Canada's small-business community is bracing for a federal budget that will likely contain little support for the sector, while unveiling a sharp increase in employment insurance premiums that will take effect in 2011.
Government officials have said there will be no new spending or tax measures for 2010. However, Ottawa is expected to outline its plan to rein in the burgeoning deficit in coming years, partly through hikes in Employment Insurance premiums. Increasing premiums - for both workers and their employers - is seen by small businesses as a direct attack on profitability, and a disincentive to hire.
Given Ottawa's huge deficit position and the fact that EI funds have been depleted by burgeoning claims during the recession, "we're not unrealistic enough to think we're not going to see increases [in premiums]," said Catherine Swift, president of the Canadian Federation of Independent Business.
She notes that surpluses in EI premiums have helped the government shore up its finances in the past, and Ottawa now has a moral obligation not to use the program as a cash cow to reduce the deficit.
"Employees and employers contributed very significantly to the general revenue coffers and in an ideal world would see that money returned to them. We're not dreaming in Technicolor, we know that's not going to happen, [but] we don't want to see an excessive premium increase that merely disappears into general revenues."
The big problem, Ms. Swift said, is that higher EI premiums hurt new-job creation because they make small businesses reluctant to hire more people. Under current rules, Ottawa could boost the annual EI premiums paid by employers by about $90 per employee per year, starting in 2011- for employees making more than about $43,000. (Employees would see hikes of about $65 per year.)
While that hike appears modest, a CFIB analysis suggests it could indirectly result in companies hiring 200,000 fewer workers than they would have otherwise, over the next five years.
The apparent shift in Ottawa's attitude to a tight-spending, anti-deficit mindset worries Michael Legary, founder of Seccuris Inc., a Winnipeg-based consulting firm.
He said he is disappointed the government is not maintaining its stimulus of the economy through a longer period. By signalling that it will begin the planning process for reducing deficits, "this budget is the mental shift to the long haul," Mr. Legary said.
In eastern Canada, many businesses share similar concerns, said Mike Hachey, president of Egg Films, a production company in Halifax. The economy in Atlantic Canada has experienced a "delayed reaction" from the recession and is now feeling its effects more than last year, he said, so it will be hard for small businesses to swallow any extra costs, such as higher EI premiums.
"Right now is not the time to take a little bit of a grab, when people are trying to recover," he said.
Becky Reuber, a professor at University of Toronto's Rotman School of Management, said small business concerns about possible EI premium increases are significant, because anything that slows job growth can affect the overall economy. If small firms balk at hiring more people, it can be bad news for the broader recovery.
Trent University professor Jim Struthers, an expert on the history of employment insurance, said boosting EI premiums is essentially a regressive form of taxation that applies only to workers and businesses. "If you want to encourage employment, investment and job creation - and the small business sector is a key source of jobs in today's economy - then you don't want to [put in place] hidden taxation that is a disincentive to hiring people," Prof. Struthers said.
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Wish list
The Canadian Federation of Independent Business wants to slow any proposed Employment Insurance premium increases that the budget may announce for 2011 and beyond. But there are other specifics CFIB members would like to see in the document:
Spending cuts should be focused on the public service. The overall size of the government should be reduced, and federal employees should be subject to wage freezes.
Tax increases should be avoided, while previously announced measures such as corporate tax reduction and an accelerated capital cost allowance, should be implemented.
The paper burden for small business should be reduced, by streamlining some government regulation.
The home renovation tax credit should be extended.
Ottawa should create a system to compensate businesses for collecting goods and services tax (GST) and the harmonized sales tax (HST).
Small businesses would like to see indexation of the lifetime capital gain exemption (now at $750,000) to the rate of inflation.
Richard Blackwell
