The Oldest Profession
The Underground Economy and Swiss Cheese

Ottawa - Thursday, February 28, 2002 - by: Walter Robinson, Federal Director, Canadian Taxpayers Federation


The T4 and T5 slips should have arrived and maybe you’re just waiting for that last $25 charitable receipt. Completing your tax return is like a shared misery and you take solace knowing that other folks are doing the same thing … or are they?



16% of

According to a new study from the Canadian Tax Foundation, this may not be the case. The underground economy is now estimated to be $130 billion or 16% of Canada’s GDP. This represents a combined $44 billion revenue loss for all levels of government. From tradespeople working for cash under the table to undeclared babysitting income to blatant and illegal tax evasion, the underground economy is flourishing.




Sadly, this is not new. Looking through the course of history, a strong case can be made that tax evasion is actually the world’s oldest profession, not the other activity more commonly thought of in this context. To be clear, the Canadian Tax Federation does not condone tax evasion. However, the Canadian Tax Federation does support tax avoidance through all legal means (ie: maxing out RRSP contributions, income splitting if possible, spousal RRSPs, charitable tax credits, etc.), as such behaviour is economically rational.




Yet it is quite obvious why the underground economy is flourishing. This one’s a no brainer: taxes are too high. And a new paper from Ottawa based economic forecasting firm DRI-WEFA reinforces this point. In 1996, government revenues from taxes accounted for 41.1% of GDP. In 2001, the figure dipped only slightly to 40.1%.



7.4% of

On budget day last December, we noted that federal personal income taxes (FPIT) as a percent of GDP had actually increased during the Liberal mandate. In 1993, FPIT represented 7.34% of GDP, as of the last budget this number had climbed to 7.40%.




As historian Charles Adams noted in his seminal book For Good and Evil, “as taxes increase, evasion increases. Once tax evasion becomes deep rooted, it is almost impossible to root it out.” He states that “people tend to resist heavy taxation in the following ways: first, lawful avoidance; second, if avoidance fails, then either evasion or flight to avoid tax; third, rebellion; and finally, when there is no other alternative, they have accepted serfdom when it offered the only relief for outrageous taxation.”




Hmm serfdom, kind of sounds like our present federal political malaise, doesn’t it? But alas, we digress. Canadians will never see a Boston Tea Party, but with 16% of economic activity clandestinely conducted, it is safe to say that more than a few upstanding citizens are part of this mix, it’s not just confined to society’s unsavoury elements.




The issue here is value for taxes paid. Oliver Wendell Holmes was right when he said that taxes are the price we pay for a civilized society. But a civilized society must show respect for those who pay the freight by providing excellent, needed and focused public services as opposed to the current all-you-can eat buffet approach to government.




Twenty-four cents out of each federal revenue dollar still goes to pay debt interest courtesy of Mr. Trudeau and ALL his successors. Portions of the remaining 76 cents are still funneled to corporate welfare and regional development agencies ($4 billion), questionable multiculturalism initiatives and discretionary schemes at HRDC and other departments ($9 billion).




But we shouldn’t be surprised, the feds continue to mislead us on corporate welfare repayments and the list of broken Liberal promises keeps on growing. Adams’ notes: “Historically the conscience of tax makers has often been like Swiss cheese – full of holes; when that happens, the conscience of taxpayers is also like Swiss cheese.”
  Sounds like Mr. Adams has Canada, its legislators and the underground economy fitted to a tee.
  Walter Robinson
Federal Director
  Candadian Taxpayers Federation web site
  "Our Income Tax - the Dark Side" by: Charles Adams