Business confident of recovery, but fears tax hikes
• Canadian corporate directors are confident the companies they oversee will rebound quickly from the current economic upheaval, but worry the rebound may come at a significant cost, according to a new survey by Environics Research.
Commissioned by the Institute of Corporate Directors, the survey found more than half of respondents — all of whom were drawn from the ICD’S membership — believed their companies would recover from the COVID-19- induced downturn in less than one year.
They attributed to the ability to bounce back to a variety of factors: Most had crisis response plans in place prior to the pandemic and said they had executed on them effectively, while 63 per cent say they benefited from federal and provincial aid packages.
It’s paying for the latter that is cause for concern: 78 per cent of respondents are worried that the costs will trickle down to them through higher corporate and payroll taxes.
“Unfortunately, it is reasonable to assume that taxes will go up to pay for this unprecedented deficit spending,” said Rahul Bhardwaj, the CEO of the ICD. “It will be very important for government to get this right and to consult with businesses because coming out of the crisis, Canada will need every tool at its disposal to innovate and be competitive.”
Due to the combination of stimulus spending and low oil prices, the federal government’s deficit is expected to balloon to $ 252.1 billion in the next year, according to a recent Parliamentary Budget Officer report. As of late April, federal spending on programs such as the Canada Emergency Response Benefit, Canada Emergency Wage Subsidy and several others was about $150 billion.
Yves Giroux, the parliamentary budget officer, told the Senate Finance Committee on Tuesday that these measures will soon need to taper off, “otherwise we’ll be looking at a level of taxation that’s not been seen since for generations.”
The last time Canada was in a rough spot, in the wake of the 2008 global financial crisis, corporate tax rates actually declined. Keeping them low has historically been thought of as a good way to drive investment.
But Bhardwaj and the ICD members worry this time might be different. A hike would be particularly damaging to small and mediumsized enterprises, he said.
“These businesses are the engine of Canada’s job creation and they are already reeling from this crisis,” Bhardwaj said. “Further burdening them with additional taxes will have lasting negative impacts on our economy by virtue of reduced job creation.”
While these business leaders see a clear path back to strength for their own companies, they feel far less certain about a short- term turnaround for the Canadian economy. About 37 per cent of respondents think the
a level of taxation that’s not been seen since for generations.
economy will need between one and two years to recover, whereas 36 per cent suggest that the recovery could take between two and five years.
Environics conducted the survey online between April 8 and April 24. It sent invitations to 14,512 ICD members and 693 replied and participated. The results are accurate plus or minus 3.6 percentage points, 19 times out of 20.
The survey published a handful of anonymous comments from respondents explaining why they’re more confident about their own companies in comparison to the economy as a whole.
One leader said the impact of COVID-19 on their organization is more easily managed while another stressed they had more information about exactly what their company needed to recover versus the broader economy.