The BC Auditor General today released Understanding Tax Expenditures. From that report:
The tax system can also be used to achieve public policy objectives through the application of specific measures, such as preferential tax rates, exemptions, deductions, deferrals and non-refundable tax credits.
These measures, known as tax expenditures, represent a tax break that government offers people and corporations in support of its policy objectives. It’s forgone revenue, or money that government doesn’t collect, but could if it didn’t offer that tax break. In 2016/17, tax expenditures in B.C. accounted for over $7 billion in foregone revenue.
Tax expenditures are debated and voted on only when the legislation for them is enacted or changed. This doesn’t happen very often. …Today, legislators may not have all the information they need to make informed decisions about whether tax expenditures continue to achieve government’s policy objectives.
The last time we mentioned this topic was almost 25 years ago in our 1993/94 Report on the Public Accounts… Tax expenditures are significant, yet government doesn’t report them in a way that’s transparent and easily understood.
The government’s response includes this gem:
The Ministry of Finance agrees that it is important that legislators and other users of the Province’s financial information have access to complete information relating to BC’s tax expenditures. We will consider improvements to our reporting of tax expenditures.
Make no mistake. The Finance Ministry and other government departments have no interest in transparent reporting. If they did, measures would have been implemented long ago. Today, they have no intention of doing more than “considering improvements.”
The government’s statement is like that of a group of staggering alcoholics pouring another round while promising to consider altering their drinking habits sometime in the future, maybe.
The Auditor General’s report advises:
▪There is no requirement in accounting standards or legislation for the government to disclose tax expenditures in either its budget or its financial statements.
▪The OECD recommends that tax expenditures be subjected to budgetary control in
the same way as regular expenditures are” during the annual budget process.
▪In addition to the cost of the tax expenditures, government may be supporting related policy objectives through direct spending that could be complementary or contradictory to the tax expenditures.
There might be no better example of the last point than government imposing carbon taxes worth something over a billion dollars a year while it is providing almost a billion dollars in drilling credits to carbon producers in northeast BC.
One tax encourages reduced use of fossil fuels; the subsidies through tax expenditure encourages increased use of fossil fuels.
Some politicians choose to be fence sitters. In BC, we’re led by people who aim to stand on both sides of the fence.
No surprise that an Insights West poll reported politicians are respected by only 22%, a level less than 1/4 of the 91% reported for nurses.
My question by email to the Auditor General:
I wonder how you managed to produce 40 pages on tax expenditures without a single mention of natural gas royalty reduction programs.
Producers have deducted $5.85 billion in royalty payments, 2007-2018, and have accrued a further $2.61 billion in unrecorded credits accrued by producers.
One would think that an almost $1 billion a year benefit by tax expenditure, flowing to a relative handful of companies, would be a subject worthy of specific mention.