[Recorded by Electronic Apparatus]
Thursday, November 21, 1996
.0938 
[English]
The Vice-Chair (Ms Whelan): Today we have before us witnesses from Revenue Canada. Without further ado, I'll let Mr. Crandall begin.
Mr. William Crandall (Assistant Deputy Minister, Finance and Administration Branch, Revenue Canada): Thank you very much, Madam Chairman. With me is Allan Cocksedge, from our customs and trade; John Kowalski, from resource management; Mike Burpee from assessment and collections; and Jeannie Flemming from audit verification and compliance research.
I would like to say at the beginning that we are quite pleased to come to your committee today to talk about our new performance report. One of the first things we thought might be useful, if the committee agrees, is that we give you an overview of what this report is all about, how the pilot project works, what the general features are of this kind of report, and how it differs from what the government used to do. I propose that we take no more than about five minutes to do that.
Then if the committee would like us to, we are prepared in each of the three key program areas - that is, on our customs and trade side, our assessment and collection, and our verification enforcement - to give the committee a five-minute overview of the substance of our performance for 1995-96. It might form a good basis for the committee to ask questions. If you're happy with that, we'll proceed.
The Vice-Chair (Ms Whelan): Yes, that's fine.
Mr. Crandall: Do all members of the committee, Madam Chairman, have this little presentation that's attached to the letter we sent that refers to an overview of the 1995-96 performance report of Revenue Canada?
The Vice-Chair (Ms Whelan): They should. They're very busy. Some didn't get to their offices yet this morning.
Mr. Crandall: This is a little presentation that describes the new report you have in front of you that was tabled recently in the House. I'll ask John Kowalski to take us through the short presentation on this document now.
Mr. John Kowalski (Director General, Resource Management Directorate, Finance and Administration Branch, Revenue Canada): Thank you very much, Mr. Crandall.
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In terms of the overview, the table of contents outlines the four areas I'd like to cover this morning. The first is a summary of the general objectives of the improved reporting to Parliament project, just to set the context; then, why we prepared a separate performance report and how it is structured; and to conclude, a brief word on specifically what assistance and feedback we are asking from you this morning.
The improved reporting to Parliament project has two broad objectives. The first is to improve planning and performance information supplied to Parliament. By way of explanation, I would note that the current traditional part III of the estimates for a department is tabled in February and tries to deal with the plans for the next fiscal year, to provide a forecast for the current fiscal year, and also to report on results from prior years. However, the plans extend for only one year and are provided only one month before the start of that year. The forecast is provided with only one month left in the current year. The actuals are some eleven months after the fact. By ultimately providing separate planning and performance information, the pilot hopes to improve both the quality and the timeliness of this information as well as the relevance.
The second objective is to produce this information more efficiently and economically. Some elements of this involve electronic data exchange between departments and the Treasury Board Secretariat, as well as using the Internet to provide yet another option by which this information can be accessed by Canadians at large.
Revenue Canada was an early participant in this project. We are most interested in improving the information we provide to you and to Canadians at large, and we readily volunteered when this project started. We were one of six departments to revise their part III's last spring. Though all of the elements of a traditional part III were still there, there was more of a focus on plans and priorities on a multi-year basis. We are also now one of the sixteen departments to produce a separate performance report.
The purpose of the performance report is to provide information on results achieved in serving Canadians and on the costs of providing those services. Why a separate performance report? Well, it reinforces the results-based culture within Revenue Canada and increases the visibility of this information. It provides this information four to five months earlier than it would otherwise. It encourages further reporting of results. It improves accountability. And hopefully, information on past performance will be of assistance to you in assessing plans and priorities for upcoming years.
In terms of the structure, there are five sections to the report: section I, which outlines the minister's vision for the department; section II, which provides an overview of the department's roles and responsibilities, the clients we serve, our key program commitments, and a summary of voted appropriations; sections III and IV, which describe key results achieved, both in summary from a corporate perspective, as well as by individual business line or activity - and as Mr. Crandall mentioned, in a few moments we'll be prepared to provide some illustrative examples of these key achievements for selected activities; and section V, which provides additional detailed information on resources, on revenues and on certain program evaluation studies and internal audits that were carried out.
As noted, we are fully supportive of this project and we do want to improve the information we provide to you. The performance report before you is a first effort. It is not the final product. It is more of a work in progress. Your feedback and your input are essential to improving it. For example, how useful is this report as a separate document? Do we have a good balance in the information we've provided? Is there too much of some information and too little of other? In general, are we on the right track in providing the right information at the right time? As always, we welcome your questions, comments and suggestions.
Mr. Crandall: I would just add to that, Madam Chairman, that we participated at the outset with Treasury Board Secretariat. The other committees of the House have taken a look at this document and met with officials from their departments and tried to give them feedback. Anything we can do to improve it or to improve the information in it...we'll be incorporating those changes, as my colleague said, every time we put this together. This is the very first time we've done it, and perhaps you'll bear with us if there are a few things that aren't 100% smooth in round one.
One of the key areas of activity of Revenue Canada, the way we're organized now, is what we call our assessment and collection area. It deals with how we do all the assessments of income tax and GST and how we do the collection of accounts in those areas.
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Mr. Mike Burpee, assistant deputy minister of the Assessment and Collections Branch, is prepared right now to give you a bit of an overview and perhaps an explanation of how this book demonstrates some of the achievements in that key area of the department.
Mr. Michael Burpee (Assistant Deputy Minister, Assessment and Collections Branch, Revenue Canada): Good morning. I'm going to cover two parts of our business lines. One is part A in section IV, which deals with the assistance to clients and assessment of returns. The second part will be revenue collection. I want to give you a few highlights in these areas.
Assistance to clients and assessment of returns is one of the key areas in Revenue Canada in supporting the whole program of voluntary compliance. Because our tax system is so much based on self-assessment, it works only if we have a high degree of voluntary compliance. Most of our functions in the assistance to clients and assessment of returns area is aimed at achieving and supporting voluntary compliance. Probably the most noticeable area to everyone is the filing season we have each year for personal income tax returns.
As you'll note in the table in figure 1-2 on page 23, this year there were more than 21 million individual tax filings. What is important is the fact that we are now at a point where 22% of those tax filers are filing their returns electronically, through the e-file program. That's double the participation rate of 1993. This is particularly significant because, first of all, it means we save FTEs. Initially, for every million e-file returns that were sent in we saved somewhere around 62 FTEs in manual processing. It also means we have more accurate returns, too.
That leads to a second point. People who participate in the e-file program, particularly those who are filing for refunds and make use of direct deposit, can get their refund within nine days after we have received electronic transmission. This is a significant improvement over the last five years.
Our processing time, not just on e-filing but also on paper returns, has significantly improved as well over the last three years. Although e-file is obviously the quickest way to file - we can process e-filed returns in 11 days now, as we indicate here - we have since 1993 been able to reduce the time to process paper returns from 33 days to 19. We've basically done that because we have re-engineered the processing system for the T1 program by automating particularly the front end of the processing. Over the five-year period we have probably saved somewhere in the area of close to 1,000 full-time equivalents, which we have been able to reallocate to other functions, such as verification enforcement.
What is also important about it is that in automating the program we have built into it verification activities, or what we call our ``post-assessment'' programs, to make sure compliance doesn't suffer.
If you look at figures 1-3 and 1-4 on page 23 you'll see very positive results in our processing review, where we review either the high-risk returns the system has identified or random-sampled returns. As well, the result of our matching program is that we're now able through automation to compare information we get from employers - for example, with tax returns - and to do matching between tax returns from members of a family, particularly spousal matching.
So we feel we have introduced a number of programs that have had a very positive impact in proving that we are maintaining compliance and that the vast majority of Canadian taxpayers do comply with the legislation.
