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Reneging on promised tax rate cuts was a blow for small business, but we’ll come out swinging in their defence

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  • Reneging on promised tax rate cuts was a blow for small business, but we’ll come out swinging in their defence

By Dan Kelly

Published in the Financial Post March 31,2016


March was a tough month for small business.

On the economic front, small business confidence was at its lowest nationally since 2009, CFIB’s monthly Business Barometer shows, with Alberta, Saskatchewan and Newfoundland hitting record lows.

Then there was the federal budget. I have to admit even I, after 25 years of lobbying and working with politicians at all levels of government, did not see the hit to small business coming.

One of my best accomplishments in the past several years was the progress made on the small business corporate tax rate. While big business saw federal tax rates cut nearly in half (to 15 per cent, from 28 per cent) by Liberal and Conservative governments since 2000, the small business rate fell a mere one per cent to 11. However, plenty of progress was made on other small business priorities, including capital gains taxation, credit card fees and Employment Insurance.

That’s why CFIB was excited when the New Democrats made small business tax rates an election issue, proposing a reduction to nine per cent, from 11 per cent, and inviting CFIB into their platform strategy session. At the time, the media paid great attention to the so-called “love in” between CFIB and the NDP.

That momentum helped us convince the Conservative government to put a small business tax cut into the 2015 budget. It announced it would cut the rate to nine per cent over the next four years, and even put the four year reduction schedule into legislation, which typically makes it more troubling for a future government to undo.

In a meeting with Justin Trudeau while in Opposition and in a pre-election video interview with Green Party Leader Elizabeth May, both parties were asked to agree to address the corporate tax inequity, with both publicly committing to a rate of nine per cent by 2019. Trudeau even promised that rate in a letter to CFIB, a promise that remains on the Liberal Party website and is in the mandate letter sent to the Bardish Chagger, Minister of Small Business.

he government delivered the first installment, dropping the rate to 10.5 per cent on Jan. 1, 2016. So you can imagine my surprise when, in its inaugural budget, the government said, “Budget 2016 proposes that the small business tax rate remain at 10.5 per cent after 2016.” They helpfully note they will have to change the law to make this happen.

This decision will cost small businesses more than $900 million a year starting in 2019, just as the country is counting on them to create jobs and help get the economy back on track.

Why would the government abandon its promise, particularly so soon after making very public commitments? It has been suggested it is because the small business tax rate encourages companies to stay small, others say it was punishment for the small business community and CFIB getting too cozy with the previous Conservative government.

My best guess is some elected Liberals truly believe small business owners are part of the one per cent. But for a government that speaks regularly about evidence-based decision making, this argument doesn’t pass any test.

The curve of income distribution among business owners is almost identical to that of employees, even when including salaries, dividends and investment earnings. Fewer than 10 per cent of employers earn $200,000 or more a year, the approximate definition of high income used by the new government for personal income taxes, and there are more business owners under the low income threshold than among paid employees.

The simple truth is Canada’s small business owners are overwhelmingly middle class. When we talk about reducing the small business tax rate, we’re talking about a tax cut that would have helped the very people the government wants to help most.

To borrow a phrase from one of Prime Minister Trudeau’s favourite pastimes, the small business community took one on the chin this time round. But CFIB will come out swinging in defence of the forgotten middle class and ensure Canada’s economy gets back to fighting form.

As a non-partisan advocacy group, CFIB pulls no punches on bad policies that hurt small business owners, no matter who’s in power. In his autobiography, Brian Mulroney singled out CFIB for being a giant pain when he implemented the goods and services tax. CFIB also lobbied the Jean Chrétien government hard over employment insurance premiums, and no one screamed louder when the Stephen Harper government largely killed small business access to Temporary Foreign Workers.

We are also the first to applaud policies that help.

We will continue to work with the government where we have common ground and strongly oppose policies that will damage the economy, and we’ll remind the government at every opportunity of the promises it made to Canada’s small business owners.

This story was originally published in the Financial Post.