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mikemortgage · 5 years

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Amid Alberta’s election campaign, small businesses say they’re the canaries in the coal mine — and things aren’t going well

The Alberta election on April 16 is top of mind for Terry Steinkey, co-owner of Map Town in downtown Calgary. Like many small businesses in Alberta, the travel store has struggled since prices for Western Canada Select crude oil plummeted to about US$30 per barrel in 2015, pushing the provincial economy deep into recession.

In order to keep Map Town’s doors open, Steinkey has reduced the number of employees to two full-timers and three part-timers from 12 full-timers when he purchased the business in 2011, increased prices and expanded an online presence. He has also stopped paying himself.

Big picture, according to Steinkey: “We need to get investment back in Alberta. Whichever party wins the election needs to focus on policies that will get American companies wanting to drill in Alberta again. That’s what will help small businesses.”

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Small-business owners in Alberta are all too aware that the oil and gas sector is the largest driver of the provincial economy and nearly 90 per cent say the sector is critical for the health of their own business, whatever industry they’re in, according to a survey by the Canadian Federation of Independent Business (CFIB), Canada’s largest non-profit organization supporting and advocating for small business.

Consider what’s happened in the past four years in Alberta. The drop in oil prices led to company closures, a slew of mergers and acquisitions, job reductions, growing office space vacancies and an overall drop in demand for just about everything. (The one somewhat bright spot: a tech ecosystem is emerging. Still, it’s small and not enough to fill the gap left by the losses in oil and gas.)

Oil prices have recovered to some degree, but the differential price Alberta oil and gas producers receive for crude oil is significantly discounted from global market prices. As a result, many energy companies have not returned to the higher cost structures they had in place when times were better. They are leaner and a lower level of spend has crept into the overall Alberta economy. Many small businesses, both B2B and B2C, are trying to accommodate for that change, but it’s not easy.

“When times are tough, big oil and gas companies have latitude to cut back operations, lay off staff, reduce their footprint. Small business owners do not,” said Richard Truscott, CFIB’s vice-president for Alberta and British Columbia, from his office in Calgary. “They need to hold on to their people because they know when the economy picks up, it’s hard to find qualified people. They have to try to see their way through it.”

But keeping employees through lean times is easier said than done.

“Small businesses here are becoming mom and pop shops again because they can’t afford to keep staff,” Steinkey said.

The doom and gloom is not just because of lower oil prices. In tandem with the recession and dramatic drop in demand, the federal, provincial and municipal governments have made the cost of business more expensive by implementing higher corporate taxes, a multi-billion-dollar carbon tax, a more onerous employment code and a minimum wage increase to $15 per hour, now the highest in the country.

In downtown Calgary, high property taxes have helped close some businesses and pushed others to leave, putting pressure on businesses elsewhere in the city.

“The revenue lost from those commercial spaces will have to be made up by business owners outside the core and they are now facing a property tax increase of 10 per cent or more,” Truscott said.

Adam Legge, director of the Global Business Futures Initiatives at the University of Calgary’s Haskayne School of Business, points out costs were growing while economic growth was slowing.

“There was a cumulative impact on business. Suffering from lower demand and higher costs made it extremely difficult to continue to operate. Many businesses have closed, scaled back, cut staff, cut hours,” he said. “You just need to walk down Stephen Avenue in downtown Calgary to see it. All of this has led to a much different business dynamic in the province.”

It’s a dynamic Steinkey is experiencing firsthand. Fewer people are coming into the store and retail sales are down between 20 and 25 per cent over the past four years.

“Recently, we have friends who decided enough is enough,” he said. “One stepped down from his president position of a small business in the electrical energy business, and the other from a very good job in oil and gas. They decided to move their young family to New Zealand in search of a better life with more opportunities.”

Is Alberta a cautionary tale for the rest of Canada?

“You bet it is,” Steinkey said. “You hear about household debt, but nobody talks about corporate debt. What do these companies have for lines of credit and how close are they to tapping out? Governments need to start looking at this and seeing how they can address it. We need to see some action.”

The CFIB has recommended 10 policies that the next Alberta government could adopt to help small businesses, including: apply a small-business lens to all new government policy, reduce small-business tax, control spending, rebalance labour laws and freeze minimum wage/create a training wage.

“We’re at a crossroads in Alberta and more broadly in the country,” CFIB’s Truscott said. “Whichever party is elected on April 16 needs to do a better job of creating policy that supports entrepreneurs and job creators or else we’re going to see more difficult times ahead and we may do so much damage to the SMB sector it may not come back in the way it has in the past.”

Financial Post

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nspccalgary · 1 year

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Corporate Tax Preparation Services Calgary

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mikemortgage · 5 years

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Jack Mintz: Would the Liberals dare entertain a ‘Netflix tax’ before an election?