A second element of our programs in this business line is assistance to clients, particularly providing information. Most of the comments with regard to this are in section III of the report. I want to highlight a couple of things.
First of all, just as in all of our other programs, certainly we are in a period of resource restraint. We need to make sure that when we carry out these programs we do them as efficiently as possible without impacting on the quality of the material we're providing the taxpayers.
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You'll notice on page 13 that for the 1996 filing season we were able to make a number of changes to the tax returns, which enabled the government to save $2 million on printing charges, but more importantly, to save 335 million pages of returns.
The changes include replacing the tax tables on the T1 General and developing a generic tax return instead of a specific one for each province. We didn't introduce these without first of all doing focus group testings with taxpayers to make sure this was acceptable, and we've had very positive responses to these changes.
The second thing I want to point out is we've also had a very successful community volunteer program. This year the department celebrated the 25th anniversary of its program of recruiting volunteers in the community to help low-income seniors and new Canadians in completing tax returns. We set a goal this year to increase the number of volunteers by 25%, and we exceeded that; we had over a 26% increase in volunteers. In fact since 1987 we've gone from 7,000 volunteers to almost 15,000, and last year they assisted almost 240,000 taxpayers in completing their returns. These are people who have trouble doing them themselves and can't afford to go to tax preparers.
One issue, though, that we know is a concern to you and is very much a concern to us, is accessibility, particularly to our offices for phone information. As we indicate in the material, last year we handled over 15 million telephone inquiries. Most of them are handled by officers. There are peak periods, particularly on the GSTC and the child tax benefit side around the issuance of cheques, when we get literally hundreds of thousands of calls.
As an example, in July 1995, around the issuance of the CTB cheque for that month, we had2 million phone calls in four days. If we'd wanted to handle each one of those calls, it would have required probably around 4,000 staff for a short period of time, which is just not possible.
What we have realized in looking at how the private sector and other agencies handle these calls and these large volumes is we need to work smarter and re-engineer the way we're handling these calls. We're doing a couple of things.
One, we're reducing the need for people to call. On our refund programs, such as the GSTC, we are really promoting the use of direct deposit, because about half the calls we get on those programs are from people asking, ``Where's my cheque?'' And quite often it's not just one call. We may get three calls in a day, and with the redial feature on the phone, it makes it even easier for them.
We've been very successful on the CTB side. We now have 56% of our payments by direct deposit. We've tripled the participation on the GSTC side from 10% to over 27%. We think that will have a significant impact.
We're also putting a lot of our publications on Internet now, which will meet the needs of another area of our constituency.
But our main response is to move to using automated response systems that provide standard messaging for the basic questions that are asked on a day-to-day basis. We've done some of this in the income tax area with the TIPS program, but we are now doing this in the GSTC area with calls asking, ``Where's my cheque?''
As you'll notice in section III of the report, we implemented this in Montreal and Toronto in April, and we were able to handle 100% of the calls that came in asking, ``Where is my cheque?'' We have a system in place that is able to handle 200 calls a minute automatically.
We have now expanded that to 12 sites, and by the first of the year we will have this in all of our sites for GSTC. Then we'll be introducing it for child tax benefit. That is going to start to improve the accessibility to our offices for people who really need to get in touch, particularly to deal with officers, because it allows us to free them up to deal with more complex issues.
We also, though, have to take a much more serious look at how we handle the calls around income tax time, particularly in Toronto, Montreal and Vancouver, where we handle 40% of our calls and have our most challenging time in accessibility.
In that case we are actively working now to develop a call centre type of approach in each of these areas to be able to more efficiently handle calls. It will use automatic messaging on standard questions, but it will also allow taxpayers then to refer to an officer if they require more information. We will be putting that up later next year.
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The bottom line is in resource restraint. We can't just simply add officers to our phone system to deal with the issues. We have to find ways of working smarter, and we're working with the private sector in doing that.
The second business line I want to very briefly touch on is the area of revenue collections. That is in part B in section IV, which starts on page 33.
I just want to remind members of the committee again that the vast majority of Canadian taxpayers pay their taxes on time, either at the time they file their return or when they receive a notice of assessment.
What we have reflected in the tables in part D are the amounts of tax that are owed to us by persons who have not paid. These are not new sources of revenue; this is money that's already been taken into account. They do not represent lost revenues either, because we again collect the vast majority of these receivables with interest.
As you'll see at figure 4.5 we write off less than 1% of our gross revenues as bad debts each year. So we collect the vast majority of the receivables. Usually the write-offs are either because of bankruptcies or insolvencies.
Two years ago we appeared before the public accounts committee. We were dealing with the Auditor General's report on collections of the income tax receivables. We indicated at that time that we thought an ideal target to work towards was an income tax receivable that represented 4% of the gross revenues. At that point we were at a 4.6% level.
If you look at figure 4.2, over the last two years we have been able to move down to income tax outstanding accounts at 4.2% of revenues. The commitment we made to the public accounts committee was by March 31, 1997...in other words, about four and a half or five and a half months from now we would achieve our goal of 4%.
As of this moment we are very optimistic we're going to do that. This is partly because we have been able to integrate our collections function so that we have one collector collecting all of the taxes. We really started to implement that last year, as we had some down time while we were co-locating and training, but we're really seeing the results this year.
We now want to take this philosophy to the other areas of accounts receivable...and this goal of customs levies, excise and GST taxes.
You'll see the receivables have gone up somewhat over the last two years. A good part of that is because we have put significant resources into what we call the failure to file program for the goods and services tax, in which in each of the last two years we have invested $5 million a year to pursue people who have failed to file for GST. It's been a very successful program. Part of the measure of its success is that it has created additional receivables that we have to pursue. In many cases taxpayers aren't capable of retiring the full amount at once.
There's one last thing I want to say on the collections side, and we referred to it on page 8 in the opening part of this. We are doing a significant re-engineering of the way we do collections, partly because of the observations from the Auditor General, partly because of what we have learned from how the private sector operates.
I'm sure many of you are aware that we have announced that this coming June we will be opening a national collections call site, which will allow us to replace the second and third notices in our collections program by much earlier phone contact with delinquent taxpayers. We know this will not only improve the cashflow, but it will also allow us to earlier settle collection accounts and save probably at least a couple of hundred FTEs by being able to resolve accounts through much cheaper phone contact than in the district office.
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Mr. Crandall: Madam Chairman, as you know very well from your tenure as our parliamentary secretary for a couple of years, our activities cover a very broad range. We're very proud of our achievements and we're quite happy to discuss them at length on any occasion.
I don't want to take up the time where you feel you might rather have your committee members posing questions to us. I'll leave it up to you.
We're prepared to give you a short overview of the verification and enforcement area in the income tax/GST area, which includes all our efforts on the underground economy. We're also prepared to give you a short overview of our performance results from last year in our whole customs border service trade administration area.
The Vice-Chair (Ms Whelan): I know there are members of the committee who would like to ask questions. Perhaps we could turn to questions now and anything that doesn't get covered in questions we could come back to at the end, if that would be okay. There are time constraints on some of the members here today.
With that, I'll ask Mr. Duhamel to ask his questions now.
Mr. Duhamel (St. Boniface): Thank you, Madam Chair. I'd like to thank my colleagues for giving me the opportunity to go first.
I am the chair of this interparliamentary committee that includes both senators and members of Parliament. I became the chair while I was the parliamentary secretary to Treasury Board, and then I was asked to continue the project, so I have some special interest in it.
Rather than look at details, I would like to get a sense of how difficult it's been to make the required adjustments to this report.
I'm a former deputy minister, and I know, as such, that you don't make these kinds of changes without undergoing difficulties, meeting certain challenges. You just get a sense of that, because it's easy for politicians to ask to make changes - and they don't have to make them; you do.
