A flat second quarter has economists holding their breath. Europe is clearly experiencing a double-dip recession, growth in the United States is only in fits and starts, and China is slowing down.
How can Canada get its economy going?
How about encouraging self-employment.
We already have low interest rates, stable financial institutions, hiring credits for small business and relatively high consumer confidence.
What we need is more people taking the risk of starting a new business in the first place.
For that, Canada should look to the country that invented the term “entrepreneur.”
A recent OECD report highlights that France had explosive growth in new business start-ups over the past five years, compared to other major world economies.
While Germany, Britain, Spain and the United States saw the number of new businesses fall or stay flat, France had more than double the rate of new enterprises started in 2009, 2010 and 2011 compared to 2006.
This impressive burst in job creation can be attributed to the 2008 policy for “l’auto-entrepreneur” which creates a new tax status for the self-employed. For some people, this starts as a moonlighting opportunity on top of their day job. For others, it’s the leap into full-time employment in your own company.
Essentially, the French have a relatively low income tax and then high “social charges,” which in theory are supposed to pay for a generous retirement pension, but in reality just get sloshed in with general tax revenue. Unlike income tax, the amount of social charges has little relationship with income or profit. It’s more like our payroll taxes.
The “auto-entrepreneur” policy moves self-employed people into a category that levies social charges only on revenue made, rather than steady charges in boom or bust periods.
It is combined with sharply decreased red tape on business creation for self-employed individuals, allowing people to spend more time doing and less time filling out forms.
The goal for the French was to create a more entrepreneurial culture, where people feel comfortable starting businesses to sell their skills in a service economy. It had a huge impact and created a boom in self-reliant entrepreneurs.
There have been some smart moves in this area from the federal government, including allowing the self-employed to opt into CPP and providing tax credits for new hiring in small businesses.
However, a dramatic simplification of the rules and taxes for the self-employed should produce a dramatic shift in new start-ups.
> Allow tax exemptions or credits for income earned from self-employment to a modest threshold.
> Integrate provincial and federal business regulation, allowing for one-stop on-line incorporation, Employment Insurance, business and HST registration.
> Most importantly, reduce payroll taxes like Employment Insurance, the equivalent of France’s “social charges”
Not only will this spur economic activity directly, but it will produce a culture shift as more people think of themselves as entrepreneurs, and not employees.
Dramatically easing the barriers to entry for small single-employee start-ups would help Canada both address challenges of unemployment, but also harness more of the talent in the country in job creation.
Some of these self-employed people will start hiring others as their business grows, building out small companies and eventually larger ones.
George W. Bush never actually said: “The problem with the French is that they don’t have a word for entrepreneur.”
But that sentiment would be doubly wrong today.
Andrew Steele is a consultant and social entrepreneur living in Toronto.