By Dan Kelly
Published in the Financial Post January 3, 2017
As I looked at the stockpile of exciting new Lego sets and Nerf guns waiting under the Christmas tree, my mind instinctively drifted toward what must be done in this new year (aside from toy assembly), and what we can expect going forward.
The past year was a tough one for many small businesses. The cancellation of promised reductions in the small business corporate tax rate, the surprise agreement to increase the Canada Pension Plan over a seven-year period starting in 2019, and five years of carbon prices kicking in next year, have many small firms wondering where they will find the money to keep going, let alone to expand, in 2017.
From the outset, it’s shaping up to be another tough year. The Canadian Federation of Independent Business’s Business Barometer, which measures small business optimism, has been flat-lining for months. Most important, for the first time in many years, there are now more small firms reporting that they will reduce full-time employment than increase it. This is very troubling and needs to be taken seriously by public policy measures.
So what else can we expect? While my crystal ball is no better than anyone else’s, here are some of the things I’ll be keeping an eye on as we head into 2017.
With the signing of the Comprehensive Economic and Trade Agreement agreement with the European Union, many more small and medium-sized businesses across Canada will look to Europe for opportunities. Having just visited Helsinki to promote CETA, I can confidently say that interest in Canadian goods and services is high. And while the European economy remains stubbornly flat, a market with 500 million customers is surely an attractive proposition for Canada’s entrepreneurs.
As for NAFTA, I don’t anticipate any premature disruptions. Prime Minister Trudeau’s early offer to renegotiate the agreement could prove a solid strategy, as President-elect Trump may look for a symbolic win in public that doesn’t disrupt NAFTA’s critical elements. And while the future of the Trans-Pacific Partnership looks bleak, there is a play for Canada to press on independently with the other countries involved, to create what in the end would be preferential access to three major trading blocs (Europe, the U.S. and Asia).
This is one of the sectors showing some positive signs. Recent rave reviews in important travel publications, Canada’s 150th anniversary and the low Canadian dollar will all help lure more visitors to our country in the coming year. While I was in Calgary over Christmas, I saw the airport packed with U.S. skiers heading to Banff. I expect to see much more of this.
SHORTAGE OF LABOUR
The government’s early changes to the Temporary Foreign Worker program are very positive and have reduced the recent hysteria over this issue. The elimination of the four-in-four-out rule will end the practice of sending home workers who have, after four years here, had their credentials recognized and begun to establish roots in the community. The government appears to be listening to the needs of small business owners on this issue and seems open to CFIB’s recommendation for a pathway to permanent residency for TFWs, regardless of their skill levels.
While there has been some good news recently with the approval of pipelines and the prospect for U.S. approval of Keystone XL, most energy-related news is troubling. Ontario’s small- and medium-size businesses are apoplectic over hydro pricing and the government’s mismanagement of this file. While there are mixed views among SMEs on carbon pricing, they are in store for major hikes in fuel and natural gas costs, with little natural customer growth to make up the difference.
Alberta’s headlong plunge into a $15 minimum wage with one of the worst economies in Canada will trigger fallout. If experience in other jurisdictions is any guide, expect more Alberta employers to downsize, replace staff with technology or simply give up. Also, expect calls from unions for the other provinces to follow Alberta’s ill-considered lead.
SMALL BUSINESS TAXATION
Some members of a federal government task force appointed to look at tax expenditures are questioning whether small firms should have a lower tax rate than large firms. Even last year’s changes to the small business rate as it applies to partnerships has created concern over unintended consequences and overreach. I for one am very worried that Ottawa will implement Quebec’s rollback of the small-business tax rate for firms with fewer than four employees. Sadly, in 2017, the dépanneur in Trois Rivières with two staff will now be considered a big business from a tax perspective. This would be a Code Red issue for CFIB and small business owners if applied federally.
While some provinces appear to be clawing their way out of deficit, the federal government is sinking deeper in. New generous civil service contracts that do not scale back such benefits as excessive sick-leave entitlements are proof that infrastructure spending is but a small part of our ballooning deficits. Entrepreneurs have learned the hard way that today’s deficits are tomorrow’s taxes, so their big question is when will higher general rates of taxation result. All eyes will be on the Spring budget to see if this happens in 2017.
So, there’s lots to watch for in the coming year. After 45 years, CFIB begins another year of serving the small business community. We’ll continue to applaud good policies and developments and sharply criticize the bad. Along the way, I’ll work on this pile of new toys needing assembly.
This story was originally published in the Financial Post.