeking to get by on their modest after tax earnings.

Meanwhile as the Auditor General report indicates these corporations are not being pursued by the CRA with the same vigor, as are individuals. What Canada needs is what the US has, namely a whistle blower legislation that financially rewards individuals who inform the CRA of tax abuses and tax evasion by corporations. This would help deal with the problem in a material way and would not require any more “boots on the ground”. It would also compel the CRA to do its job properly as the whistle blower initiative would bring a measure of third party oversight, as the process would be monitored by the whistle blower with a vested financial interest in the outcome.

Meanwhile, Flaherty’s HST has turned Ontario from (apparently) being the “last place to invest” into “the last place to consume and to raise a family” with his new “tax on everything” Ontario is however, probably the best place to engage in the underground economy, given the massive tax burdens that are now being created via the HST, which can so easily be evaded by the tried and true methods that have evolved (Gary Goodyear?) since GST was first hoisted on Canadians by our (as irony would have it), tax evading Prime Minister, Brian Mulroney.



Dr Mike said...

It appears that the gov`t is willing to forgo the tougher tax grab to concentrate their efforts on us easy to fleece "regulars" who can be blindsided with tax policy at any time & are expected to pay when due.

The over a billion owed by GM in taxes can be kissed good-bye unless they decide to lend them our money to pay the bill---in that case we become the double fleeced.

There is just no justice.

Dr Mike.

Kephalos said...

The AG has been remiss in or prevented from reporting year-over-year comparitives.

In for tax year end 2005-03-31, she said "Other income tax revenues—largely withholding taxes levied on non-residents—were $1.0 billion, or 27.2 per cent, higher in 2005–06 than in the previous year, reflecting strong growth in dividend payments to non-residents recorded in the latter months of 2005."

I can you where that strong growth came from--income trust payments to US investors.

One problem is that the CRA database of tax revenues is under-powered and obsolete. If you were a competent manager, would you run a $200 billion budget on 1960s software?

Another aspect of the AG annual report are comments about Stats Canada information compared to budget expectations and results. What is Stats Canada's forecast of the value of the underground economy?

Here is a guesstimate. Say the underground is 20% of the aboveground. The reported GNP in 2005 was $1051 billion.

So the underground economy was $210 billion and the federal government share of that should have been $65 billion (about 30%).

Get the picture? In this depression, tax collection from the underground would wipe out the deficit.

And Steve Harper calls himself competent?