This past week I ran into a couple of articles that really define the issues on the Canadian political landscape and their impact on small and mid sized enterprise in this country.
The article linked here from the Fraser Institute provides some data on comparing government and private sector compensation. Link – https://shar.es/a1RpHx For as long as I have been working the most common understanding at the grassroots level for most Canadians was work for the government, you’ll make a little less but make up that ground when you retire with better benefits and pensions.
Looking at this data it’s easy to understand why this has been for some time the fastest growing employment sector and the country is running such large deficits. Now let’s add into that a recent article where our finance minister expresses his comfort with both the deficit and any potential upcoming recession. Link – http://a.msn.com/00/en-ca/BBP0xOp?ocid=se Interestingly the common denominator that most global economists cite as the next big crunch is debt levels. What do we get with less revenue and more debt…?
These two items combined truly show the disconnect between our government and where business in Canada is. Since coming into power the federal Liberals have removed many tax advantages and increased taxes for dividends for small business. They’ve proposed invasive but not subsidized pension options, they proposed taxing employee benefits and they have changes several features of the tax act that helped small business grow and capitalize itself. They’re considering, while running a large deficit a single payer National Pharmacare plan that isn’t as efficient as other options.
They’ve forgiven large loans and provided grants may times without strings attached for large corporations and continue to allow tax structures like complex trusts for the elite, like the Trudeau’s and Morneau’s of the world themselves. Bombardier this week cut 5,000 jobs as a prime example. Now, it’s really a more complex issue than just that, for example Bombardier competes in a global market that’s competitors also receive subsidies to retain the business locally.
There’s a fine line politically between heavier employment standards that benefit workers and reduce employee abuse. The whole Wynne and Ford philosophies scream of too far left versus too far right. Progress is good and some improvements such as equality and discrimination legislation make a lot of sense.
The problem here is this. The only growing sector non government related is SME’s. If there are no businesses and therefore no jobs, incomes and both personal and corporate taxes, how can you pay for government whose original intent was to help govern and certainly not produce revenue. It’s lost on all forms of government today, including many government employees who generally vote as far left as they can, that without a healthy approach to business and the economy there will be no revenue to pay their “guaranteed defined benefit” pensions in 10 or 15 years.
Talent is leaving the country as we simply make it too hard to do business and too tax heavy to be successful. Rules for doctors and other professionals are also costing us talent. When we encourage globalization which has a huge Canadian push these days what happens? Companies start doing business in other countries, they realize they can get more talent for the dollar elsewhere, pay corporate tax at lower rates elsewhere. It becomes a self fulfilling negative. Now, I’m not advocating for a nationalistic approach, just improve the environment for business to be competitive, vibrant and successful at home.
The view on the left is that lower corporate tax and lower income tax rates for those who have worked hard to get ahead is negative and somehow they are getting ripped off. The reality is the business owner and many of the executives who sacrifice hours of their lives to their jobs should get some breaks. They take all the risk and yet the tax they pay funds all the higher paid government workers and social programs.
The focus on a carbon tax is ridiculous. Most studies show if a tax is implemented the amount needed to have significant impact would be about 50-200 times the levels proposed. But a carbon tax is just another tax, it doesn’t remove any pollutants and make the world greener. Yes, we absolutely have to improve our environmental footprint but we’ve got to find a better way. Adding more tax burden to an already overtaxed system is economic suicide.
What many Canadians do not know is this. A typical small business starts from scratch. Most of these folks mortgage their homes, take significant risk and earn very little the first 5-10 years of their start up phase. Once they begin to be successful then they have to pay off the debt they accrued trying to get things going. Now, after 10 years they start to make real money, let’s say some are earning $ 200k. Most Canadians think that they earn too much and are happy they pay 54% or more tax depending on the province. Yet this business owner may have had an average income of less than $50k over the first 15 years of their enterprise.
Now on top of the 54%, assuming they’ve been building some cash flow in their business, they’ll have paid first a corporate tax of another roughly 15% again province dependent, of corporate tax. That means the money coming out, does so at 70%. 30% for their hard work goes to them and 70% goes to the mismanaged political system.
It’s time that regardless of our political stripes we realize if we don’t start supporting our own business environment we will eventually become a non player on the global front. Even if you are a beneficiary of the tax system and a government employee surely you can see how we can’t keep funding things the way we have been without huge future problems similar to what Greece experienced. The interest alone on our debt is becoming unmanageable with some provinces like Ontario running with more per capita debt than a bankrupt California did. What’s keeping this whole boat afloat, tax revenue. If we don’t change it will end.
The system needs an overhaul and I encourage everyone to get engaged with their local politicians and help evolve our approach. We need the entire Canadian landscape to change their approach.