Taxing the internet is creeping up Canada’s political agenda — whether politicians like it or not. Governments around the world are having trouble resisting the urge to grab a piece of the growth in digital services. Already in 2017, the Parliamentary Heritage Committee recommended a five-per-cent tax on streaming services such as Netflix and digital cable to fund production of Canadian television shows. Raising taxes for Cancon TV producers is an idea only Ottawa elites could love; the prime minister was right to reject it.

Digital taxes might not be a major election issue when Canadians go to the polls this fall, but they will be high on the agenda soon enough, as G20 countries pressure one another to get on the Netflix-tax bandwagon this year. Will the Liberal government hop on? It would make sense, but the timing would be terrible.

The way many policymakers see it, if digital services can get out of paying taxes because they are in a different country, serving customers from a cloud, that gives them an advantage over domestically located businesses that comply with the tax system.

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And there is lots of money to be made. Such digital service companies as Facebook and Google reap tons of money from the data they gather from users and sell to others. Netflix, Spotify and Amazon are able to sell digital services over the internet without charging sales taxes or paying corporate income taxes to the country in which users reside. Retailers and labour unions say there is no excuse for digital services to be exempt from sales taxes. They have a point: It’s unfair and distortionary.

Sales taxes are least distortionary and most fair when goods and services are taxed regardless of whether they’re purchased at home or from abroad. Starting this year, Quebec is demanding that digital service companies collect the provincial sales tax, and many big companies, such as Netflix and Facebook, have agreed to comply. In Quebec, tax will be added now where a bill is registered to a Quebec address or if the IP address is in Quebec. It’s not a perfect enforcement system, but for the most part, it should work.

But the sales tax issue is much more straightforward than trying to collect corporate tax, which is far more complicated.

The idea with corporate income taxes is to withhold income at the source of production — company headquarters — not where customers live. If a website lives on servers in the Cayman Islands, is the source of production there, or where Facebook owners reside, or where Facebook users live?

Given that most of the major digital companies currently operate from the United States, the U.S. government will strongly argue it should be entitled to all the corporate income taxes of such companies as Netflix, Google and Facebook.

But that’s not necessarily true. U.S.-based digital companies would not be able to make the money they do without global users providing them their personalized data, free of charge. These data have a lot of value and can be used at a profit. So, arguably, some of the production actually occurs where users reside, including outside the U.S.

That’s why the European Union and several other countries are looking to shift taxes to where users live, regardless of a company’s home address. This looks like a fundamental shift in how governments think about the corporate tax, seeing it as more of a consumption tax, rather than a production tax. A sensible way to put that into action is for tax collectors to divide profits proportionately — and charge corporate income taxes accordingly — between countries in which the companies are located and those in which the users reside.

Europe is (as are some other countries) now trying to block digital-service companies from shifting income to low-tax havens by imposing special digital-services taxes. These are minimum taxes on revenues earned in a country, based on the number of users there, or the ad revenue collected there. The EU is considering a three-per-cent digital-services tax on revenues for companies with global revenues in excess of 750 million euros or local revenues in excess of 50 million euros. Australia has a similar proposal and the U.K. is considering a two-per-cent digital tax — unless a higher, global three-per-cent tax plan comes along first.

And the OECD is right now preparing a proposal for G20 finance ministers to consider when that group meets in Japan in June. But that’s dangerously close to the Canadian election in October. Would the federal Liberals venture to propose a new tax on digital services before the writ drops?

From a policy perspective, it is something the government should do, but it sure makes for bad politics. Millions of Canadians download music, books, films and information from digital services, but they’re already getting fed up with new taxes that have lately been hitting them in their pocketbooks.

There is a solution, of course: The Liberals could put digital taxation issues on the list of items for a long-overdue comprehensive tax reform, aimed at making all income and sales taxes more fair and less distortive. At a minimum, digital services purchased from non-resident suppliers, like your subscription to Netflix, should be subject to federal and provincial sales taxes and Canada should get some share of the corporate tax on digital giants. If that can be done while giving Canadians some much-needed tax relief in other ways, it wouldn’t only make sense, it might even be politically possible.

• Jack Mintz is president’s fellow at the University of Calgary’s School of Public Policy.

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mikemortgage · 6 years

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Jack Mintz: New Brunswick is in serious trouble, and this election isn’t helping

As New Brunswick’s provincial election approaches next Monday, a key question voters should be asking themselves is how they can cast their ballot to improve their standard of living. Over the past decade, New Brunswick has been an economically underachieving province and it still is. Unfortunately, judging from what the leading candidates are offering, none have much of a plan to jolt the economy.

