Budget 2016: Broken Promises, Nothing for Small Business
By Julie King | March 23, 2016
Canadian businesses form the backbone of Canada's economy and depending on your measurement account for between 92 to 98 per cent of all companies.
Since the launch of CanadaOne in 1998 I have done a feature article on almost every federal budget and its impact on small businesses. In the past, across both the Liberal and Conservative governments, there have always been a variety of measures aimed at strengthening smaller companies.
Broken promise, plus no direct supports
Yesterday's budget broke the promise the Liberal government made to keep in place the previous government's plan to reduce the small business tax rate to 9 per cent over three years. Instead, the rate will now be capped at its rate of 10.5 per cent.
It also failed to include a single item to directly support small businesses.
The budget, which has significant spending on individuals and infrastructure projects, returns Canada to a new era of deficits, with $29.4 billion in 2016 and a total of $100 billion over the next five years.
Where will that money go? In 2016/17 it will be almost exclusively focused on youth, the middle class, the elderly, infrastructure, environmental initiatives and innovative supports for high tech companies.
This signals a sharp shift in policy that the way to stimulate the Canadian economy lies not in supporting the efforts of Canadian business, large and small alike, but rather in the citizens of this country combined with infrastructure spending.
Not only has the Liberal government broken its promise to reduce the small business tax rate, it has also introduced a number of complex changes to the tax laws that are designed to close "loopholes" that will affect some small businesses. These include mechanisms some business owners use to avoid the business limit and taxable capital limit as well as rules around passive versus active income rules.
Are there any wins at all for small business?
If your small business is looking to hire or innovate, there may still be a few things in the budget for you – indirectly.
Funding Employment Opportunities for Youth-Youth-Youth
One area of employment that the budget does address is the hiring of youth, with additional funds for the Canada Summer Jobs program, cooperative education and the youth employment strategy (YES.) A summary of these are provided below.
COMMENTARY: Of note is that the government has failed to address work transitions for out of work older Canadians. CanadaOne recently conducted a research project into women business ownership in York Region and Simcoe County. That project indicated a possible trend, which we have anecdotally observed elsewhere as well. There appears to be a vulnerable population of both women and men who are middle aged are older and find they are unable to find viable employment after being "downsized." We have observed that many of these people then turn to business ownership or self-employment not by choice, but need.
Funding for Youth: Canada Summer Jobs Program
This program, which accepts applications until March and subsidizes student wages for summer work, has been doubled in size with an investment of $339 million over three years. The program is open to not-for-profit organizations, public-sector employers and small businesses with 50 or fewer employees to create hire full-time students aged 15 to 30 years who intend to return to their studies in the next school year.
Applications for 2016 are now closed, so businesses hoping to benefit from this program will need to wait for 2017 if they have not applied already.
COMMENTARY: One challenge with the Canada Summer Jobs Program is that the funding is not guaranteed and a final decision will not be made until after most employers would want a post-secondary student to start work. For example this year's decisions will be made on May 11, 2016.
To recruit a talented post-secondary student, employers need to start recruiting in March and April. This can leave both the employer and student in a difficult position, as a job offer may need to be made before the employer knows whether the position will be funded. If funding is not approved, that may require the employer to cancel the position, which will negatively impact both the company and the student.
This challenge is not unique to one government, but does reflect a disconnect between funding programs and the day-to-day reality of small business employers.
Funding for Youth: Youth Employment Strategy (YES)
In addition to the Canada Summer Jobs program, the government has announced that it will invest an additional $165.4 million in the Youth Employment Strategy in 2016/17.
The YES funding is designed to help youth find jobs in three areas:
- Skills Link: Through this program youth who have difficulty making a transition into the workforce receive support, which can be offered as a combination of soft skills training and subsidies for their first couple of months of work. Youth must meet criteria to qualify for this program.
- Green Jobs: Funding will be used to help youth work in environmental jobs to "… learn about our natural environment and contribute to economic growth in environmental sectors."
- Heritage Sector: While mostly undefined, the Budget 2016 notes that YES funding will also be used to increase job opportunities for young Canadians in the heritage sector through the Young Canada Works program.
COMMENTARY: There have been many government programs to support youth over the past decade and it is unclear whether this funding will replace past programs, or enhance the number of offerings. Check with your local employment services agency for more information on program options, timing and criteria.
Funding for Youth: Strengthening Co-op and On-The-Job Learning Opportunities
This year the government will launch a Post-Secondary Industry Partnership and Cooperative Placement Initiative. The goal is to "… support partnerships between employers and willing post-secondary educational institutions to better align what is taught with the needs of employers."
The initiative will also see the government invest, over four years, $73 million to support new co-op placements and work-integrated learning opportunities for young Canadians. This investment will focus on high-demand fields, including science, technology, engineering, mathematics and business.
COMMENTARY: It is interesting to see the government become directly involved in education, which is typically under the jurisdiction of the provinces. Provinces like Ontario already have excellent initiatives in place that require post-secondary institutions to solicit input from the private sector on their curriculum and programs. It will be interesting to see whether this effort is one of duplication and whether it is needed.
Funding for Innovation and High Tech
The budget does have several funding initiatives that target innovation and high-impact growth firms.
However, most of this funding is targeted at institutions and initiatives to support specific business sectors. For example, $800 million in funding will go towards strengthening innovation networks and clusters. Another 1000 businesses that are deemed to be "high-impact firms" will receive assistance in scaling up, which will be done through several crown corporations including the Business Development Bank of Canada (BDC) and Export Development Canada (EDC.)
An additional $50 million will be invested in the National Research Council’s Industrial Research Assistance Program (IRAP) and these funds will be use to "… increase the number of companies served by the Program’s highly qualified Industrial Technology Advisors nationwide." However, the majority of small businesses will not qualify to access IRAP funding, which is not only sector specific, but also requires the project be innovative and have the outcome of seeing funded companies grow revenues and the number of people the company employs.
COMMENTARY: It is positive to see the government investing in sectors outside of traditional resource sectors. However, it is important that intentional steps be included in these processes to ensure that these investments are not misaligned with the needs of actual high tech and growth oriented businesses. This can be challenging, because the bureaucratic nature of some of the organizations being funding to manage and provide services can be out-of-step with the intent of the funding, resulting in an environment that while intended to do good, can actually prevent the very result that is being sought. It will be interesting to see how effective these additional funds are in achieving their intended results.
Some Manufacturing Tariffs Eliminated
The government will eliminate tariffs on 12 inputs used in manufacturing, which will provide approximately $9 million in tax relief. There will also be public consultations to on the idea of eliminating tariffs on food manufacturing ingredients other than supply-managed products.
COMMENTARY: The improvement of the tariff system on manufacturing inputs is very positive. Yet activity south of the border is signalling that we could soon see significant changes to some of the trade agreements that have been in place for many years now. This is something that affected businesses will want to monitor closely as the US prepares to elect a new federal government on November 8, 2016.
Budget 2016 Online
You can read the full budget (pdf) or view a variety of budget informatio at Budget 2016.