POLITICS

Trudeau Dishing 'A Lot Of Baloney' With Claim On Tax Cheats

"They're prone to exaggerating a bit."

11/16/2017 09:57 EST | Updated 11/16/2017 10:02 EST
Chris Wattie / Reuters
Prime Minister Justin Trudeau speaks during question period in the House of Commons on Oct. 31, 2017.

OTTAWA — "Our investments have already yielded results. We are on track to recuperate $25 billion from our efforts against tax avoidance and tax evasion." — Prime Minister Justin Trudeau.

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There are two certainties in life, and one of them the government doesn't want you cheating on.

The depth of Canada's tax evasion and avoidance problem erupted in overwhelming detail last week with the release of a trove of documents about offshore accounts and trusts, dubbed the Paradise Papers, that delivered a broadside to the prime minister's oft-repeated mantra of creating a fairer tax system for the middle class and its hard-working aspirants.

Trudeau responded with a haymaker of his own: The government had identified and was on track to collect $25 billion in unpaid taxes over the last two years. His intended message was clear: Canada won't turn a blind eye to those who cheat on — or otherwise go to extreme lengths to avoid paying — their taxes.

But did the government cheat on its numbers?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).

CP

This one earns a rating of "a lot of baloney." Here's why.

THE FACTS

The prime minister made two statements on Nov. 6, the first day that the fallout from the Paradise Papers hit the House of Commons. During question period, Trudeau first said the government had "identified $25 billion in unreported income." A few minutes later, he said the government was "on track to recuperate $25 billion from our efforts against tax avoidance and tax evasion."

In the 2016-17 fiscal year, which ended March 31, the agency targeted $8 billion in forgone taxes from large businesses, including about $1.8 billion flagged as stemming from tax avoidance or evasion. There was also $2.6 billion identified as unpaid GST and HST, and a further $1.6 billion in possible unpaid taxes from small businesses.

The combined value was $12.2 billion. The agency's annual report from the previous fiscal year noted virtually identical figures in each category, and a similar total: $12.2 billion, for a two-year total of $24.4 billion — nearly all of the $25 billion cited by Trudeau.

The figure represents the extra revenue the government should have collected, said Ted Gallivan, assistant commissioner of international, large businesses, and criminal investigations branch. It usually crosses multiple tax years and can be calculated upon existing taxpayer balances, he said.

For really high-value balances, the CRA may make accommodations to collect the balance over time so a business doesn't go bankrupt, meaning the debt lasts for a while, Gallivan added.

The figures for the last two fiscal years are not out of line with the preceding two-year period. Agency reports show auditors identified $20.5 billion in unreported tax between April 2013 and March 2015.

In their 2016 budget, the Liberals gave the Canada Revenue Agency $444.4 million over five years to go after tax cheats, expecting it to result in the collection of $2.6 billion in previously unpaid taxes. This year's budget added $523.9 million over five years, aimed at recouping $2.5 billion in revenues.

The net result: the government expected to come out of all that spending $4.13 billion ahead.

THE EXPERTS

When the government cites the $25-billion figure, they're referring to how much auditors have identified as problematic — not how much officials will collect in the end, said Dennis Howlett, CEO of the advocacy group Canadians for Tax Fairness.

It includes years of unpaid taxes that were only recently identified. What's more, the final figure can change, since the government can settle out of court and discount any penalties without making the details public.

Hussein Warsame, an accounting professor and the CPA Fellow in Taxation at the University of Calgary, said the government will likely collect about half of what it expects, or even less once the cost of employee time, legal fees and other expenses are factored in.

"That $25 billion is not what the government is going to get," Warsame said.

Well over 90 per cent of the approximately 80,000 appeals of Canada Revenue Agency audits filed each year are settled before they ever go to court, said Geoffrey Loomer, a tax law professor from Dalhousie University in Halifax.

Most of the $25 billion in question would likely be wrapped up in those appeals, he said. Of that amount, overseas tax evaders are a small percentage; most are people like restaurant owners who neglect to collect GST, or contractors who fudge their income on their tax returns, Loomer said

THE VERDICT

The government is no doubt recouping some of its losses from tax cheats and avoiders who hide their money offshore. But are they going to collect all $25 billion? Unlikely, say experts.

"There is definitely some truth to what they're claiming, but they're prone to exaggerating a bit and they are fuzzy about different terms," Howlett said.

That's why this statement receives a rating of "a lot of baloney" — the $25-billion number might be accurate, but the chances the government will recoup all of it are remote at best, contrary to Trudeau's claim the government is "on track" to recover all of it.

The prime minister was largely correct when he characterized the $25 billion as "unreported income," but he overreached moments later by declaring the government was planning to recover the same sum.

METHODOLOGY

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

CP

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

SOURCES

https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/departmental-performance-reports.html

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