A Tightrope Budget
Dan Kelly column
Financial Post Small Business
Publication date: March 7, 2011
A Tightrope Budget
While budgets are normally a tricky economic and political calculation at the best of times, everything about the 2011 Federal Budget has been controversial - right down to the date. All eyes have been watching the timing of the budget and the positioning of opposition parties to determine whether Canadians will have an election in the spring or not. The date has since been confirmed as March 22. Heck, even CFIB's set of pre-budget recommendations became a political hot potato this year, with both the Tories and the Liberals claiming that their position has the support of Canada's entrepreneurs.
From CFIB's perspective, we're pleased that both parties are trying to hug small business. For the record, independent businesses do support the series of general corporate tax cuts that will be completed next year. While few smaller firms pay the general rate itself due to the $500,000 threshold under which a firm pays the lower small business rate, all entrepreneurs benefit if the fiscal health of medium and large enterprise is improved. The Tories were right to say that their decision to bring the rate down to 16.5 per cent this year and 15 per cent in 2012 had the support of CFIB and small business.
However, the Liberals were also right to say that a cut in the general corporate tax rate was not CFIB's top priority for 2012. In addition to the fact that we operated from the assumption that the corporate tax cut was already in place, the top priority for our members right now is to see some pressure reduced from rising payroll taxes in Canada. CFIB did support the government's action to bring down the planned 21 cent Employment Insurance (EI) tax hike for employers down to 7 cents late last year, but we have not shied away from the fact that there was still a net payroll tax increase in 2011, albeit a small one.
CFIB's number one budget request is to see some progress to reduce the burden of rising payroll taxes - particularly on those businesses who are working to create new jobs. That is why we have recommended an EI Hiring and Training Tax Credit. This would build on a very popular EI "New Hires" program from the late 1990s where firms that increased their payroll for any reason did not have to pay EI on the additional wages. The Liberals brought in this program in the 1990s and we think it is time for government to introduce a modified version to help small firms grow Canada's workforce. Both the Obama and Cameron governments have introduced something similar in the US and UK respectively. In fact, CFIB was lobbying for such a program to help offset the high cost of informal, on-the-job training even before the recession put pressure on EI rates.
Staying with the theme of payroll taxes, CFIB is also calling on all governments to drop the call for a mandatory Canada Pension Plan (CPP) increase. We are very pleased that Finance Minister Flaherty helped move the discussion towards a Pooled Registered Pension Plan (PRPP) in a December meeting of Canada's finance ministers. A PRPP would provide a new option to the self-employed and small business owners looking for accessible and lower cost retirement savings plans while still offering the benefits of voluntary employer contributions. While we don't like the proposal to make registration in such a plan mandatory, it is a major improvement over the earlier discussion to hike CPP payroll taxes for both employers and employees. It is clear - particularly from a recent CFIB meeting with Ontario Finance Minister Dwight Duncan - that the push for higher CPP taxes and benefits has not gone away at the provincial level.
CFIB has provided a numerically appropriate top 11 list of budget priorities for 2011. Some of the highlights include:
- Indexing the Lifetime Capital Gains Exemption to inflation (an outstanding Tory election commitment);
- Lifting payroll taxes from group RRSPs as exists for group pension plans presently;
- Further consideration of reducing the small business rate, in recognition that the differential between the small business rate and the general corporate tax rate has eroded;
- Raising the threshold of or eliminating altogether the clawback of the Small Business Deduction (currently phased out between $10 and $15 million in capital). This clawback hasn't changed in decades.
- Eliminating plans to enforce the new T4A form, which will introduce much new red tape with no measureable impact on the underground economy.
- Building on a promise to improve "taxpayer fairness provisions" in the 2010 budget by requiring CRA to provide written interpretation on tax inquiries when requested by email. If a business follows CRA advice which turns out to be incorrect, the firm should not be held responsible.
- Reducing the growing gap between public sector and private sector compensation, benefits and pensions, increase the retirement age in the public sector and move from defined benefit to defined contribution pension plans in the public sector.
Having carried Canada's economy through the worst of the recession, small business owners are now poised to lead Canada's growth. It is vitally important that the 2011 federal budget contain policy decisions that will help, and not hurt, their future plans. This is especially relevant as the Federal Government recently joined CFIB in declaring 2011 as the Year of the Entrepreneur. On behalf of our 108,000 small business members across Canada, CFIB will be watching closely on March 22.
Dan Kelly is senior vice president of legislative affairs for the Canadian Federation of Independent Business, which represents the interests of small- and medium-sized business and lobbies on behalf of its 108,000 members at the federal, provincial and municipal levels.
