Paradise Papers show Ottawa must crack down on offshore tax havens

TheStar.com – Opinion/Editorials – The leak of the so-called Paradise Papers promises to deepen the longstanding problems of distrust and cynicism that inhibit needed tax reform and corrode our democracy..
Nov. 6, 2017.   By

The so-called Paradise Papers, a leaked trove of more than 13 million documents from three offshore law firms and the registries of 19 tax havens, make stark the extraordinary costs of the international community’s failure to come to grips with the challenges of tax evasion and avoidance.

For the Trudeau government, in particular, the leaks are a political nightmare. The Paradise Papers make clear how inadequate the Liberals’ efforts on these issues have been. And, because some in the party’s inner circle, including its top fundraiser Stephen Bronfman, are implicated, the leak feeds into a dangerous narrative about why this government’s appetite for greater fairness may be suspect.

More profoundly, these revelations promise to deepen the longstanding problems of distrust and cynicism that inhibit needed tax reform and corrode our democracy.

A joint investigation by the Star and CBC News found that more than 3,000 Canadians are among those who made use of byzantine tax-avoidance schemes chronicled in the leaked documents. Most of these schemes are ethically dubious, some possibly illegal, and many might have been avoided had the government listened to the experts.

The Liberals came to power promising to help “the middle class and those who aspire to join it” by, among other things, closing such unfair and ineffective tax loopholes and cracking down on tax evasion, the astronomical costs of which fall largely on those the Liberals purport to be helping.

In its first budget, the Trudeau government earmarked $444 million for beefed-up tax enforcement – a welcome investment that will no doubt more than pay for itself. But since then it has largely ignored or dismissed critics’ calls for reform.

There’s no shortage of proposals for cracking down on avoidance and evasion through changes in domestic policy, enforcement practices and global leadership.

For instance, we still know very little about how much tax revenue is actually lost through tax evasion every year. Canada, unlike the United States, Britain and many other similar countries, does not estimate our overall tax gap – that is, the difference between what the Canada Revenue Agency is owed and what is collected. This makes it pretty much impossible to evaluate the government’s enforcement efforts, since we have no sense of the true scale of the problem. Despite a continued push by some, most notably Senator Percy Downe (a Liberal), the government has been slow to move.

Perhaps most important, the government should be pushing for an end to the current version of Tax Information Exchange Agreements (TIEA), treaties that enabled much of the tax avoidance detailed in the Paradise Papers.

Originally designed as a way to crack down on tax cheats, the treaties were transformed by the Harper government, at the urging of the business lobby, into a loophole that legalizes large-scale corporate tax avoidance and continues to allow for a significant level of secrecy.

Last year, another Star/CBC investigation found that, since the first TIEAs were signed in 2011, the deals have allowed corporations working in low- or no-tax zones like Bermuda, the Bahamas and Panama to avoid paying taxes on some $55 billion in profits. If earned in Ontario, that money would have yielded more than $14 billion in tax revenue – nearly enough to cover last year’s federal deficit.

Tax havens have predictably proliferated since this loophole was introduced; meanwhile, it’s not clear the deals have been used to prosecute even one tax cheat.

The Trudeau government’s failure to close this and other costly and unfair loopholes undermines its credibility as a self-declared crusader for tax fairness. One of the legitimate criticisms leveled against the largely sensible package of small-business tax reforms Finance Minister Bill Morneau tried so incompetently to push through this summer was that it seemed arbitrarily to target a particular subset of relatively wealthy people rather than the very wealthiest, such as Morneau, who benefit from a host of even more pointless and regressive loopholes.

The revelations contained in the Paradise Papers that key Liberal insiders and fundraisers have made extensive use of questionable tax avoidance measures simply add more fuel to the ongoing questions about Morneau’s personal finances and those of several of his cabinet colleagues.

These inevitably reinforce the impression that this government is out of touch with the concerns of ordinary Canadians – or worse, in league with those who would rig the game in their own self-interest. The Paradise Papers feed the impression that the odds are stacked, the rich play by a different set of rules and government is happy to keep it that way.

The Liberal government was not wrong to emphasize tax fairness and enforcement as key to mitigating inequality and the dangerously corrosive effects of distrust. Trudeau has often seemed attuned to these threats. The day after last November’s U.S. election, the prime minister said Donald Trump won in part because too many citizens were not sharing in the country’s prosperity and that this challenge is one Ottawa must also address.

That’s not possible without tax reform. A good place to start is to close the loopholes and collect what is owed. After this summer’s botched effort, the government may be understandably reluctant to give tax reform another shot. It was never going to be easy – and Morneau et al. have made it harder still. But the Paradise Papers make perfectly clear that, for fairness, for our economy and for our democracy, the government must act boldly despite the risks.

https://www.thestar.com/opinion/editorials/2017/11/06/paradise-papers-show-ottawa-must-crack-down-on-offshore-tax-havens-editorial.html

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