Governments of all stripes are often eager to turn the page in times of tumult.
It’s probably an appropriate strategy: when you’re in the midst of turmoil, it’s best to change the conversation by presenting the public with some positive news.
Last week — following three months of intense backlash culminating from their small business tax proposals — the federal government introduced some ‘cheerful’ news in the form of their fall economic statement. In it, the government trumpeted lower-than-projected deficits, solid GDP growth and improving job numbers. They also increased the Canada child benefit by indexing it to inflation as of July 2018 and boosting their working income tax benefit for low-income Canadians in the workforce.
Much of this is good news, but has the page turned?
Not so fast.
The smaller deficit number is welcome but what’s missing is a plan to get back to a balanced budget. Right now the country’s economy is improving, but are we prepared for the next slowdown? What tax tools or levers will the government be forced to implement when the rainy days eventually come and revenue growth inevitably drops?
A plan towards deficit elimination should be a priority right now.
What was also missing from the government’s economic update were details on its revised small business tax proposals.
Thanks to a three-month unprecedented backlash from the small business community, the government has partially retreated on their tax measures.
Most importantly, they dropped provisions to limit the use of capital gains in business succession. They also exempted up to $50,000 in annual passive income from proposed higher tax rates on the money firms have invested for future expansion or for the business owner’s retirement.
They even reinstated a 2015 election promise to reduce the small business corporate tax rate to nine per cent. That promise — which had been abandoned in the 2016 budget — will help return hundreds of millions of dollars to independent business owners. The government should be congratulated for these important moves.
But while the feds have backed away from their original bluster (which included characterizing small business owners as tax-cheats), version 2.0 of the tax measures will still make it more difficult for business owners to grow their businesses, innovate and create jobs.
We await further details to understand the full effects of these proposals on small businesses and their families. In particular, we need details on whether the passive income threshold will be indexed to inflation or what the CRA test will be for income shared among family members associated with a business.
Aside from the proposed tax changes, small business owners still face a myriad of other challenges.
We are anxious about the NAFTA negotiations — the current U.S. administration muses about killing the trilateral pact. What happens if NAFTA is terminated? There are also major tax hikes going ahead, including EI and CPP rates, carbon taxes on top of rising borrowing costs, higher minimum wages and new labour legislation in some provinces.
So, while the federal government may wish to turn this page — for small business owners, the next page still has a lot of question marks.
Dan Kelly serves as President, Chief Executive Officer and Chair of the Board of Governors of the Canadian Federation of Independent Business (CFIB). Republished under arrangement with the Asian Pacific Post.