Recent developments with regards to overseas tax evasion, as well as the broader issue of the management of operations at the Canada Revenue Agency (CRA), have come at an opportune time. Prime Minister Stephen Harper's recent changes in the senior ranks of the public service have created an opening -- as yet unfilled -- at the top of CRA, representing a golden opportunity to revitalize the troubled Agency by appointing a Commissioner/Chief Executive Officer who can provide the leadership at CRA that Canadians both deserve and urgently require.
Every institution has them: "old hands" and "rising stars" -- individuals who through experience, dynamism or a combination of the two can serve as a powerful leader of -- and advocate for -- their organization. This is particularly necessary at CRA because for too long it has been overlooked. This is partly due to the nature of the organization itself. Because of the detailed personal and financial information it collects from Canadians every year, as well as the investigative and enforcement powers it wields, CRA, rightly, places a great premium on protecting its information, even from other branches of government. Also unique among federal government agencies, it is consistently profitable. Every year, it returns to government coffers vastly more than it spends. As a result, successive governments over the years have developed a "if it's not broken, don't fix it" attitude toward CRA.
However, recent cases of Canadians with secret bank accounts in overseas tax havens demonstrate a disconnect between what Canadians expect of their revenue agency and what CRA actually delivers.
The details of the Liechtenstein and Switzerland tax evasion scandals are well known: disgruntled former bank employees turning over lists of account holders to tax authorities. What may not be well known is CRA's failed response to these revelations. The idea that only a small proportion of the money owing on these accounts has actually been collected -- and no one has been charged in these affairs -- lead Canadians to question the ability and willingness of CRA to combat the efforts of a privileged few to avoid paying their fair share.
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The problem appears to be a combination of leadership and resources. Solving the resources issue is simple: past experience indicates that an injection of funding into investigation and enforcement can pay handsome dividends for the government. Internal CRA documents obtained through an Access to Information request revealed that an infusion of $30 million from the February 2005 Budget to counter Aggressive International Tax Planning (AITP), yielded a total fiscal impact in excess of $2.5 billion in just four years.
There is every reason to believe a similar result would be forthcoming from a similar investment now.
It is not simply a matter of collecting taxes on the money hidden overseas: the good work Australia has done on overseas tax evasion shows that an effective program of combating hidden tax havens results in a strong deterrent effect. Put simply, if these individuals know their efforts to hide money overseas will be unsuccessful -- and they will face prosecution -- they will not attempt it.
The issue of leadership is more complex, but no less vital. It is for that reason that I wrote Prime Minister Harper, urging him to fill the position of Commissioner of the CRA "with an experienced public servant with outstanding leadership skills who will use their expertise to clean up the obvious problems at CRA and ensure that our tax laws are fully enforced."
Whoever is appointed will face three challenges. The first is the obvious one: the efficient running of one of the most important organizations in the Federal Government -- the one that provides the money necessary to run all the others. As a result, the effective management of this Agency is a must.
An October 2010, report from the CRA's Corporate Audit and Evaluation Branch acknowledged problems in this area. It noted that potentially serious cases of tax evasion are rejected by Agency enforcement groups because of limited resources or other workload pressures. The report went on to say that offices are choosing smaller cases of a lower dollar value that do not necessarily represent the greatest risk. In other words, CRA officials are taking the easy way out, rejecting risky cases of large scale tax evasion in favour of more certain, smaller victories. Accounts of investigations being dropped due to a lack of resources lead one to question the priorities of an organization which appears relentless in its pursuit of domestic tax evasion, but demonstrates less zeal toward fighting its overseas counterpart. I am hopeful that the proper leadership would change that.
The second aspect of the job is the relationship CRA has with the rest of the Government. The Agency will not receive the additional resources it requires without making a strong case for them. The right leader could make that case and effectively "sell" the government on the value and importance of a well-resourced and efficiently run CRA. In this time of restraint and cutbacks, this would be no easy task, but the times demand that such an effort be made.
The third issue is one that can be easily overlooked: the relationship between the CRA and Canadians. As I have said before, tax justice must be seen to be done. The revelations about Liechtenstein and Switzerland -- as well as the cone of silence that seems to envelop much of what CRA does -- do not engender the trust and confidence among Canadians that the CRA absolutely must have if it is to function properly. The idea that wealthy Canadians with money hidden overseas may be treated more leniently than Canadians who keep their money in domestic banks is problematic, and not just out of concern for basic fairness.
If people don't think the system is fair, they will be tempted to evade taxes for themselves. Greece is an extreme example, but one only has to look there to see what can happen when people come to regard funding government services as someone else's problem.
The position of Commissioner of the Canada Revenue Agency is one of those "under the radar" positions that most Canadians don't pay much attention to, but it is indeed absolutely vital to the running of government. The current vacancy in that office must be filled soon and it must be filled well. CRA needs -- and Canadians deserve -- someone at the head of that organization who can provide the leadership, advocacy and transparency that will transform it into an Agency that can earn and keep the trust of Canadians.