By Dan Kelly
Published in the Financial Post March 7, 2017
They say every new day is full of possibilities. The same can be said of government budgets. Every time our elected leaders put out a budget, it is another chance to get it right. Even if you already got it right once, in fact, there is always more that can be done, and that’s why — for policy nerds like me — budget day is like Christmas. And so it is with the 2017 federal budget.
The 2016 federal budget was deeply disappointing for middle-class small-business owners, who were denied a promised reduction in the Small Business Tax Rate, and instead were treated to a plan to increase Canada Pension Plan payroll taxes for seven straight years starting in 2019. But that was last year. Our new government had other priorities at the time, and I always try to be optimistic that the next budget will be a better one for the hard-working small business owners that drive Canada’s economy.
Here are few things I am watching out for:
A competitive tax environment
The small business rate was established to recognize and address the heavier burden inherent in smaller businesses, and remains vital to this day. The costs and challenges of running a business are magnified for smaller firms as they must comply with all the same regulatory requirements as larger firms without the resources and staff to handle them. When your head chef is also your compliance department, you know that the playing field is far from level. Also, with small firms’ more limited access to lending and capital, the lower rate on small business helps them reinvest tax savings into growing or strengthening their operation.
A federal government task force has been tasked with reviewing tax expenditures, and once again, small firms have reasons to fear there may be further negative changes to the small business corporate tax rate. I hope the government will instead reinstate their promised reduction to nine per cent. This would be one key measure the government could employ to help offset the impact of a CPP increase and carbon pricing.
Ensuring tax and duty fairness with U.S. firms
Small firms will be relieved that Prime Minister Trudeau appears to have calmed the waters on the trade front with the United States. His meeting with President Trump helped downgrade the threat to Canada-U.S. free trade from red alert to a potential tweak. One of the items I am watching is a U.S. demand that Canada increase the amount that a Canadian consumer can order from U.S. online retailers free of duty and sales taxes. Suggestions are to raise this from the current $20 to $200 or even $800. While a consumer may think this is a heck of an idea, it would put small Canadian retailers in the position to charge GST or HST, where the U.S. multinational would be exempt. CFIB strongly encourages the government to reject this idea.
Deficits we can see beyond
In life, there is not just black and white, and in fiscal planning, there is not just black and red. We expected deficits in 2016, but not all deficits are created equal, and $29 billion went well beyond the expected deficit spending for infrastructure that was proposed on the campaign trail. Budget 2016 had no road map for how to get back to balance in a reasonable amount of time.
Deficits are not really deficits. They always morph into something else. The nature of spending money that you don’t have is that you’ll have to do without something else in the future. That could mean having to pay higher taxes, it could mean cuts to essential programs, but something always has to give, even if the government that creates the deficit is not around when the bill comes due. This year, it is essential that we see the map.
Access to labour
Smaller firms cannot afford to get into a bidding war with their larger competitors to pay for top talent. In order to recruit, train and keep the staff they need, small businesses need the flexibility to train on the job, and address regional worker shortages more efficiently. The federal government has taken positive steps to improve access to the Temporary Foreign Worker Program where it is needed, and I would encourage them to go further, by recognizing that sometimes, the need for workers is not at all temporary. A pathway to permanent resident status for lower-skilled foreign workers is badly needed. Existing work training programs also need to be expanded to recognize on-the-job training.
Regulation, red tape and innovation
Regulation is not all red tape, but small business owners estimate that we could do away with fully one third of all government regulation without impacting public safety, security or the environment. That one-third is red tape and, as mentioned, it affects smaller businesses disproportionately. CFIB has asked the federal government to introduce an innovation lens, and apply it considering new regulations that could stifle small business innovation.
Of course, reducing existing red tape should be a priority, and I welcome any and all efforts to build upon the one-for-one rule that requires one regulatory requirement to be removed for every new one that is added.
While there are always pre-budget worries and potential bad surprises, I always remain optimistic that government will take action on some of the issues of concern to small business owners. Small firms are just too important an economic driver for any government to ignore their interests or to tie their hands.
This story was originally posted in the Financial Post.