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Crackdown on Tax Cheats at G8

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The G8 summit next week could not have come at a better time for Prime Minister Harper, giving him respite from the Senate circus and allowing him to generate photo ops with the Queen and the world's big shots. But challenges await him there too.

Canada's patronage pit, the Senate, is a tempest in a teapot but is a demoralizing example of sticky fingers and managerial ineptitude when it comes to our hard-earned tax dollars.

I think that all those who were overpaid should resign and should also repay with enormous penalties and interest. This is what, after all, taxpayers must do if they have kept more money from the tax department than they deserve to keep. This approach could provide the added benefit that, if they refused to resign, some could be pushed over the financial brink thus triggering automatic expulsion from the Senate.

But this isn't the worst of it. Quebec and Ontario have three-ring circuses underway: federally over the Senate; provincially, over enormous misspending and municipally about some mayors.

The numbers of tax dollars squandered at the provincial levels is dramatically worse than the Senate shenanigans, but both are basically about the reality that many people get into public life, legitimately or by appointment, then squander funds or treat tax dollars cavalierly.

There's also a fourth ring to this circus: This year's ringmaster of the G8, UK Prime Minister David Cameron, is pushing for global reforms to crack down on tax cheats everywhere and Canada's being accused of balking and being a laggard in terms of tax crackdown efforts.

The G8 will learn about a template devised by the Organization for Economic Co-Operation and Development to globalize tax collection. This will include measures such as transparency, sanctions and sharing agreements between governments.

An estimated $32 trillion is hidden offshore, or two American-sized economies, socked away in numbered or secret accounts in a variety of dirty money capitals. And Canada is being accused of reluctance when it comes to getting information from its banks then sharing it with other governments.

According to a story in The Post this week, tax watchdog groups claim that Canada is resisting Cameron's efforts to force governments to exchange tax information about known cheats. He also wants governments to collect information from financial institutions about foreign-sourced income and give that information to the foreign countries where the income was made so they know about it and can tax it.

Currently, Canadian laws are lax. Offshore assets must be reported but the CRA doesn't pursue leads as aggressively as do the Europeans or Americans. There has been some movement but Cameron wants more. Under pressure, Ottawa set up a "swat" team to pursue offshore evaders, now requires reporting of offshore transactions of more than $10,000, offers modest whistleblower rewards and just announced that resource companies must report all payments to foreign governments. Resistance is due to the fact that the Canadian banks are a powerful lobby here but Canadians who pay taxes deserve better management of tax collection.

This week, Montreal hosted the International Economic Forum of the Americas, launched 19 years ago by academic and former cabinet minister Gil Remillard in partnership with Paul Desmarais Jr. of Power Corporation of Canada. The issue of tax cheating and money laundering came up repeatedly because it has become a priority of the G8 and G20, said OECD Secretary-General Angel Gurria in an interview at the Forum. He was the Governor of the Bank of Mexico. "This has become the big issue of the year," he said.
The reason is that the economic recovery is fragile and the burden of debt or taxation in developed countries is enormous following the 2008 meltdown and massive bailouts of banks and sovereign nations. In addition, an army of offshore tax avoidance professionals is punching holes in the tax collection efforts globally.
Tax leakage aside, the International Forum contained some good news. The U.S. will continue to grow at a respectable 2%: Europe will remain weak but the Euro will survive and Japan's aggressive monetary policy is a gamble that will hopefully work for the sake of the global economy.

"We all have a stake that they [the Japanese] succeed because it's such a big engine of the economy and has been in the repair shop for so long," suggested Gurria.

President of the Federal Reserve Bank in St. Louis, James Bullard, was upbeat about U.S. recovery and growth rates, said the course would be stayed in terms of monetary policy tied to jobless rates.
The central bankers from Spain and Portugal reported that they have each turned budget and trade deficits into surpluses. The Eurozone partners are building an architecture that will be sustainable, according to experts.

The biggest shift was the global energy outlook, with the rise of shale gas and oil. This is shifting the geopolitical tectonic plates in a profound way.

"Imagine, Israel and the United States will be self sufficient, Iraq won't be the next Saudi Arabia," said Gurria. Shale gas and oil undermines the power and influence of OPEC members and Russia.
Another positive development was that some parts of Africa prosper. The head of the West African Bank of Development, a common market and monetary union, has GDP growth averaging 6.5%, a doubling since 2009.

But environmental concerns overhung the assemblage. Washington's energy guru at the U.S. Department of State, Carlos Pascual, said exiting from fossil fuels was a priority. "We are at an extraordinary point [in history]. Natural gas [from shale] gives us an opportunity to bridge quickly to renewables. Gas is not an end point. Renewables are."

This is worrisome for Canada's energy future and means that, whether at home or abroad, leaders of the rest of the G8 and G20 face disruptions, politically and economically. And to boot, Canada has homegrown problems to fix from scandals to energy and governance incompetence. Worse yet, the solutions are neither handy nor, in some instances, available.

This article originally appeared in the Financial Post