The other question, of course, is of great interest to me. This is intended to improve planning and performance information. I see the evidence of the performance information, and I'm buoyed by that. I wonder whether or not someone might address how useful it's been in terms of future planning.
I'd like to know if it's better not only in terms of planning, of reporting performance... You've made some reference to requiring fewer human resources, less paper; it's done more quickly, we get it sooner. Is there a tangible, measurable, quantitative saving there?
Finally, I remember my days as a provincial senior civil servant. I was always a little cautious about undertaking these changes, because if you made a mistake, chances are you would be creating a lot of work for yourself. Are you, in a sense, exposing yourselves to potential additional criticism by virtue of the nature of this report?
Mr. Crandall: I'm not sure, Madam Chairman, if it's possible to expose ourselves to more criticism than we've already had.
Perhaps I'll deal with your questions in order, Mr. Duhamel.
How difficult has it been to make the adjustments? From the point of view of senior management in the department, it's been pretty easy to make the adjustments. A process like this and a change like this don't all of a sudden introduce improved planning into the department.
The way Treasury Board has approached all these documents and processes with Parliament in the revised expenditure management system has brought everything together. So we've said we'll now tailor all our departmental tools to fit into this expenditure management system as well.
For instance, our minister found it extremely useful to go through the performance report with us and to focus on the objectives and on all the achievements we made in 1995-96. We talked about the ones she wanted to introduce for the current and coming years, using that as a baseline.
From that perspective, it has worked pretty well. I would ask Mr. Kowalski to comment. It was he and his group who had to put it all together on an accelerated timeline.
Do you have any comments you want to make on that?
Mr. Kowalski: In terms of preparing the traditional part III documents, we were going after a lot of information at the same time. We were trying to deal with the current year forecast, with prior year results, with future plans. We were trying to put all of that together in one quite massive document. All departments are involved in that.
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We're still in a bit of a transition phase, a learning phase. It's hard to say whether this year was typical or not. Certainly there is a little more work required at this point in the year to prepare the performance report. Hopefully that will be offset later on when we deal with the spring plan itself.
I understand there are also some indications that there will perhaps be a closer relationship between the spring plan process and the business plans that we prepare for the Treasury Board Secretariat. We might be able to merge some of those processes and hopefully make some economies that way.
We always looked at our results information for prior years as it was anyway. Perhaps we're doing it a little earlier than we would have otherwise. Perhaps we're doing it with more intensity, with more rigour, but it's not a new process per se. A lot of the program areas would have looked at their last year's results to come up with their plans for this year and future years as it was anyway. So perhaps it's a little early, but it looks good.
Mr. Crandall: In terms of your question about tangible improvements in savings...not directly from this process. This process that's been introduced simply helps us all focus on the same vehicles for describing these things and keeping the descriptions of things consistent. Of course it's valuable information for many others than just members of Parliament. Libraries and researchers and everybody else use the information.
In 1995-96 our share of the program review reductions of government was $80 million. That's $300 million over four years and $80 million in that particular year. Through some of the thingsMr. Burpee talked about or many of the other things we're doing in our customs and trade area or enforcement, we've saved that $80 million. We achieved all the reductions we had to make to live within the budget assigned to us for that fiscal year.
Mr. Duhamel: But if I may, there are two components here. If I understand you correctly, the actual production of this has not yielded any quantifiable savings to date. You have roughly the same number of people involved in the production of these documents, perhaps a little less or a little more paper - it doesn't really matter. There's nothing major there. Is it the additional focus on results - and of course the pressure of the program review - that's yielded the major savings? Have I understood that correctly or am I missing something there?
Mr. Crandall: For us, program review was maybe different than for other departments, in that the government decided to reduce Revenue Canada's budget but not to change any of its programs. So there was a bit of a top-down drive that said our budget must come down. That's a pretty effective stimulus to make sure your budget comes down.
We did implement many programs to achieve savings, and we did carry out these measures, and we are reporting on them in this process. I guess it's that translation. It's a whole bunch of little things. We saved $2 million on the production of the income tax booklets that all Canadians get each year in the early winter to do their income taxes. A cumulative effect of twenty or thirty measures like that enabled us to make the savings and drive for the results in those areas.
It's been hard to capture it all and make it all happen and reflect it all. I don't think we've had savings per se in the administration of this exercise yet, but we have had massive savings in our administration costs in Revenue Canada.
Mr. Duhamel: To close the discussion on this for myself, I'm assuming that the process, by virtue of the fact that obviously you'd been planning and obviously you'd been reporting performance results, but perhaps through a different set of lenses or a somewhat varied set of lenses... If I understand correctly, it's been trying, demanding, challenging, but it's probably been useful, and that usefulness may increase over time as you refine the instruments. That's one point I wanted to make.
The other thing I'm very much interested in - and I don't say this facetiously, as I believe you know - is that there's always a risk. The civil service is there to implement the program of the government. But when we do things differently, we have a measure. We know what the other is going to do to us or not going to do to us with some predictability. When we vary that approach, when we come forward with a new program, there's always a risk that we will be more vulnerable.
Has that been the case here or is it the contrary? The fact that you can pinpoint results with greater accuracy - albeit that it needs to be refined further - perhaps goes contrary to what I might have thought. Again, I'm not trying to put words in your mouth. If that's not correct, please tell me.
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Mr. Crandall: By centrally managing this process, we perhaps forced our senior managers to look at the 1995-96 results through this process a bit earlier than they otherwise would have. That meant that all of their focus came to bear before we put this document out, which would have been two or three months ago. The way we did it in the past, we wouldn't have taken such a close look at our immediate results on 1995-96 unless it was an urgent crisis or part of something else. I think the discipline of doing that was a good thing.
In terms of risk, I think there's some risk. At the risk of making that risk known, we think one of the numbers in here is wrong because we messed up the calculation.
Mr. Duhamel: Just let us find it. Don't tell us.
Thank you very much.
The Vice-Chair (Ms Whelan): Mr. Bélisle.
[Translation]
Mr. Bélisle (La Prairie): I have a few questions, the first a general one and two or three others that are a little more specific. In the conclusion to your document, ``Overview of the Performance Report'', you tell us that Revenue Canada is fully supportive of the Treasury Board Secretariat's initiative for improved reporting to Parliament. If I correctly understand what you are telling us, you are fully supportive of this initiative.
On this point, I would like to ask you what your main achievement has been in this area over the past few years. You say you are fully supportive of the initiative for improved reporting to Parliament and, in your document, you cite a number of initiatives that have been taken in recent years. What has been your Department's main achievement in improving reporting to Parliament?
[English]
Mr. Crandall: Thank you very much. I think we have two main achievements in terms of reporting to Parliament. First was our 1996-97 part III, which was done as one of the six pilot projects. We can explain some of the differences and different types of information we put in this document for parliamentarians and others to use.
The second element that has come along is this book we're looking at today where we're one of 16 departments that are getting all this 1995-96 performance information out to the committees faster. Whether the committees use it for meetings like this, for their own research, for other meetings or bills they're considering, the hope is that it's all valuable information for parliamentarians that they wouldn't have gotten until the end of February. So in terms of that process, those have been our two main achievements.
[Translation]
Mr. Bélisle: Thank you. My second question concerns what you say on page 19 of the English version. With regard to small businesses, you cite demographic studies conducted in cooperation with Statistics Canada that have shown that 95 percent of the clientele, among the 150,000 Canadian importers, consists of small businesses.
You also say:
- It was recognized that the needs and abilities of small businesses were vastly different from the
large businesses.
[English]
Mr. Allan Cocksedge (Assistant Deputy Minister, Customs Border Services and Trade Administration Branch, Revenue Canada): There's no question that in terms of the 150,000 or so importers we deal with, a relatively small number, perhaps 10,000 to 15,000, constitute the major value of importations and exports. The growth you alluded to in your comment is clearly in the small business community. What we initiated in 1995-96, and continue to work on in the current year, is a series of measures to facilitate the movement and clearing of goods for small importers.
