The "great recession" of 2008 and 2009 is well and truly over, but much uncertainty remains as Canada's economic and employment growth slows down after setting a torrid pace in early 2010. Many of the factors influencing our economic fortunes are out of our control - notably the very difficult circumstances facing the United States, our major trading partner. However, there are still many levers within our control that we should use to our advantage. As government stimulus winds down over the next few months, measures to encourage the private sector to take up the slack in terms of job and wealth creation need to be a key priority. As small and medium-sized businesses are the most prodigious job creators in good times and bad, approaches that support this sector are most likely to yield positive results.
One of the leading job killers is payroll taxes, which impact more heavily on smaller firms than on their larger counterparts. The announcement in early October that the federal government was limiting increases in Employment Insurance premiums in 2011 to one-third of its original proposal was welcome, but much more needs to be done.
Canada Pension Plan premium increases have also been discussed. In June, 2010, federal and provincial finance ministers agreed to spend the following months consulting on the extent to which they should increase premiums, and the timing. Given the current load of payroll taxes imposed on both employers and employees in Canada, any mandatory increase in CPP premiums should be out of the question. There are certainly shortcomings in our pension system in Canada, but raising CPP premiums is the wrong answer to the problem.
A better solution would be to find ways to allow small businesses and individuals to access large pools of pension funds with low management fees. Reducing taxes so that people have more funds available to put aside for their own retirement would be another positive move. Getting a grip on the billions of private-sector taxpayer dollars that flow into excessive salaries, pensions and benefits of government workers is also sorely needed. Then, eventually, we can do away with the current "reverse Robin Hood" phenomenon, whereby low- to medium-income private-sector workers subsidize their much-better-off public-sector counterparts.
At the provincial level, several Workers' Compensation bodies have announced, or will announce, premium increases on employers for 2011 and subsequent years. Throughout the recession, minimum-wage increases of considerable size took place in many provinces despite the precarious state of the economy, and some provinces continue to talk about future increases. This is happening even though increases to the minimum wage are an ineffective way to assist lower-income workers; instead, they reduce job creation and distort labour markets. At the municipal level, property taxes continue to rise as municipality after municipality proves it is incapable of managing its budgets.
Small-business owners can be forgiven for asking, "When does the piling-on end?" While governments at all levels are asking for more, more, more, businesses cannot simply raise their prices to offset these higher costs, especially in a dicey economy. So, even though it is a good thing that government stimulus will wind down and hopefully stop the run-up of more government deficits and debt, it is hardly reasonable for governments to say, "Okay, private sector, over to you now!" when so many of their policies continue to constrain the ability of businesses to ramp up their growth.
The traditional moaning in government and academic circles about Canada's poor productivity has started again, now that we are out of the worst of our recent economic challenges. And it is true that we have a poor productivity track record that needs attention. However, throughout the recession, governments at all levels grew substantially in terms of spending and number of employees, and big government is the enemy of productivity. Instead of governments doing what they have done in most other post-recession periods - that is, grow at a slower pace - it is time for them to retrench, reduce their costs and employment in absolute terms, and stop imposing new charges, taxes and premium increases on businesses and other taxpayers.
The good news is that Canada is currently faring better economically than most other developed countries around the world, partly due to good luck, partly due to better planning and regulation, and partly due to our resilient small and medium-sized business sector that punched above its weight during the recession. If we are to continue to maintain this superior performance, governments need to get their own houses in order, stop being a drag on the economy and act as a constructive partner to the entrepreneurial firms that will determine the success of our economic future.
Catherine Swift is president and CEO of the Canadian Federation of Independent Business. CFIB represents 105,000 small and medium-sized businesses in Canada.
This column originally appeared in the November, 2010 issue of Your Business magazine.
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