In the past, New Brunswick has been blessed with many strong performing premiers, including Liberal Frank McKenna (1987–97) and PC Bernard Lord (1999–2006). Even without the benefit of a strong oil and gas sector, New Brunswick used to perform well, with growth rates averaging a healthy three per cent from 1993 to 2007. Then it began a noticeable decline, averaging little more than 0.5 per cent annual growth since 2011, well below Canada’s performance.

New Brunswick’s population has been shrinking over the past decade. And while its unemployment rate has improved to eight per cent — perhaps helped by workers leaving the province — it remains well above the national average of 5.9 per cent.

The rate also doesn’t include those too discouraged to look for work. And next to Newfoundland, New Brunswick has the lowest employment rate in Canada — only 57 per cent of the population over 15 years of age is working. Its GDP per capita, $38,786 (in constant 2007 dollars), is the third lowest in Canada and barely three-quarters the Canadian average. Business productivity (output per working hour) is one of the lowest in Canada at $34.70 per hour.

New Brunswick’s fiscal situation is not much better. Its spending is big — substantially more as a share of GDP than every other province except Prince Edward Island. Its net debt has risen from 25 per cent of GDP in 2007 to 40 per cent today. Debt per capita is an astounding $18,000 per capita for a population that only has less than $30,000 in per capita disposable income.

New Brunswick is also a massive taxer, with the highest HST rate (15 per cent), one of the highest provincial corporate income tax rates (14 per cent) and top personal income tax rates (53.3 per cent). Naturally such high personal tax rates have driven high-income earners away. In 2015, only 2,280 taxpayers in New Brunswick earned more than $250,000 in income: That means fewer than half of one per cent of all New Brunswick taxpayers were together paying eight per cent of provincial income taxes. Nationally, nearly one per cent of taxpayers earn more than a quarter-million and they account for more than 20 per cent of total provincial income taxes.

The province isn’t yet an economic basket case but it could end up that way without a major change in direction, soon. Its bloated government is making New Brunswick uncompetitive with overregulation and inefficient public service delivery, in addition to high taxes. The population is aging, meanwhile, which portends more costly health care, long-term care and other social programs, but fewer incomes to tax for it.

It’s not that New Brunswick doesn’t understand that smart government policy can go a long way to improving economic health. Frank McKenna brought in experience rating for workers’ compensation (premiums tied to safety records) and turned the province into a magnet for call-centre businesses.

Bernard Lord took on corporate and personal tax reform to make New Brunswick more competitive.

Lord’s successor, the Liberal premier Shawn Graham, introduced his own aggressive tax plan reducing corporate and personal income tax rates to the lowest in the Atlantic. His error was not introducing a hike to the HST rate at the same time. That created a growing deficit that only got worse when the 2008 global financial crisis hit. And after 2010, rather than fixing the Liberals’ HST mistake, the PC government of David Alward made matters worse by reversing much of the reduction in personal and corporate taxes.

At least Alward was willing to grow the resource sector with new regulations and royalty policies, especially for a burgeoning shale gas industry. But when current Liberal Premier Brian Gallant took power in 2014, he hung the resource sector out to dry, prohibiting shale gas development and overseeing the shuttering of a potash plant. He has also hiked personal income tax rates and sales tax rates to their highest levels yet.

I took in the latest debate among New Brunswick’s party leaders and I didn’t hear many ideas about how to fix New Brunswick’s slow growth and growing debt problem. There was one exception: the fledging People’s Alliance party, currently at a distant third in the polls behind the Liberals and PCs.

Gallant’s Liberals are offering more spending on infrastructure, education and health but largely missing from their plan are economic growth policies. Instead, they promise to toughen labour laws and hike the minimum wage to $14 per hour (in a province with low productivity, a minimum wage that high would aggregate to an annual income not much lower than the median among all workers in the province). Gallant also promises to freeze power rates for four years and to refuse to accept any carbon policies from Ottawa that would make energy more expensive.

The PCs, under leader Blaine Higgs, have promised not to increase taxes but still balance the budget. They will end the double property tax hit on owner-occupied homes, offer tax credits for kids’ sports and arts, and support shale-gas development. But they’ve offered nothing like the ambitious pro-growth tax-reform policies that previous PC governments have tried.

The interesting ideas in this election belong to the eight-year-old People’s Alliance party led by Kris Austin, a former minister. The PA is promising to reduce taxes, eliminate corporate subsidies, reform the public sector to improve the cost of operating separate linguistic-based agencies, and balance the budget. The party’s recent rise in the polls, growing from around five per cent to around 13 per cent, suggests that the public is hungry for bolder ideas. Sooner or later, with a growing fiscal crisis in the making, the province is going to need much more than the weak offerings coming from its two main parties.

• Jack M. Mintz is president’s fellow at the University of Calgary’s School of Public Policy. He has provided advice on growth strategies to four New Brunswick governments over the past two decades.

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