We are looking at simplification of the importation forms to make the process of importation for a small businessman in the high-tech industry, for example, who may be moving relatively small components between Canada and the United States... We are introducing payment systems and processing systems that are very much akin to what a traveller would do, but with some business trappings around it to allow for the proper accounting and so on of the goods. As we consult with the small business world, it's clear that they want to do more business directly at the border, in a simplified and streamlined way. They don't want to get involved in complex accounting procedures after the fact. So we are re-engineering many of our commercial border crossings to facilitate that very thing.
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The other thing we're doing that is less direct but still significant for the small business community involved in exporting, particularly to difficult markets like Asia-Pacific, is we are taking some of the streamlined processes described here in the Canadian system, and through initiatives like APEC, and in conjunction with the Americans in the NAFTA context - we are essentially exporting our streamlined customs processes to Asia-Pacific customs administrations to assist our small business players who are trying to export into places like Malaysia or Indonesia, where currently they have real problems with those customs administrations.
In fact, I recently returned from a meeting of the heads of customs organizations for the 18 APEC economies. What we agreed to within the APEC context is to work on a 10-point plan that would see the exporting of importing processes into many of those Asian communities, so that a small business person dealing with a very paper-driven, non-streamlined Malaysian or Indonesian system will suddenly see a system resembling the system they have at home. So it's less direct, but very much part of the team Canada and APEC strategy.
[Translation]
Mr. Bélisle: One final question, Madam Chair. If I correctly remember the discussions we had with the Public Accounts Committee at the time, it was following the Auditor General's recommendations, I believe, that what you say at page 22 of the English version occurred. It says there that an agreement with the Department of Human Resources Development enabled you to resolve 600,000 incorrect social insurance number entries and that you were able to correct$200 billion in earnings as a result.
Can we say that these corrections applied mainly to interest income reported on TP5 forms and earned by taxpayers who had guaranteed investment certificates or bank certificates? I know, of course, that this is less of a problem for salaries since employers already have workers' social insurance numbers. I get the impression that a missing social insurance number is often a result of the fact that taxpayers or clients refuse to give their numbers to the banks or credit unions. In those cases, the TP5s issued by banking institutions at the end of the year contain no SINs and Revenue Canada loses that revenue.
Was the $2 billion that was corrected related to interest income received by taxpayers or did it come from income of all kinds?
[English]
Mr. Burpee: I think it's important to recognize that it wasn't necessarily $2 billion that was saved or recovered; it was $2 billion of earnings that were corrected.
In some cases that means money that should have gone to the recipient, and this program is more related to the fact that we had a number of wrong SIN numbers in the system - either the banks had collected the wrong number or the individuals had provided them - and we found a way, working with Human Resources Development, to get the correct numbers. So in some cases money will be going back to the recipients.
But let me respond to the other point you raised, and that is that following that session with the public accounts committee, we worked with the Canadian Bankers Association. We talked about alternatives, one of which is to legislate the requirement and whether they have to do that. What we found by working with them and providing them with materials they could hand to their clientele... In 1995 we had a 90% rate of collecting correct SIN numbers. So we think that worked very well, and we're continuing to look at other things we can do to make sure that happens.
Mr. Bélisle: Okay. Merci.
The Vice-Chair (Ms Whelan): Mr. Grubel, please.
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Mr. Grubel (Capilano - Howe Sound): Thank you.
This is a most fascinating exercise that you've engaged in. I would like to congratulate you, but also the Auditor General for suggesting that we engage in this exercise. I'm not going to ask questions on details. I'm looking forward to studying your performance indicators.
I'd like to touch on two broad issues. One of them is that in terms of efficiency of bureaucracies, it is one thing to put on the pressure at one point to put out these things, but then the issue is to maintain the incentives to continue this process of improvement. As you have indicated, dozens of small changes led to savings of $2 million. In the past these incentives, in the absence of budget constraints, were not there, or if they were there you never realized they could be taken. The incentive structure for the individual bureaucrat was: Why should I do this? It's a risk, and what's the pay-off for me?
That brings me to the main point. I understand that in New Zealand and England, organizations like yours are given pay incentives to continually improve performance according to indicators like those you have here. For example, let's say there is a collection of 4.6% - or whatever the index here was - and you said you would aim for 4%. I understand that in New Zealand an executive director is put in and told here are the performance characteristics that were there last year, let us negotiate, and you will get your bonus payment at the end of the year if you achieve or exceed those targets.
Apparently, this has worked extremely well. It can go from the chief executive officer, who has total responsibility for this, to people down the line who are initiating savings and who are, at the lower levels, responsible for implementing such changes.
Do we have anything of this sort in place now? Is this being contemplated? If you had a chance, would you support the creation of such a continuous permanent incentives structure to keep up the process that has been initiated by this study?
Mr. Crandall: That's a good question for a public servant.
I think one of the purposes of this exercise we're doing is to bring the focus on to results so that we can move the Canadian public service exactly in the direction you're talking about, where we can have performance agreements, if you like, with senior managers about what the expectations and targets are, what's measurable and not measurable, and what kind of qualitative and quantitative indicators can we have out there to assess performance at the end of the day. That's one of the reasons we're concentrating on this kind of thing.
I should say at the outset - and Mr. Burpee and Mr. Cocksedge can comment on this at great length - that we don't just have a series of little things driven by the fact that our budget is going down. We knew when we saw the budget lines from program review that we had to tackle great big things, and we have launched a fundamental re-engineering or rethinking of the way we do all of the business processes in Revenue Canada.
Many of the projects Mike spoke about on collections, or that Allan could speak about on what we're going to do at the borders five years from now with all the trade with the United States, will be significantly different from the processes we do today. What's driving our managers to do that is that they know the only way we can be in business with the budget lines we're going to have four or five years from now is to retool those processes, modernize them and do them properly.
In terms of incentives, the government did reintroduce performance pay for its executives in just this past few months, after a lengthy freeze. Everybody would have their own individual views on whether or not that's an effective system of rewarding or providing an incentive for managers. It may be.
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Mr. Grubel: More specifically, though, doesn't this exercise and this background and this data now allow the construction of more transparent, relevant incentives by looking at constructing some type of a weighted index of different things, perhaps? Is there any effort under way to try to use this knowledge base to make those more effective?
Mr. Burpee: I couldn't comment on whether there is any work under way. That's something Treasury Board would be looking at. But I think you're absolutely correct, and I think more work still has to be done to get this a little further refined.
This approach, combined with some form of incentive to deliver, or to improve delivery, on these, would I think produce positive results. There's no doubt, as you mentioned earlier, the whole issue of budget restraint, and particularly the fact that, as Bill has said, we faced a $300-million reduction without a reduction in any one of the programs we're delivering, forced us to look at what we were doing and how we were doing it. We found out that we could learn a lot of things from particularly the private sector and how they carried out certain programs that would make us much more efficient.
But the other part of it we haven't talked about, and that very much drives us as a department, is that the idea of consolidating the department so that you have one group to deal with allows us to reduce a significant burden for taxpayers. We eventually are getting to the point where we're going to be able to treat a taxpayer as a single entity, even if they are involved with three or four different tax types. It makes it much better for business and much better for us. People get quite excited at seeing those types of responses.
I think this is moving us. It's forcing us into a planning approach that requires us to get very specific in areas of program delivery. I think it would fit very nicely into some form of compensation program.
