Treasurer takes aim at Ontario’s ‘underground economy’ to find $700M

Finance Minister Charles Sousa sets sights on the “underground economy” - in particular, contraband tobacco - with the hope of reeling in additional tax revenue over the next four years.

Thestar.com
Nov. 17, 2014
By Robert Benzie

Finance Minister Charles Sousa is taking aim at the “underground economy” with hopes of bringing in an additional $700 million to the treasury over the next four years, the Star has learned.

Sousa will use Monday’s fall economic statement to announce a new push by the cash-strapped Liberal government to clamp down on contraband tobacco and tax cheats.

“It’s about fairness,” a senior government official said.

Saddled with a $12.5-billion budget deficit for 2014-15, and aiming to balance the books by 2017-18, the treasurer will tout the new multi-pronged strategy to collect more revenue.

“We’re going after contraband tobacco,” said the official, who spoke on condition of anonymity in order to freely discuss policy changes that will not be made public until Monday afternoon.

With an estimated 40 per cent of the cigarettes smoked in Ontario being untaxed because they are manufactured on First Nations reserves and then illegally distributed throughout the province, the Liberals are expected to step up enforcement.

Over the past six years, some 235 million contraband cigarettes have been seized by police.

But that’s just a small amount of the smokes smuggled off reserves into cities where they are sold, often to children and teens, for far less than legal, taxed tobacco.

The major tobacco manufacturers have long lobbied the Ontario government to follow Quebec’s lead and clamp down on smuggling.

Two years ago, the Canadian Taxpayers Federation said that the loss of federal and provincial taxes on illegal cigarettes could cost as much as $1.1 billion a year in Ontario alone.

Another part of Sousa’s plan to tackle the underground economy is a new “tender contract tax compliance initiative.”

Under the scheme, any company wanting to bid on an Ontario government contract must have all of its taxes in order.

Tax scofflaws will be prohibited from bidding.

Queen’s Park will work closely with the federal Canada Revenue Agency to ensure that prospective contractors have their taxes paid and up to date.

“We want to make sure it’s a level playing field so that companies that play by the rules aren’t unfairly hindered by competing with those that don’t,” said the insider.

The government also wants to reduce “cash-only” transactions that are often used to dodge taxes.

“There’s a consumer-protection aspect to that,” said the official, noting shady operators may do substandard work during home renovations that could jeopardize public safety.

Because Sousa only passed his post-election budget in July, there are no new tax measures or any other major changes in Monday’s fiscal update.

The finance minister will deliver his economic outlook in the legislature at around 1:15 p.m., then meet with reporters afterward to discuss its contents.

On Thursday, Sousa said the government will move forward with recommendations in a new 77-page study by Premier Kathleen Wynne’s privatization guru, Ed Clark, entitled “Retain & Gain: Making Ontario’s Assets Work Better for Taxpayers and Consumers.”

Clark, the former TD Bank chair, said $2 billion to $3 billion can be found by selling off Hydro One’s distribution assets and by modernizing the Liquor Control Board of Ontario’s retailing operations and getting more money from the privately owned Beer Store chain.

He warned if The Beer Store, which is jointly operated owned by AB InBev, MolsonCoors and Sapporo, does not agree to pay a new levy, then the government could strip it of its monopoly.

“If we do decide to charge a franchise fee of some sort (and they say) they don’t have any room, they’re just right up against the wall here and they don’t have a dollar to give . . . we’re saying, ‘Well then, that means (what) you’re really saying is that this franchise that you have is worthless. Would you then give it up?’ ” Clark said Thursday.

“And then they say they don’t want to, but they don’t want to pay for it. We don’t think that’s a reasonable position. If you really think this thing is valueless, then give it up and we’ll auction it off and see if people would pay something for it.”

The Beer Store, which operates 448 outlets across the province, has said such a change would mean higher prices for consumers.