News

As part of our on-going budget coverage, we've asked Catherine Swift, the president of the Canadian Federation of Independent Businesses (CFIB), to analyse the budget's impacts on small- and medium-sized firms, and take your questions.

As a preamble to that discussion, Catherine offers the following comments. She will elaborate on these thoughts, and answer your questions at 1 pm today.

The federal budget provided some good news for small- and medium-size businesses, including measures that will help them save time and invest for the future. We were pleased to see lifetime capital gains exemption (LCGE) for small business increase from $500,000 to $750,000. The details of how the government plans to reduce regulations and paper burden came as welcome news, as did the announcement on debt reduction, and encouraging new investment by enhancing capital cost allowances and other tax measures.

CFIB is particularly pleased that the government went beyond its commitment to reduce paper burden by 20 per cent, by outlining a plan and setting target dates to achieve this objective. The plan will require key government departments to inventory all their administrative and information requirements, similar to the BC model long advocated by CFIB. The budget also recognizes CFIB as a key player in helping the government achieve its 20 per cent paper burden reduction as co-chair of the Advisory Committee on Paper Burden Reduction.

As debt reduction remains an important priority for our members, the government's commitment to dedicate $9.2 billion of the $14.1 billion surplus towards debt reduction is welcome news, keeping it on track to reduce the debt-to-GDP ratio to 25 per cent by 2012-2013. However, CFIB is concerned that for every $1 in tax cuts, there is approx. $2 in new spending in this budget. While the growth in new spending is of concern, the introduction of an Expenditure Management System will help make sure that overall spending remains sustainable in the long-term.

Other tax measures that will be welcomed by Canada's SMEs include enhancements to various capital cost allowances, so that businesses can more quickly write-off their investments in computers and buildings; an increase in the age limit on contributions to RRSPs from 69 to 71 allowing entrepreneurs to continue to save for their retirement and encourage older workers to stay in the labour market; and changes to a variety of tax thresholds will make it less cumbersome for many SMEs to file their taxes. Other key budget measures that will impact our members are outlined in the attached

Your comments and Catherine's responses, will appear on this page when the discussion begins.

Editor's Note: globeandmail.com editors will read and allow or reject each question. Questions may be edited for length, clarity or relevance. HTML is not allowed. We will not publish questions that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Noel Hulsman, Small Business Editor, globeandmail.com writes: Thanks for joining us today to discuss the budget and the impact on small businesses.

The response from the business community to Finance Minister Jim Flaherty's budget is clearly very mixed. The investment community and oil patch, for instance, is not pleased. Do you have to be a small business to love this budget?

Catherine Swift writes: It sure doesn't hurt. It is not surprising that the bigger firms are upset. With respect to the oil patch, losing some of their previous write-offs certainly will have an impact, but from a political perspective I guess no one feels too sad for them right now, which is probably what the budget was banking on. For other large firms, they were looking for something on capital gains taxes or more broadly-based tax cuts, and that didn't happen. However, large manufacturers are happy with the accelerated depreciation on equipment, so not all of the big guys are disappointed. I think the different reactions of the large and small business communities just shows how different the two groups can be.

Noel Hulsman writes: As you mention in your comments at the top, the government is promising to reduce the paper burden by 20 per cent. But governments always say they are going to reduce red tape, yet rarely does that happen. Do this 20 per cent really mean anything?

Catherine Swift writes: Good question and you're absolutely right. This topic has had many nice motherhood statements made about it for years by many governments, with very little actually being done. We do live in hope, however. I guess one of the reasons they seem serious this time around is that they are looking at the model of red tape reduction that British Columbia has had success with over the past few years, and that has been proven to work. They also have shown a great deal of interest in this topic, and we have met with many Ministers in this government that appeared to view this as a priority, not just one or two. Time will tell, however, but we will keep on this one until we do get results.

Noel Hulsman writes: I read in some of the coverage of the budget that you think that increase in the Lifetime Capital Gains Exemption will help business owners pass on their businesses to the next generation. How? Isn't it just more money for the retiring entrepreneur?

Catherine Swift writes: The Lifetime Capital Gains Exemption had not changed in almost 20 years, and actually inflation alone would have taken it to over $800,000. And it was raised to only $750,000. In a way this was kind of like the entrepreneur's "bracket creep", so increasing it may technically put more dollars into a retiring business owners hands, but not in real terms because of the erosion of inflation. Also, we focused on this measure because we will be facing a serious succession crisis in the small firm sector over the next number of years as business owners retire and try to hand off their businesses, so permitting them to keep more of their money with less of a tax bite is positive. Also, people are drawn into business ownership in the first place knowing there will be some benefit down the road, so increasing this amount increases the potential benefit.

Noel Hulsman writes: There was more spending in this budget than in any other Canadian budget in history. In fact, many commentators were half-jokingly calling it a Liberal budget. Does it surprise or concern you?

Catherine Swift writes: We are indeed concerned about the record spending. This was obviously the most political part of the budget from a minority government which wants to win a majority. Also, it assured the agreement of the Bloc Québecois to vote in favour of the budget instead of possibly bringing down the government. That of course does not excuse it, but it does explain it. We will be keeping a sharp eye on this in future. Despite the big spending, they certainly do have the money at the moment, but may not in coming years. Also, they did put in place an expenditure review mechanism so we'll be looking to see how that operates as well.

Noel Hulsman writes: In terms of the small business sector, what do you think this budget means for Minister Flaherty's provincial counterparts? Do you anticipate similar measures from the provinces?

Catherine Swift writes: We would certainly hope at a minimum that it means no tax increases. We just had a horrible budget from the New Brunwick government last week that increased taxes on small business greatly, for example, so it's hard to generalize what the provinces will do. The fact that Charest has announced personal income tax reductions in Québec is a good start, and hopefully we will see other provinces follow suit. And we just heard today that Ontario is planning to crank up the minimum wage dramatically which will damage employment prospects in the province, so we'll be interested to see if tomorrow's Ontario budget has anything to offset that. But given the different political orientations across the provinces, it's tough to tell.

Noel Hulsman writes: This takes us in a slightly different direction, but what do you say to groups in Ontario who argue that $8 an hour doesn't represent a living wage?

Catherine Swift writes: Our members don't disagree with the notion of putting more funds back into low-income earners' hands, they just disagree with the approach. Governments already tax us very highly in Canada, and if they want to do something positive for low wage earners they can easily do that via reducing the tax on those people. We currently have an income tax system that is especially punitive to low income earners, and governments know that, yet do nothing about it. If the government wants the credit for helping out low wage earners, why don't they have the courage to implement something like that themselves instead of foisting it on businesses and distorting the labour market?

People should not give governments any credit for increasing the minimum wage, as they are only doing the easy part and leaving the heavy lifting to business. Also, people often think that only minimum wage earners receive an increase, but in fact such an increase ratchets up wages all through the pay scale. I had a restauranteur member recently say to me that whenever a minimum wage increase happens, it isn't just his minimum wage earners that get an increase, but his head chef who is compensated very handsomely also wants an increase, so the real impact is much larger than just at the minimum wage level. Also, I found it kind of funny that the Ontario government said they don't want to do this all at once, as too many jobs will be destroyed, so I guess they just want to destroy them more slowly.

Noel Hulsman writes: Hopefully not. However, on that note, I think we can wrap. Thank you Catherine for your time and insights today, they are most appreciated.