Mr. Grubel: To respond to a point Mr. Crandall made, I'm sure it wasn't just little things - I fully agree with you - but it created stimuli to introduce new technology. Of course, technological revolution is an ongoing process. I think the Auditor General and maybe Treasury Board now need to ensure the incentives are right for the bureaucracy in Revenue Canada to continuously apply the latest technology and take advantage of it to make the operations more efficient.
Mr. Burpee raised a point that was going to be, with your indulgence, my second question. It refers to what are the problems associated with incentive structures for the delivery of services that, as Mr. Burpee mentioned, have benefits and costs that are unmeasurable. That's where it's different from ordinary business, and that's why it's government.
I remember reading a study on this. I can't quite get the same analogy for Revenue Canada, but for health care, for example, it is possible to make the health care delivery bureaucracy very efficient in terms of the measurable kinds of things you have here, but the goal of having a Department of Health is ultimately to improve the health of the people. So that is much more difficult to measure. In some sense, the incentive structure, to be efficient on the measurable things, may in fact lead to a reduction in the delivery of the ultimate service. To conclude, this is a very broad, measurable social index of welfare.
Then there is a second point you talked about. You said that in your process you actually helped the consumers, but in the finance committee hearings we often hear complaints of other departments, in an effort to get better measurable performance indices, shifting more of the burdens - more of them - onto the private sector.
I wonder whether you have any thoughts, or whether there are in your report any indicators of the extent to which your efforts to become more efficient internally has resulted in shifting costs to the private sector.
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Also, on the broader question, what do you consider for your department of revenue the overall equivalent to what I said was for the health department a greater quality of life for Canadians in terms of their well-being?
Mr. Burpee: There are several things. First of all, maybe in terms of this you have to break down or separate between a program-type of department like health - finance is another one I can think of particularly - which might be very hard to measure, and an operational department, which is primarily what Revenue Canada is. So I think there are some differences that might make it more possible in Revenue Canada.
I don't know of any study that has been done to determine to what extent we are shifting costs into the private sector. I do know we're doing everything we can to prevent ourselves from doing it.
I represent the department on the joint forum on paper burden reduction where we work with the private sector. One of the ways we keep honest in what we're doing is that we've got a very vociferous and active committee.
In fact, they helped us introduce, just a month ago, what we call the T4 short, which is a specialized, simplified T4 form for businesses with fewer than six employees. They helped design it. They helped us write the instructions. Basically our whole commitment is doing things that will simplify the process for taxpayers.
We have a small business advisory committee that takes us in the same way. I think you could probably look at factors that would suggest perhaps there could be something else related to the success in doing that and reducing costs of compliance for the private sector.
We're trying something on the joint forum right now in which we are testing with a few businesses to see what's happened. We'll get a cost of what it costs them to comply with the number of federal pieces of legislation. We're going to test it a year or two years later and see if all of the things we've done have reduced that cost. So there may be ways to look at that also.
Mr. Grubel: Mr. Burpee, may I then have as a positive suggestion for you - and I hope it will be passed on to the Auditor General so it won't just disappear as one recommendation from one MP - that you have a separate section in which you ask the committees you're dealing with to search also for methods of quantifying the ideas you have just shared with me on what has been, in their judgment, the effect of policy changes.
It may turn out to be another big feather in your cap you can brag about. At the same time, I think the people of Canada would be interested in knowing to what extent the efficiency you have achieved was attained at their own expense.
Mr. Crandall: Could I just add one thing to that? We'll be very happy to look at that. It sounds to me like it's a good idea.
You mentioned the word policy. The policy changes come from the finance department. When we say, through our reductions, we haven't offloaded our reductions onto the backs of business or Canadians in general, I believe we haven't done that. By the same token, every year the government introduces new tax rules, new customs tariff issues, etc. Some of these may well make it more burdensome for business. That's not something within our purview.
Mr. Grubel: I appreciate that. On the other hand, I think this is again an opportunity to increase the efficiency of government for the benefit of all Canadians. You will be able to separate out, if you make that effort and you have somebody watching this, what the costs are of some of the ideas that are implemented by the Department of Finance.
The next time they want to do things like these or reconsider what they have done, once they know what extra burdens it imposes on the public that you're now able to show - previously you didn't - then I think it would be a very useful exercise. If you could keep track of changes in these performance indices that are brought about by new requirements rather than dealing more effectively with old ones, in my judgment it would also be an opportunity for you to shine even more than you did in this report.
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Mr. Crandall: Thank you.
The Vice-Chair (Ms Whelan): Thank you, Mr. Grubel.
Mr. St. Denis.
Mr. St. Denis (Algoma): Thank you, Madam Chair.
Thank you for being here with us today. I want to commend you as well for an excellent report. I think, no doubt as years and seasons go by, all of these 16 departments will become more adept at adapting the report and terminology to help parliamentarians and the public understand better what's going on.
It's part of an open government and having the citizens feel better about their government and the public service that serves them while extracting, in this case, taxes from them. To the extent we can make them feel happy about that, that would be a great accomplishment.
I also want to commend you in the report on the number of volunteers who are involved in helping usually low-income and fixed-income people file their tax returns. No doubt that ensures mainly that they get the refunds they deserve. I'm sure there's more money foregone by Revenue Canada through that program than is gained. I think that's a tribute to the way your department has, over the 25 years it's been in place, mobilized the communities to help low-income and fixed-income citizens.
I'd like to ask a little bit about the issue of red tape. Mr. Burpee used the term ``paper burden''. In the common language we talk about red tape especially as it pertains to business, particularly small business. I know a lot of work is being done in all departments, but your department is so large and so pervasive in its involvement in the citizenry that the issue of red tape is probably greatest in Revenue Canada.
I think section IV is maybe the best place to look for those kinds of topics. I'm wondering if in general terms you could talk about the issue of red tape. I know the Chamber of Commerce and the CFIB tells us each fall when we do the pre-budget consultations that the paper burden of all levels of government costs their constituents money.
Are there measures in terms of pieces of paper required from the business community or person-hours required on the part of client businesses to support Revenue Canada documentation needs? I'm not sure how one could measure these things. Can you talk a bit about the improvements in the red tape issue and, if possible, measures that we have to benchmark those improvements?
Mr. Burpee: We're looking right now at how to do that type of measurement. It is very difficult to do without, at the end of the day, actually sitting down and, quite frankly, watching how business does its various activities to comply.
As I said, the joint forum has tried something in which we engaged a consultant to do a survey of about 700 firms. They broke it down by different types of requirements under the labour code and under various tax areas and so on to see what it's costing them currently, in their estimation, to comply with these various pieces of legislation. Probably in about another year they're going to go back and see what the costs are, because we introduced a number of programs.
I also know we've had another person involved in looking at the cost for small business around the GST. We're going to be able to go back and try to look at that again with some of the changes around harmonization and so on.
Mainly what we have been trying to do is to reduce the number of times an individual has to deal with the department first of all. As Bill has said, in some areas the burden is created by the legislation. What we work on is trying to administratively reduce the contacts with the department or the number of times to repeat doing things.
A good example of that is the business number we've introduced. Now you only need to register once for our four main business types and that one number will cover all of them.
Mr. St. Denis: Payroll, GST?
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Mr. Burpee: Payroll, GST, corporate tax and import-export. We are now in discussions with Industry Canada to attach the corporation registry to that so you can use the corporate income tax system to get involved in the corporate registry with the same number.
We have pilot projects going with British Columbia and Ontario to do joint registration and ultimately use the single business number so that a business only has to go to one location and can identify the number of areas it has to register for and do it all at the same time. That is one way that will significantly save time for business.
We've also looked at trying to use little pieces of technology to help. One of the real difficulties for business, small employers particularly, is having week after week, or every two weeks, to work out the amount of deductions for source deductions - the CPP and working with the tax tables. If an employer works in three or four provinces, he may have to consult 12 or 15 tax tables to do it.
