Entrepreneurs surprised by good fortune but large companies complain aid is slow

Canada's small businesses found plenty to applaud in yesterday's federal budget, but large companies complained they will see their biggest gains phased in too slowly.

Garth Whyte, executive vice-president of the Canadian Federation of Independent Business, said the budget's big surprise was the list of measures that will benefit entrepreneurs and small companies.

"It's one of the best budgets in a decade," he said. "Almost everything we asked for is in this budget. It's pretty hard for us to be critical."

Finance Minister John Manley announced yesterday that small businesses will qualify for the reduced 12-per-cent tax rate on their first $300,000 of income, up from $200,000 currently. Mr. Whyte said the average small company will save $9,000 in taxes from the change, which will be phased in over four years.

As well, cuts to employment insurance premiums will save employees and employers $1-billion a year, Mr. Whyte said, while increased RRSP limits will help self-employed workers who don't have company pensions.

"This is a recognition from the Finance Minister that small business gave a major dividend to Canada during very turbulent times," Mr. Whyte said.

Moreover, the government's announcement that it will eliminate the unpopular capital tax will benefit small companies first, Mr. Whyte said.

The capital tax will fall over the next five years and will be eliminated by 2008. In 2004, the threshold for paying the tax will rise to a capital base of $50-million from $10-million currently -- helping mid-sized companies first.

Perrin Beatty, president of the Canadian Manufacturers & Exporters Association, said the greatest disappointment with the budget is that tax cuts will be phased in too slowly. Employment insurance premiums will fall, but not until 2004, and the capital tax will be eliminated over five years.

"If you were to ask businesses if you had one disappointment here that stood out above any other, it's the fact that they're dragging out over five years the elimination of that capital tax," Mr. Beatty said.

The tax is paid on capital, not income, and is assessed whether or not a company is profitable. Businesses complain the tax provides a disincentive for companies to make new investment.

John Weaver, chief executive officer of Abitibi-Consolidated Inc., said the forestry industry paid over $70-million in capital taxes last year and the phase-out of the tax immediately improves Canada's business climate.

"Their elimination will help Canada's forest industry to sustain jobs and to continue modernizing our facilities," said Mr. Weaver, who is chairman of the Forest Products Association of Canada.

Stew Low, spokesman for General Motors of Canada Ltd., said the capital tax change is the most positive measure in the budget for business. He said provinces should take the lead and end their own parallel capital taxes.

But Mr. Low said GM will not see the capital tax change hit its bottom line for several years, because its capital base is so large.

"We would have liked to have seen it almost an instantaneous measure and not a phased-in measure," he added.

Many people in the business community said they were concerned about the large spending increases announced in the budget, saying the government is running the risk of returning to deficits if the economy weakens.

The budget raises federal program spending by $14.5-billion or 11.5 per cent in the current fiscal year alone, on top of large spending increases introduced in the past two years.

Thomas d'Aquino, president of the Canadian Council of Chief Executives, which represents CEOs at 150 of Canada's largest companies, said federal program spending has risen 27 per cent in just three years.

"I hope this pace of spending growth proves short-lived and does not represent a fundamental shift away from the principles of sound fiscal management," Mr. d'Aquino said.

Jon Cockerline, director of capital markets for the Investment Dealers Association, said huge spending increases reduce the government's options.

For example, he said that while capital taxes were eliminated in the budget, the similar special capital tax paid by large financial institutions was not touched. Mr. Cockerline said that decision was disappointing.

"I think the amount of new spending in the budget really precludes much more on the tax front in order to keep the budget in balance, and that's unfortunate. The spending commitments in this budget are tying their hands."

David Bradley, CEO of the Canadian Trucking Alliance, said the budget was a "mixed bag" that throws money and modest tax relief at various issues, but lacks the direction and commitment of the last budget in December, 2001. That budget focused on borders, trade and security.

Mr. Bradley said truckers felt in 2001 that the government had finally begun to recognize the importance of assisting them with easy access to the U.S. market through border crossings.

The tax is paid on capital, not income, and is assessed whether or not a company is profitable. Businesses complain the tax provides a disincentive for companies to make new investment.

John Weaver, chief executive officer of Abitibi-Consolidated Inc., said the forestry industry paid over $70-million in capital taxes last year and the phase-out of the tax immediately improves Canada's business climate.

"Their elimination will help Canada's forest industry to sustain jobs and to continue modernizing our facilities," said Mr. Weaver, who is chairman of the Forest Products Association of Canada.

Stew Low, spokesman for General Motors of Canada Ltd., said the capital tax change is the most positive measure in the budget for business. He said provinces should take the lead and end their own parallel capital taxes.

But Mr. Low said GM will not see the capital tax change hit its bottom line for several years, because its capital base is so large.

"We would have liked to have seen it almost an instantaneous measure and not a phased-in measure," he added.

Many people in the business community said they were concerned about the large spending increases announced in the budget, saying the government is running the risk of returning to deficits if the economy weakens.

The budget raises federal program spending by $14.5-billion or 11.5 per cent in the current fiscal year alone, on top of large spending increases introduced in the past two years.

Thomas d'Aquino, president of the Canadian Council of Chief Executives, which represents CEOs at 150 of Canada's largest companies, said federal program spending has risen 27 per cent in just three years.

"I hope this pace of spending growth proves short-lived and does not represent a fundamental shift away from the principles of sound fiscal management," Mr. d'Aquino said.

Jon Cockerline, director of capital markets for the Investment Dealers Association, said huge spending increases reduce the government's options.

For example, he said that while capital taxes were eliminated in the budget, the similar special capital tax paid by large financial institutions was not touched. Mr. Cockerline said that decision was disappointing.

"I think the amount of new spending in the budget really precludes much more on the tax front in order to keep the budget in balance, and that's unfortunate. The spending commitments in this budget are tying their hands."

David Bradley, CEO of the Canadian Trucking Alliance, said the budget was a "mixed bag" that throws money and modest tax relief at various issues, but lacks the direction and commitment of the last budget in December, 2001. That budget focused on borders, trade and security.

Mr. Bradley said truckers felt in 2001 that the government had finally begun to recognize the importance of assisting them with easy access to the U.S. market through border crossings.