How to Reduce Burdens on Canadian Small Businesses

Running a business is no walk in the park at the best of times. Over the past few years, the situation facing Canada’s small business owners has been even tougher than normal. Two years of the world’s longest pandemic restrictions were followed by strong inflationary pressures, causing costs to rise and sapping the resources consumers had for discretionary spending.

 

The problem is that governments often view small businesses as a bottomless source of revenue, one that has unlimited resources to handle whatever is coming. While most small firms are resilient and innovative, they can only endure so much. If Canada wants to return to strong economic growth, it needs to pay closer attention to how it’s treating its small businesses. 

The State of Small Business in Canada Today

Just a few months ago, small businesses faced some difficult choices with the Canada Emergency Business Account (CEBA) repayment deadline. 

The program was beneficial to small firms during the pandemic and helped many of them stay open and pay their employees. Businesses that took on the loan had to repay it by January 18, 2024, in order to keep the forgivable portion of up to $20,000. However, many did not have the cash on hand to repay the loan. 

Despite unanimous support for an extension from all 13 premiers across Canada, the federal government refused to extend the January 18 deadline. While the government viewed it as a victory that around 80% of small firms did repay by the deadline, it did not consider that a large chunk of those repaying CEBA did so by taking out a high-interest loan from their bank or other sources. The government got its money back, but the debt didn’t just go away.

I’m deeply worried that more independent businesses will be forced to shut down as they navigate the new reality of their increased debt level. In fact, small business bankruptcies have already been up sharply since the CEBA deadline closed.

In addition to increased business contributions to the Canada Pension Plan and Employment Insurance that kicked in on January 1, the federal carbon tax rose to $80 per tonne on April 1. Not only will this put additional pressure on many cash-strapped firms, but the entire carbon tax system has become even more deeply unfair to small businesses.

While CFIB estimates small firms pay 40% of the carbon tax revenue, government allocates only a small portion of the revenue to be returned to small businesses. In fact, the federal government recently announced it’s scaling back rebates to small businesses from 9% to 5% starting in 2024 while increasing the amounts allocated to consumers and Indigenous groups.

Ottawa has collected billions in carbon tax revenues since 2019. After months of relentless advocacy from CFIB, the government finally committed to returning the carbon tax revenues owed to small businesses. In the 2024 spring budget, Ottawa said it would “urgently” return over $2.5 billion owed to an estimated 600,000 businesses with fewer than 500 employees.

Another major headache for small firms is labour shortages. Minister Marc Miller recently announced an immediate two-year cap on international student visas as well as changes around accompanying spouses and post-graduate work permits. The government is also reviewing its Temporary Foreign Worker (TFW) program. I’m concerned about these abrupt changes and worry that they may hurt small businesses that are already struggling due to staffing challenges. While I understand we can’t have caps on regular immigration and not the student or TFW streams, we do need to act with care and consideration for the economy as a whole.

Future Outlook

With all the setbacks, small businesses are feeling less optimistic about their business performance over the next 12 months. Our latest Business Barometer survey shows that the long-term small confidence
plummeted in April. This is concerning because when owners are feeling uncertain, they hold back for better conditions to invest in their business.

How to Better Support Small Businesses

In order to help, government needs to rethink the way in which it interacts with small businesses. Rather than creating another dozen programs with marginal take-up and high costs, the government needs to get off the backs of small businesses. It needs to ensure that small business owners have enough breathing room and capital to run their businesses. That can be achieved in several ways by addressing:

• The unfairness of the carbon tax system: While it is clear Canadians will debate the future of the carbon tax itself in the next federal election, CFIB calls on the federal government to ensure the $2.5 billion is returned in 2024 with meaningful rebates for the smallest businesses and raise the share of future SME rebates back to 9% of carbon tax revenue or more.
• Labour shortages: The government needs to ensure that changes to foreign student programs and the Temporary Foreign Worker program are made carefully to ensure that we continue to have an adequate supply of labour for all markets and across all skill levels. Small firms are losing revenue opportunities due to staffing challenges, and owners clock in 59 hours a week on average to make up for labour shortages. Limiting foreign labour to Canada may lead to unintended consequences if Ottawa doesn’t tread carefully.
• The cost of doing business: The 2024 spring federal budget made important progress on $2.5 billion in carbon tax rebates, but its changes on capital gains will create many winners and losers among Canada’s entrepreneurs. Ottawa should avoid any increase in the capital gains inclusion rate for all small- and medium-sized business owners.

We need to foster a supportive environment for starting and growing a small business. It’s time for Canada to take the well-being of small firms into consideration and avoid implementing policies that threaten the future of small businesses.