One of our staff came up with a system that in effect has developed the calculations on a diskette. We make that available now to anyone who wants to use that instead of the papers. They can simply put some very basic information about the employee into the system and it will automatically work out the amount of employment insurance, CPP and income tax that has to be deducted. It saves them a significant amount of time.
I mentioned the T4 short as another, which is a very basic change to what the T4 looks like. It's been designed for small business. About 25% of them still fill them out either by hand or on a very basic typewriter. In fact, some of these people with two or three employees tested it for us.
We made significant changes to the format and to the instructions, to the point where we were told by one of our representatives on joint forum that her constituents, the members of her association, are saying they can now do the T4 in a quarter of the time it took before.
We have those types of almost anecdotal response, but I don't have anything that can tell you how many person-hours we've saved or how many pieces of paper - yet.
Mr. St. Denis: It would appear though that in a few years, possibly, based on these client surveys - they may be somewhat subjective but somewhere between objective and anecdotal - there will still be a measure that at least the government of the day can say it's making improvements and it's been 5% in terms of the hours of commitment per employee, that type of thing.
Mr. Burpee: What I can tell you, just to show I'm very sure we're going in the right direction, is that we get very positive support from the private members of the joint forum on what we are doing in Revenue Canada. They are very positive to the direction we're taking. It's the same with our small business and our seniors advisory committees.
The members of both the committees tell us they participate on the committees because they know we take into consideration what they're saying and that we've made changes to deal with some of their issues.
As a matter of fact, at this moment we're having a conference call with five members to talk about some changes that are going on and to get their feedback on them. So I know we're going in the right direction. The way now is to prove it.
Mr. Crandall: I would like to comment on your suggestion that we try to find ways to measure this.
I think that's exactly what we are doing and what we are looking for. Somewhere between anecdotal evidence and something that can be spewed out by the computer, there are some measures you can hang your hat on and demonstrate progress to people.
Maybe Mr. Cocksedge could explain very briefly. We do have some measurable successes on our whole electronic data interchange, electronic commerce platform, in the customs trade area.
Mr. Cocksedge: Your question is very relevant. In fact, it's probably the most continuing theme we have in our consultation groups with the private sector.
For the last five years we have been essentially totally re-engineering the commercial processing system so that as it stands today all of the accounting data for 95% of importations is provided to Revenue Canada through EDI. There is in fact no paper exchange.
As of April of the current year, as with Mike and his groups, we do active consultation on the design of the systems. We introduced a system called ACROSS, which for the first time in Canada allows for the electronic release of goods. For example, through the use of transponder technology a truck coming to the border will forward the shipment identifier to the border crossing.
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Mr. St. Denis: While in transit.
Mr. Cocksedge: While in transit. The decision to examine or release the goods will be made through various targeting systems built right into the system and also linked to our intelligent systems to deal with contraband. That's obviously a whole other set of issues.
What we have succeeded in doing so far in the current fiscal year is to engage 25% of the importing community in communicating with us in that fashion. This means there's no longer the situation, if you've been at a port of entry, with a long room, with a broker, with paper, with truck drivers coming together to get their goods cleared over a counter. This can all be done electronically.
It means that the cost per release has been reduced by something like 500% because of the time saved, number one, and number two, because you don't have to have a whole lot of players involved. Many of the release decisions can now be made electronically through other locations than the port of entry because we're doing that kind of targeting. The community is very excited.
To deal with a couple of earlier questions about the small business community, what we're looking at now is the possibility of EDI transmission through the Internet. If we can deal with the security issues and encryption and so on, this will allow access to the process I just described by small business operators who perhaps would not make the investment in technology that the other system would call for.
We have seen dramatic increases in savings. In dealing with the aerospace and automotive sectors, two large sectors, we have already over a three-year period documented well over$100 million just in transactional savings on their part. On our part -
Mr. St. Denis: Transactional savings?
Mr. Cocksedge: Yes. Their brokerage costs and the size of their customs shops, if they do it in-house, can be dramatically reduced because they're not processing as much paper. Those that continue to use brokers also don't have to have as much staff moving paper, and neither do we.
To deal with the issue of costs, if you streamline the system in a consultative fashion with your client, you end up saving costs in-house. As far as the government agency is concerned, you enhance its competitiveness by reducing its compliance costs.
Mr. St. Denis: Excellent. Thank you very much.
The Vice-Chair (Ms Whelan): Mr. Grubel.
Mr. Grubel: I think you should really have a section on the subject bragging about it. Is it in here?
Mr. Cocksedge: Yes.
Mr. Grubel: Okay, I'm sorry.
I have one other quick point, please. When Indonesia opened up, they had this huge development effort that was stalled because of custom procedures. What they did was to go to a Swiss firm that specialized in pre-clearance. Have we considered this? Are we doing this at all?
Mr. Cocksedge: The approach of using pre-clearance companies is a very contentious issue within the international customs world. I know the Swiss firm of which you speak and it's a good firm, but the problem it has created is that it does not allow, in this case Indonesia, to develop its own capacity. That is the ultimate best solution, within our own country.
Mr. Grubel: That's what you bureaucrats think. It's not at all self-serving.
Mr. Cocksedge: Well, I guess that's up to the Indonesian government to decide.
The World Customs Organization has as one of its strategies the internationalization of a lot of these systems and the harmonization of data elements, precisely to help the developing countries skip over a lot of the problems we've had to face in the past.
Mr. Grubel: The problems that they have, we don't have - the politicization and the corruption within the system. I think for the public there is a benefit there.
The Vice-Chair (Ms Whelan): Thank you, Mr. Grubel.
Mr. Pillitteri, did you have a question?
Mr. Pillitteri (Niagara Falls): Yes. First I want to make a comment and then I'll ask a question, probably not relating to the comment.
Talking about small business, I recall my wife the other night saying to me, tell me, Gary, is the paperwork more or less today? I said, why are you asking me that question? She said, when you were operating our business and you were here, not in Ottawa, you used to take care of it all by yourself.
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Now our daughter is administration manager and we have two computers in the office. We have another regular staff and another part-time staff in the office. We have two and half people in the office, and they seem always to be busy. We never used to have computers. Now we have a chartered accountant who charges us some $50,000 a year. ``How can it be,'' she says, ``that there's more work now?'' But of course we did change.
By the way, I'm in the processing business. I make wine. In my business there are seven taxes, two federal and five provincial. You can imagine the paperwork.
I recall when Prime Minister Jean Chrétien came to my winery during the election. He said, ``When Gary gets elected, you'll have to have three people to replace him''. He was closer than I thought.
For people who work for small businesses, is there any way for the provinces to come together, especially in this type of processing, to eliminate the function of the GST? Even though it's all included in the price, there's the GST; the PST, which is a different price; the environmental levy - it's a jungle. That's one thing.
The question I want to ask is this. Were changes made to the Employment Insurance Act, section 32 or section 36, relating to arm's length? When HRD investigates someone's unemployment at arm's length, it's relayed to that individual, then it goes to Revenue and becomes investigated and the people are cut off.
Let me make a comment on what's really happening in communities like mine, Niagara Falls, where there are a lot of part-time businesses. They operate six to eight months a year. These businesses are operated by families, mostly. They're often restaurants, and most of the operators, the owners, are immigrants.
Sometimes they do not have the capabilities. The paperwork is not there, definitely. Their children haven't gone to school. They help out their parents. Even though the parents are owners, the parents formed the company, chartered accountants told them how to incorporate, and they might give a portion of that corporation to the children. The law allows up to 38%.
This child, this son or daughter, becomes an employee of the company. At times they might have the opportunity to work elsewhere, but they want to be in that family business. All of a sudden, as soon as they apply for unemployment insurance, because they're related, the case is thrown right to Revenue and an investigation goes on at arm's length. There's a connection between the employer and the employee, so they're disqualified.
