Budget killing businesses
Everyone knows you don't kick someone when they're down. But that's what the federal government's latest budget will do to many small business owners who are struggling to stay afloat or striving to take their ventures to the next level.
While the budget includes some small business relief measures, it also increases the capital gains inclusion rate. This generated blowback from groups such as the Council of Canadian Innovators, a national coalition of tech CEOS.
The council published an open letter denouncing the tax measures in the budget, claiming they will hinder tech entrepreneurs trying to grow their businesses. The open letter says the tax hike will “stifle growth” and issued the following rebuke: “You cannot tax your way to prosperity.”
Other groups worry that the tax increase will be another nail in the coffin of Canada's small business sector. Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), said he's concerned that the budget measures have the “potential to demotivate Canadians from getting into business in the first place or working hard to grow a small business to a medium-sized business.”
It's not just crushing taxes that are hurting small businesses.
It's also job-killing regulations. Earlier this month, the CFIB published an article by its chief economist, Simon Gaudreault, who argued that reducing red tape and regulation would dramatically increase Canada's productivity.
According to Gaudreault, we could free up 205-million hours of time, or approximately $11 billion of squandered money, which could go toward more productive tasks.
The CFIB'S most recent Canada's Red Tape Report, published in 2021, found that the red tape burden falls disproportionately on the shoulders of small businesses.
According to the report, in 2020, the cost of regulation per employee for small businesses with fewer than five employees was just over $7,000 — five times more than the cost per employee for businesses with more than 100 workers.
So although red tape ties up many businesses, it chokes the life out of small business.
The report also showed that in 2020, the average business spent 677 hours, or 85 days, complying with regulation.
Most of the bureaucratic rules and the hoops businesses have to jump through do little or nothing to protect the public or serve society. On the contrary, they put a dent in the bottom line and hike prices for consumers.
Canada's small business owners tell me this all the time. A National Post reader and entrepreneur shared the following with me a few months ago: “The barriers to entry, compounded by the burden of taxation and the absence of incentives, have increasingly cast a shadow over the once-thriving entrepreneurial spirit.
“Like many of my peers, I find myself at a crossroads where the perceived risks outweigh the potential rewards, a realization that saddens me deeply. It is disheartening to witness the erosion of confidence in the entrepreneurial journey, particularly when confronted with the stark reality that the risk-reward balance no longer tips in our favour.”
Another small business owner bemoaned the current state of affairs by saying that, “Entrepreneurs are swimming upstream in Canada today.” Yet another said: “I will certainly not be endorsing any young person to start a business in this country until things change drastically.
CANADA'S SMALL BUSINESSES ARE BLEEDING.
I will be telling my kids to get an education in a field that looks promising. Don't have any dreams of becoming an entrepreneur because that dream will most likely turn into a nightmare.”
These heartfelt sentiments are a devastating indictment of a system that is crushing the life out of Canada's once-proud entrepreneurial spirit.
Canada's small businesses are bleeding, and if we don't stop the hemorrhaging by reducing taxes and slashing red tape, a growing number of them are going to go under or simply close up shop.
If we reduced regulations and lowered taxes, small businesses could grow like wildfire.
It's the badly needed shot in the arm that Canada's economy needs right now.