Opening Statement to the Standing Committee on Environment and Sustainable Development

Sustainable Development Strategies: Using the Tax System and Managing Office Solid Waste
(Chapter 3 - 2004 Report of the Commissioner of the Environment and Sustainable Development)

14 December 2004

Johanne Gélinas,
Commissioner of the Environment and Sustainable Development

Good morning Mr. Chairman and members. Thank you for inviting us here again today. Joining me are Neil Maxwell and Bob Pelland, the Principal and Director responsible for the audit on using the tax system, part of our Chapter 3 on sustainable development strategies.

Last week when we appeared before you, we presented our findings for this audit. I want to briefly remind you of what we found.

In its sustainable development strategies, Finance Canada has established the objective of examining ways to better integrate the economy and the environment through use of the tax system. The primary goal in the 2001 strategy was to identify specific areas where the tax system may be acting as an impediment to attaining sustainable development.

So, how has the Department done? While it has analyzed a range of issues associated with its tax-related commitments, it has not clearly stated what it is trying to achieve with these commitments in terms of expected performance. The Department can show you a list of tax measures it has analyzed, but it is unable to show the extent to which it has covered the key areas that need analysis. Consequently, Finance Canada cannot tell Parliament and Canadians the extent to which the tax system either impedes or favours the attainment of sustainable development.

As I said to you last week, the Department is dragging its feet when it should be showing leadership, and its response is not sufficient.

In our recommendations, we identified three critical areas where Finance Canada should move forward, and where it could make significant progress in fulfilling its commitments.

• First, the Department should carry out a systematic review of the tax system to identify problem areas and identify opportunities.
• Second, it should ensure that it properly analyzes the environmental impacts of all proposed tax measures.
• And third, the Department should develop greater transparency in the analytical process and options available.

I will briefly expand on these three areas.

First, we recommended that Finance Canada carry out a systematic risk-based review because the tax system has a huge potential to create incentives or disincentives and to influence behaviour, for better or worse. For example, just think of how individuals have responded to the tax deductibility of RRSP contributions. In the end, it is the sum of individual behaviours that will play a big part in determining the future of sustainable development in this country. Thus, it is vital that Finance Canada demonstrate that it intends to do the review, and make it public.

In its response to our recommendation, the Department committed only to continuing to do what it has been doing in analyzing individual tax measures. I don’t think it missed my point—I think it just does not want to do it.

Regarding the second area, we recommended that Finance Canada ensure that potential environmental impacts are adequately analyzed for all tax measures and policy options and that those impacts are integrated with economic and social impacts. The Department responded that it would depend on the Strategic Environmental Assessment process for Cabinet and ministers. However, it has only just begun to establish proper systems for this process and results to date are not encouraging. For example, the Department did not have formal systems which would enable it to say how many tax proposals should have been assessed or how many assessments had been completed.

For the third area, we believe that the Department should enhance transparency by making public the analysis of the anticipated environmental impacts of tax measures, such as those included in the Budget. And we know that it can be done, because there has been at least one case where the Department has done this: it provided another standing committee with its analysis of employer-provided transit passes.

The Department’s response on transparency is not hopeful as it commits only to public statements on Strategic Environmental Assessment (as required anyway) and on publicizing the process it follows. The Department claims it is constrained on reporting on analysis of specific measures to prevent influencing decision making by economic agents who may seek to take advantage of or avoid tax measures. That argument is not valid if the environmental analysis is released at the time the tax measure is announced—for example, in the official Budget papers.

The Department also said that it needs to maintain ministerial confidentiality. Examples such as the information that the government routinely discloses in the regulation-making process show that the release of such information does not have to compromise confidentiality.

Finally, on a broader point, the federal government has been studying ecological fiscal reform for over a decade, and it is time to make its position clear.

It might be helpful now if the committee could explore with departmental officials how they intend to use the tax system to move the sustainable development agenda forward.

Mr. Chairman, this concludes my opening statement.