These individuals end up appealing it, going to court - I have dozens and dozens in my riding - and most of them never win, because they have taken the venue of maintaining that business and staying in the family business. Because they're related to them, and because sometimes their parents cannot admit they're not capable of reading and writing English, they are penalized and deprived in the case where children are working for their parents. Actually there's discrimination there.
What do you think? Can you answer me on this? Are you familiar with it?
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Mr. Burpee: I am familiar with the general parts of it. You're quite right, we get a lot of cases referred to us from HRD each year to look at the issue around relationships, whether or not they're less than arm's length.
Although the provisions of the legislation are fairly specific with regard to arm's length relationships, there is a rule of thumb that if that company would normally, under the same conditions, be hiring a person to carry out those functions, then that employment, if everything else is correct, should be considered to be insurable.
To be quite frank with you, I can't tell you what is the ratio of decisions in terms of those that are allowed and those that are not.
Mr. Pillitteri: You'd be surprised at how many I have. I get it up to here.
Mr. Burpee: I know. We hear a lot about that.
I guess part of it is the fact that...and if you're telling me that most of the appeals are lost - in other words, our decisions are upheld - it would appear that we're applying the legislation correctly. So part of it almost suggests to me that it's the legislation that has to be revisited.
Mr. Pillitteri: A lot of them are not taking defence lawyers. A lot of them don't know the problem they really have. That's the biggest problem. They sincerely believe the system works for them. They go before a panel without proper representation and they lose. That person almost has to prove himself innocent. Once he's charged under that term, and he's not capable of putting up a good case, then automatically that person loses. They have to prove themselves innocent the way that law is administered under arm's length.
This one really is upsetting to me, incredibly upsetting. I know. I've seen it. I have a lot of friends this affects. A lot of times they're ashamed to say they cannot read or write. The parents operate and own this business and have their children do the work for them.
Does it create a job? Let me tell you what creates a job. That person, that child - it might be a son or a daughter - might just be working as a waiter. On the other hand, they're actually doing the administration work. They're already penalized.
Thank you.
The Vice-Chair (Ms Whelan): Thank you, Mr. Pillitteri.
Just to clarify, I believe what Gary is partly talking about is that a lot of people are running to another riding because of a decision made by Revenue Canada to remove the officers from the employment centre. They used to have officers at the employment centre who made these decisions and worked in conjunction with HRD. You've now removed them and taken them back to Revenue Canada offices. They no longer make hands-on decisions. Decisions are delayed, and there's a lot of inconsistency taking place in a lot of these decisions.
Now, I'm not sure if it's because of the decision to remove these officers from HRD, but perhaps it's something you can take a look at. It wouldn't specifically be dealt with here.
I'd like to give the opportunity to Mr. Cocksedge and Ms Flemming to review some of the areas I notice we didn't get involved in as much as I thought we would have.
Obviously there's not the same interest, Mr. Cocksedge, I would have had in all these questions about border services and verification and enforcement. If you wouldn't mind, perhaps you could go over or highlight some of the areas we didn't touch on.
Mr. Cocksedge: I'd be delighted to. I've referenced already the ACROSS system, which allows for the paperless release of goods. We're also working with the United States and Mexico on what is called the ``North American trade automation prototype'', which essentially involves agreeing among the three jurisdictions on the data that have to be provided in order to achieve release of goods. We are now testing that. It started at the southern U.S.-Mexican border and will be extending to the northern border very soon.
This will allow us to test whether this prototype, which would mean that importers and exporters would only have to provide information once, is workable in terms of the three customs administration systems, and also to integrate it, as I said earlier, through transponder technology to trucks approaching the border, and use the same technology for the movement of vehicles for other purposes. For example, that same technology could be used to go through state or provincial inspection systems; it could be used to buy gasoline. There's a whole host of things that really make sense for the carrier industry.
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We've introduced, as I said earlier, a number of changes for small business. We've increased what is called the low-value shipment threshold to $1,600, which means a small business person importing doesn't have to go through the full commercial process.
We are working extensively with other government departments, and the EDI applications we've introduced in-house allow us to do this. Information we require when we're acting on behalf of, for example, Agriculture and Agri-Food Canada, can be transmitted to us through EDI, and we can essentially speed up, through delegating work to customs inspectors at the border, the clearing of low-risk agricultural products. It means we don't always have to have Agriculture and Agri-Food Canada staff at the border. We can act on their behalf. They make the decision based on the documentation and the knowledge of the shipment, but we actually deal with the carrier.
We haven't talked much about the traveller side of the business, but in some ways it has been better known in the general public because it is individual travellers. We have invested considerable time and energy in trying to improve the flow of low-risk travellers both at the land border and at our airports. We've introduced, under the rubric of CANPASS, a whole series of systems involving either telephone reporting or streaming and pre-registering travellers so that they can move more quickly.
At the land border in British Columbia we had the PACE system, which as I say, had been converted into the CANPASS system. We have 100,000 people who essentially have been pre-registered to cross the border. They can go through a designated lane and they are only infrequently examined or asked questions. Earlier last year the Prime Minister launched the CANPASS pilot at Vancouver International Airport, which allows for the use of smart-card technology and a kiosk for Canadians and Americans to move through the airport.
We continue to expand those applications to other airports and to other land border crossings, with the knowledge that of the 106 million people who go back and forth between Canada and the United States, most are low-risk, routine travellers. If we can pre-register them in some way, we can speed their journey.
Finally, there is the other side of our business. We have this contradictory, some would say, and difficult mandate of moving commercial goods as quickly and as cheaply as we can through the border, but at the same time we have a mandate to protect Canadian citizens. So we have invested as well in technological applications to deal with our contraband mandate. We've done three major initiatives.
We have automated the whole exercise for targeting and documenting seizures. This means we have access through our own computers to police and other computer systems when we're dealing with people we have caught smuggling.
We also have an automated lookout system for both the commercial and individuals. We have what is called a primary automated lookout system at highways and airports, which allows us, in the case of airports, to read passports to see if there's some intelligence concern about them, or at the land border, to read the licence plates of vehicles coming across for the same purpose.
Finally, Canada is one of the world leaders in the development of detection technology. Many fine Canadian companies have been working in partnership with us to develop technology so that we can more cheaply examine marine containers and large vehicles without necessarily having to open them up. The Ion Scan technology and other x-ray technology have been refined in conjunction with the industry. So we're not only developing tools for ourselves for use at airports, marine ports and airports in the traveller stream, but we're also developing an industry that is exporting technology to other countries.
The Vice-Chair (Ms Whelan): Thank you.
Ms Flemming.
Mr. Grubel: Could I just -
The Vice-Chair (Ms Whelan): No, I want to get Ms Flemming on the record first and then you can talk.
Mr. Grubel: This is on this particular issue, just a quick question.
The Vice-Chair (Ms Whelan): Mr. Grubel... Okay, sure.
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Mr. Grubel: Has anything happened on the export processing and free trade zones of the sort that the Vancouver airport...?
Mr. Cocksedge: Through Bill C-102, earlier last year we essentially introduced changes on what you can do in a bonded warehouse setting, which in fact creates even better advantages than a free trade zone.
Mr. Grubel: Thank you. The whole country is a free trade zone.
Ms Jeanne Flemming (Director General, Special Investigations Directorate, Revenue Canada): The material I'm going to cover is summarized on pages 29 to 33 of your book, the verification and enforcement area of the department. The bottom line really is the total fiscal impact that has resulted from the enforcement activities, which is $4.5 billion in 1995-96, an increase from $4.2 billion in 1994-95. If you look at figure 3.1 on page 31, it will give you a breakdown of that$4.5 billion.
