Expect red, says Flaherty
Romana King
March 5, 2010.
Finance Minister Jim Flaherty’s “stay the course” budget offered little in the way of big tax cuts or major incentives. However the budget did have a few incentives that could lead to business building and a stable economy—at least that’s what the feds hope.
For example, the elimination of all tariffs on machinery and equipment is intended to increase competition and stimulate growth, which in turn, will boost the bottom line for these businesses and generate more direct and indirect business. If this happens brokers should expect more business, says Ramy Dasuki, commercial account executive at Western Financial Group in High River, AB.
But Dasuki is skeptical. “Corporate clients that require this type of [large expenditure] were purchasing before this announcement,” explained Dasuki. Many of these purchases were from south of the border. “There was enough of a savings [to purchase south of the border] that the removal of tariffs won’t really impact this [transaction].”
Cut Red Tape
Perhaps the biggest benefit in the 2010 budget was the announcement of the Red Tape Reduction Commission, to be composed of members from both the private and public sectors. The aim is reduce the volume of paperwork businesses must complete.
According to Doug Bruce, director of research at the Canadian Federation of Independent Businesses (CFIB), red tape “costs the total business sector in Canada an aggregate of $30 billion each year.”
As an association, representing 105,000 small- to mid-size businesses, CFIB has lobbied for years for the removal of red tape and regulatory burdens on small businesses. “We are very pleased with this announcement.”
As a result of this initiative the federal government will introduce legislation to allow certain small excise remitters (those, other than tobacco licensees, with less than
$10,000 in excise tax or duty monthly remittances) to file and remit semiannually rather than monthly. “This change will allow these small businesses to invest more of their time in managing and growing their business,” states the budget document.
“When you can’t give a tax cut you can actually provide some assistance to businesses by reducing the red tape and paper burden,” explained Bruce. “Particularly when red tape takes a big chunk out of the bottom line.”
This is an important consideration [for brokers and their clients], said Bruce, given the lack of tax breaks within the budget for small and mid-size enterprises (SME).
EI Will Hurt
The biggest disappointment, said Bruce, was the decision to keep the Employment Insurance (EI) premium increase slated for 2011.
Additional EI benefits were introduced last year to help the nation through a tough global economic pressures—and as of 2011 the business owner will pay for those additional benefits, said Bruce.
“For small businesses a payroll tax increase has a big impact,” said Bruce.
“Suggesting that there will be no tax increases is nonsense,” explained Bruce. “EI is not a choice; all employers must pay it, so an EI premium increase only makes it more expensive for small businesses to hire.”
This will only hurt the federal government’s stated initiative to create more jobs, said Bruce, and it hurt struggling SMEs. “It’s counter-productive.”
Deficit Reduction
Budget-watchers will also note that the extraordinary measures announced in last year's budget were not extended this year and will expire on schedule. That means no extension to the popular but expensive Home Renovation Tax Credit, (which expired at the end of January) and no additional infrastructure stimulus spending.
This is unfortunate for personal lines and commercial brokers, as this stimulus prompted clients to invest in their current holdings—increasing their coverage needs.
However, the decision not to continue with the stimulus spending from 2009 will have a significant impact on cutting the debt. According to the Department of Finance, the elimination of both spending programs will cut the deficit in half by next year.
As a result of the recent budget, Minister Flaherty projected a $53.8-billion deficit for the current financial year, which is lower than the $56-billion shortfall that was predicted in earlier forecasts. Still, Flaherty warned that the red ink won't come off the books until 2015.
The expected years of deficits will push up the country's overall debt—from $517.5 billion in 2009/2010 to $622.1 billion in 2014/2015. Canada's debt to gross domestic product ratio is projected to reach a peak of 35.4% in 2010/11 and to begin falling after the stimulus measures expire, decreasing to 35.2% in the 2011/12 fiscal year and to 31.9% by 2014/2015.
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