Amy Minsky, Global News

OTTAWA – Canada’s wealthiest citizens are hiding billions of dollars in tax havens around the world – a phenomenon that’s blowing big holes in the government’s tax-collection efforts and placing a heavy burden on low- and middle-class citizens, one expert says.

In 2011, Canadians stashed $53.3 billion in Barbados, $35.8 billion in the Cayman Islands, and $13.2 billion in Bermuda.

If politicians fail to take action on amending the policies leading to tax evasion, the burden could increase, said James Henry, a former chief economist at international consulting group McKinsey & Co.

New Democrat MP Hoang Mai has submitted a motion to the House of Commons finance committee which he hopes will help the government map out ways to tackle tax havens.

“Tax evasion is not a victimless crime,” he said, noting Canada has lost close to $10 billion per year in revenue. “Every single Canadian taxpayer has to foot the bill.”

Earlier this year, Liberal Senator Percy Downe said the government seemed to be allowing some tax evaders off the hook, pointing to the case of the 106 Canadians who were found holding more than $100 million in bank accounts in Liechtenstein, a tiny country bordered by Austria and Switzerland.

The Canadian government hasn’t sanctioned any of those individuals for tax evasion, Mai said Monday.

“The government isn’t really being tough enough on white-collar criminals,” he said.

At the heart of the issue, Henry says, is the growth of tax competition among countries.

“What we have to understand, is this is a race to the bottom,” he said. “Corporate tax revenues have been dropping across the board as the corporate tax base shifts to havens.”

The effect is either budgetary cuts to essential services such as fire, police and national security, or budgets that low- and middle-class individuals and small businesses – entities without the ability to avoid taxes – end up shouldering, Henry said.

Effectively, the average taxpayer is responsible for picking up the tab.

Tax havens share a couple of common characteristics, Henry said. The haven usually has low income tax rates, especially for people who are not residents of the jurisdiction or for corporations not doing business in the country.

Secondly, there tends to be a lot of secrecy associated with the jurisdiction. “There’s typically no information available on who owns what – either the bank accounts that are there, or the corporations that are involved,” Henry said.

Canada, of course, is not alone in this.

A recent study found that lax international tax rules opened the door for the world’s super-rich to squirrel at least $21 trillion into these tax-free havens.

“And that’s mainly by individuals who are in the top 0.1 per cent of the world’s population,” said Henry, who helped author the report released in July. “So it’s very concentrated.”

Of those roughly 10 million people, the top 100,000 own about 30 per cent of the money stored in havens, he said.

The system, which Henry described as “multileveled and very sophisticated,” is sucking up a lot of the world’s wealth.

The total tax loss to low- and middle-income countries is about $300 billion per year, he said.

The Conservative government is aware of the problem, and has taken steps to help combat it.

In the 2012 budget, Finance Minister Jim Flaherty closed a loophole that made it easier for tax evaders to hide money in havens.

That step followed a treaty Prime Minister Stephen Harper signed with Switzerland two years ago, which made available information about Canadians holding Swiss bank accounts, ensuring they report their income.

“We are unforgiving when it comes to tax evasion,” Flaherty said Monday. “And we are cooperating with our colleagues in some of the places in the world that are known as tax havens.”

The Conservatives have also reduced corporate tax rates to a competitive level, which Flaherty argued means less motivation for Canadian businesses and individuals to move money offshore.

But if the government doesn’t attack the problem head on, as the New Democrat MP hopes will happen, the problem could get worse.

“Tax dodging is absolutely contagious,” said Henry. “Once you have this sense that everyone else is cheating, you ask, ‘Why am I a fool?’” he said.

For more on this story go to:

Global Edmonton | Opposition, critics call for crack down on tax evaders