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But during the recent election campaign, the Liberal Party was budgeting for increased income tax penalties to fund some of its initiatives. Starting next year, it said it is expecting its government to collect $3.75 billion in new penalties over the following three years.

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No details were provided on the computation of these estimated new amounts, but they are part of the $51.75 billion the government expects to raise in overall new revenues over the next four years. Accordingly, the increased penalties represent 7.2 per cent of the new expected revenues. Not an insignificant amount.

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What is that telling you? Well, it could mean a number of things.

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To start, there are no increased penalties budgeted for the current year. Why? Is the government, through the CRA, only going to start assessing new penalties next year? Is there an obvious lag with the new penalties that have been introduced into law versus collection? I’m not sure, but the estimate for nil seems silly.

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Second, the increase in penalties sends a strong contradictory message from what the policy intent of penalties should be. If penalties are used as a recurring budgetary item, then the government is essentially budgeting for taxpayer failure. Is it finally admitting that our tax statutes are too complex? If so, there is a good solution: tax reform.

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Unfortunately, the Liberals only seem interested in a so-called “expert review” of the corporate tax system and not an overall review of our entire tax system.

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Third, does it mean the CRA will become even more aggressive than it already is? Haven’t had an audit lately? Well, count your lucky stars. Unfortunately, the CRA’s massive increase in headcount has not improved audit quality and has resulted in frustrating overall services.

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Fourth, if a government needs to count on billions in new revenue from penalties, such budgeting is reflective of underlying fiscal pressures, not genuine tax concerns. It is fiscally shortsighted and ethically questionable, especially if the penalties are applied as negotiating tactics on audits.

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The devil is in the details so we’ll have to wait to see if the Liberals’ first post-election budget is reflective of the above proposal, but such a plan appears reckless.

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Our federal government is addicted to deficit spending and plans to finance some of that spending by betting on Canadians failing to navigate a byzantine tax system it keeps expanding. You’re not managing a tax system when penalties become an increasing and recurring line item in your fiscal framework; you’re running a shakedown.

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To quote AC/DC, “If you want blood, you got it.” Apparently, so do the Liberals and they’re coming for yours, one penalty at a time. Dirty deeds, done expensively.

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Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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