Published On: Friday, 24 February 2017

Federal Government Taking Aim at Wallets of Business Owners

Federal Government Taking Aim at Wallets of Business Owners
With the promised deficit alarmingly higher than what Justin Trudeau said it would be – with no brakes in sight – there are hints of where the extra revenue the government now claims it needs.

- Mark MacDonald is the Publisher of the Business Examiner, and President of Invest Northwest Publishing.

CANADA - As expected, when the Federal government announced its spending intentions following their 2015 election victory, at one point or another, someone or some group was going to be expected to pay for those promises.

With the promised deficit alarmingly higher than what Justin Trudeau said it would be – with no brakes in sight – there are hints of where the extra revenue the government now claims it needs.

The Canadian Chamber of Commerce sent out a notice recently indicating the federal government is considering taxing employer-paid health and dental benefits.

In its release, the Chamber states: “Along with adding hundreds or thousands of dollars to Canadians’ tax bills, this proposal could cause many employers to stop offering coverage to employees.”

Before urging members to contact the Minister of Finance or their local MP’s to protest such a move, the Chamber noted when Quebec introduced a similar tax, 20 per cent of employers dropped health and dental benefits for employees. Studies suggest the removal of this tax benefit across the board could result in a decrease of 50 per cent of small firms that will be able to offer health benefits.

It was time to speak up, and the volume caused the government to back off. Whew. . .that was close.

At this juncture, it’s not clear whether Trudeau’s tactics will be similar to those of former PM Paul Martin and his famous “trial balloons”, where he would float a high number in terms of a potential tax increase before crossing the country, “listening and gathering input” from everyone before announcing a lower hike.

Which resulted in congratulatory thanks when the final increase was less than expected, and somehow made us feel better that we weren’t going to be paying that much more tax – just a titch more. It was clever salesmanship, politically speaking.

Letters of complaint from constituents do register with politicians, and are an important part of the process. If this was just a trial, then the volume of complaints and protest worked, and the federal government decided not to proceed.

A statement made years ago by a local politician rings true at every level of public office: “We will tax until we find opposition”. If there is no push back, the government considers this path of least resistance the best route to take, and proceeds undaunted.

There were more than a few hints that the feds were also going to increase Employment Insurance premiums for companies – perhaps as much as $1,000 per worker. Nothing has materialized on that front yet.

Other suggestions were increasing the GST a point or two, or even drawing funds from currently healthy Canada Pension.

Whichever pockets the federal government decides to pick for its pet projects has yet to be determined, but rest assured they’ll be aiming at business in some way, shape or form. It remains, therefore, for business to somehow offset those increased costs to the market – if the market can indeed bear it.

It’s not as if Canada’s economy is exactly robust. While we did extremely well to weather the recent global crisis better than most, indicators are showing that clouds may be gathering on the not so distant horizon. National economic growth has slowed to 0.7 per cent. Canada’s economy needs to be around 3 per cent growth in order to be considered growing, or healthy.

Trudeau’s Liberals campaigned on investing in infrastructure, which was palatable to voters. The country needs upgrades on its highways, water and sewer lines, for example, that haven’t been updated for decades.

Public buildings like schools and hospitals – shared responsibilities with the provinces but nevertheless a federal concern via transfer payments from Ottawa – and other projects were what many would have anticipated.

Yet virtually nothing has been announced as yet, although the Liberals have been pouring millions into their priorities – including sending bucket loads of cash overseas to various foreign governments, which doesn’t help Canadian taxpayers.

Canada became very tax competitive internationally under the previous government, and new U.S. President Donald Trump has already announced moves to bring America back towards reason with corporate tax rates. It might not make sense to non-business people that lowering corporate income tax actually stimulates the economy and ultimately gives the government more money in its coffers at the end of the day, but that is exactly what it does.

Why? Because it provides that all-important component: Incentive. Where if an investor sees an opportunity to move forward and profit from their risk, they’re more likely to take it. If the potential reward is not greater than the risk, they hold back. It’s human nature.

So it remains to be seen what the federal Liberals will do. Will they revert back to former established Liberal patterns of higher taxes to pay for government whims and wants? Or will they leave tax rates where they are and seek to remain competitive with our neighbours to the south?

Or will they keep current tax levels reasonable for investment and industry, and aim at increasing jobs and therefore the number of taxpaying employees who will contribute to the national purse?

As the Canadian Chamber urges, business needs to continue to make its voice heard.