Some of the major achievement areas have been in the tax shelter area, which was an area of concern. Through a number of legislative measures that were introduced to prevent abuse, the value of sales in tax shelters has declined from 1994, when it was $2.3 billion, to $1.9 billion in 1995.
Furthermore, the take-up rate in tax shelters has declined as well. I'm sure you've seen media stories on tax havens, which again was another area of high priority. Several actions have been taken.
There have been some legislative changes to some of the foreign accrual property income rules. There are enhanced reporting requirements for foreign affiliates. There are more timely exchanges of information with our tax treaty partners. We've increased the resources for audit verification in the international area. The result is that tax recoveries on international transactions have tripled since 1992-93 from $133 million to $397 million in 1995-96.
We're not going to go through all of these items, but I thought I'd look at three of the special initiatives undertaken in 1995-96, although some of them may have started prior to that. Of key importance, of course, is the underground economy initiative.
You may recall that in 1993 the government announced a seven-point action plan to deal with the underground economy. I'll refresh your mind with a quick review of those seven points: encourage voluntary compliance; strengthen programs to identify non-filers, non-registrants; work with industry associations to identify the underground economic activity and develop sectoral strategies to address them; work cooperatively with the provinces to exchange information and develop joint strategies; increase audit coverage in areas of high non-compliance; publicize our tax evasion convictions; and improve our audit investigative techniques.
As a result of these measures $550 million of federal and provincial taxes were assessed in 1995-96. Since the announcement more than $1.4 billion has been received.
The second area is the development of enforcement strategy. Everyone has focused pretty much on governments doing more with less. One of the goals of this enforcement strategy is really to target areas of high non-compliance, using risk assessment and analysis techniques. Once we have these areas identified, then we target our resources to ensure coverage of that area.
We use a number of tools of course, to ensure compliance: audit tools, education tools, working with associations. We try to communicate those activities to ensure that the messages are sent out to the public. We undertake compliance research to assess compliance levels, to note trends and to see how we might shift our resources in terms of emerging patterns.
Finally, the international area has had a very high profile, and we have enhanced our international tax area through a new compliance strategy. Basically we have initiated measures to verify and audit the reporting of world income. I've already mentioned the tax haven initiative.
We have included new measures to address the taxation of Canadian resident shareholders of foreign affiliates and the allocation of income and expenses among corporations and affiliates. We have an advanced pricing service, where people can come and get information from Revenue Canada ahead of time. We're working with other tax administrations to resolve double taxation issues. We've made some system changes to help out the international auditors.
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In summary, the enforcement activities have resulted in $4.5 billion in additional federal and provincial tax assessed. The revenue recovery improved 23% from 1992-93 and by 6% from the previous year. The revenue recovery per full-time equivalent improved by 5% over the last year.
We feel these are very positive results, but we're working very hard to try to improve these for the next reporting period.
The Vice-Chair (Ms Whelan): Thank you.
Do you have another question, Mr. Grubel?
Mr. Grubel: The non-reporting of foreign income is a very difficult issue for many of us. Some people now see that in order to achieve compliance on this it is necessary that we introduce a fundamental change in our society, that is, the government now wanting to know what your assets are. Many people are very uncomfortable about this.
I know this is a policy issue, and I should probably be talking to the Department of Finance on the subject. As a technical person, can you tell me why the measures to discover worldwide income are inadequate in capturing most of it? In other words, what indication do we have that we would be able to enforce much more compliance on the reporting of worldwide income if we also had information about assets held abroad? Is that too hard to put?
Mr. Crandall: I don't know if we're technically going to be able to do justice to that question. It's a good question, but we would probably need to have a few discussions with our colleagues in finance and our own interpretations people.
I'm not sure people think it would be easier to enforce the other way.
Mr. Grubel: That's my question.
Mr. Crandall: I can tell you this. We would be pleased to try to get that information back to you and the committee. But we won't, of course, be able to deal with the tax policy nature of that question.
Mr. Grubel: Yes, I know.
Mr. Crandall: I think you have to put that to the Finance officials.
Mr. Grubel: Ms Flemming, have we done anything in order to look at the question of transfer pricing?
Ms Flemming: Yes, we've done two things for the transfer pricing issue. Basically, we put the rules in place to address the taxation of Canadian resident shareholders of foreign affiliates and the allocation of that income and expenses among the corporations.
Furthermore, we have the advance pricing service that we provide to those companies so that they can come to Revenue Canada. They can have a verification or a clarification of that rule so that when they do their reporting, they can be fairly certain of how the rules apply and have some certainty of where they will stand.
Mr. Grubel: We have had here witnesses from the labour unions who are making the assertion that because of transfer pricing, literally billions of dollars of revenue are lost to Canada. For those people who are unfamiliar with it, it is a matter of especially American corporations reporting costs in Canada and thus reporting more profits in the United States. Do you have any idea on how big this effect can be? How do you reduce it if it exists?
Ms Flemming: Our goal is certainly to ensure that the proper Canadian tax is paid. That's the goal of affording this service up front so that we can make sure we understand the information.
Mr. Grubel: I understand that.
Ms Flemming: Our goal would certainly be to protect Canadian revenue.
Mr. Grubel: I know it's a very difficult question, but I'd like to somehow establish these numbers. What is the procedure we now use so that a transmission sent from Canada to the United States...?
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Mr. Flemming: I'm sorry, I can't answer that. That's too technical a question. We can provide you with the information on how the program works. That's not a problem.
Mr. Crandall: Excuse me. Are you referring to what the banks do for financial transactions?
Mr. Grubel: No. I'm talking about the fact that General Motors, as an integrated worldwide company, might have costs of only $5,000 per transmission produced in Canada. Then it gets shipped to the United States, but they claim the cost of producing the transmission was $10,000. They then have higher profits reported in the United States. Corporate taxes are lower in the United States, so there is a strong incentive to engage in this kind of activity.
As I suggested to you, we have had representations here that this is a serious problem. I have looked at this. I understand that the incentives are there, but have national governments like ours, enforcement agencies, been been able to install and enforce mechanisms to make sure that transmission is considered to be worth only $5,000 rather than $10,000? It's a very technical question but you -
Mr. Flemming: The whole purpose of this program is to do that and ensure Canadian revenues are protected, but it's very complex. We have any number of experts who are attempting to do these things. We'd have to give you more information on exactly how it operates. I'm not certain.
Mr. Grubel: So there have been no outstanding new initiatives that you could tell us about.
Mr. Flemming: I think the advanced pricing agreements... Setting up this service is something new. It was introduced in 1993, and since that time 50 corporations have come to us asking for advice and assistance, which we've been able to provide.
Mr. Grubel: What is the advanced pricing?
Mr. Flemming: It's like a ruling in a way. Rather than getting into difficulties later on, you can come to us up front and have us explain and interpret the rules for you so that we can iron out difficult problems before the fact, and so that you understand where your company stands and what questions we are going to ask.
We also share a lot of information internationally for these purposes as well. The fact that tax recoveries have tripled since 1993 would suggest that whether or not this particular measure or all the international measures are working, something is definitely working. Whether I could pin it down to that exact activity or not is difficult.
Mr. Grubel: Thank you, Madam Chair. I appreciate it very much.
The Vice-Chair (Ms Whelan): Thank you, Mr Grubel.
I want to thank the officials from Revenue Canada for the presentation this morning and for the wonderful performance report you've put together and the performance your department does.
Mr. Crandall, do you have any final comments that you want to leave with the committee?
Mr. Crandall: Madam Chair, it has been a good time for us to come here and explain these things to you. We're always happy to do that for the committee. We will follow up on some of the things you've asked about that we haven't information on and perhaps get them back through the clerk's office.
We're quite pleased to have been here today. Thank you.
The Vice-Chair (Ms Whelan): Thank you. This discussion could go on for a long time.
This meeting is adjourned.