Open up the rules for private investment


It’s difficult to get political parties to agree on anything leading into an election but New Brunswick’s three largest parties are very close together regarding the encouragement of more private investment in small and medium size business. There are differing approaches, but the fundamental idea is driving policy; increase private sector investment in local business.

It’s something politicians throughout the Atlantic region should be emulating. New Brunswick has led the way on the growth of the Small Business Investor Tax Credit as a vehicle for entrepreneurs to access capital. The program provides incentives to private investors to keep their capital closer to home by investing in local business. It’s a pretty simple premise, direct investment in a business provides a direct tax benefit of between 15% to 30% of the investment, depending on eligibility criteria.

The movement to improve access to private capital has been primarily championed by groups involved with growing tech start-ups but the program isn’t and shouldn’t be sector specific. It’s been used effectively by many small business of all sorts looking for infusions of capital from friends, relatives or business partners either at onset of business or during rough patches in their earlier days.

Equity tax credits are designed to attract private capital back into the region. Private investors bring with them important due diligence and oversight for a young businesses looking to get off the ground. While similar equity tax credit programs are available for individuals in all four Atlantic Provinces, New Brunswick has taken the lead by increasing the allowable investment levels and opening up opportunities for not only individuals, but also trusts and corporations.

While New Brunswick is more bullish, Nova Scotia, Prince Edward Island and Newfoundland and Labrador have been much more tentative. The next phase of this should be to open up these investment opportunities regionally to increase the size of the pool of available capital.

It makes sense that an investor from Nova Scotia should benefit from investing in a small business in PEI as much as they would from investing in their home province. Why should a small business owner in Sackville, NB be restricted from accessing capital investment from a relative who lives 10 minutes down the road in Amherst?

Investments in small business don’t only benefit a specific community, increasing private investment benefits the entire region by stimulating economic activity.

With a population of a little more than 2 million, Atlantic Canada needs to allow not only a freer flow of goods and services, but a larger pool and freer flow of private capital. The question to be asked within finance departments should not be whether it’s a good idea to provide out-of-province investors with tax benefits but why would we restrict out-of-province investment in our home provinces?

There are large pools of private capital in Atlantic Canada invested elsewhere. The unfortunately side effect of this is, over time, private capital is now often seen only as a lever to access greater amounts of public funding through federal and provincial governments or their agencies. We should be working with the view to offset this reliance on public money with greater levels of private investment.

12 years ago, CFIB played an integral part in helping develop the NB Small Business Investor Tax Credit, thanks to the suggestion of a member. As the premiers meet to examine reduction of trade barriers and improve the flow of business, they should look to the example being set by New Brunswick’s leadership to encourage entrepreneurs through private sector investment and work toward breaking down regional barriers to the movement of capital.

Big Voice for Small Business Podcast

Welcome to the Big Voice for Small Business. Every month we’ll be putting forward interviews and commentary relevant to small business in Atlantic Canada. Have a listen, I’d appreciate your feedback.

This month I’m talking to Erin McGrath-Goudet, CFIB’s Director PEI and Intergovernmental Policy about our upcoming report in Internal Trade Barriers, Jenn English, Nova Scotia’s Senior Policy Analyst about Extended Producer Responsibility (otherwise known as Nightmare on Recycling Street) and CFIB President Dan Kelly talk about the Temporary Foreign Workers Program…plus a few thoughts from me on the Premier’s meeting in Charlottetown and their discussions on trade barriers.

Rethinking the “bank of Nova Scotia”…a step in the right direction.

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As witnessed on Thursday by the Finance Minister Diana Whalen’s fiscal update, the government’s financial picture is troubling. The deficit is at $680 million for 2013-14, the net debt sits at an all-time high nudging 15 billion, total revenue down $340 million from last year and department spending has grown by $70 million.

 A declining, aging workforce is a rock; a tax regime imposing punishingly high rates on the population to maintain service levels is a hard place. Premier Stephen McNeil and his Finance Minister clearly are in-between with some tough choices ahead, but it’s time to make them.

Two weeks ago, Michel Samson, the Minister of Economic and Rural Development and Tourism quietly announced a realignment of responsibilities in the distribution of public money to the private sector.

Nova Scotia Business Inc. will now be handling business development and delivering assistance programs including the Capital Investment Rebate and the Small Business Development Program taking crucial decision making power off the cabinet table. 

Eligibility requirement will be more stringent to ensure there are adequate levels of private sector money out of the gate and funding will be tied to economic principle such as productivity improvements, competitiveness and innovation. These are all commendable and sensible moves by this government.

The positive news in this is the apparent de-politicization of decision making when public money is handed over to private business as investment. This should be welcomed as an important step in the right direction.

But there is a glaring irony. The headline stated “the private sector would lead economic growth” and subsequently announced the arms-length government agencies that would now be responsible for doling out public money in the form of loans, grants, payroll rebates and subsidies.

While this new structure under the guidance of NSBI is immeasurably more sensible than elected officials picking winners and losers at the cabinet table, it does not address the underlying problem of luring business growth through artificial, government subsidized competitive advantages.

Year after year, in CFIB pre-budget surveys, Nova Scotia small and medium size businesses have stated emphatically that assistance to business should be broad-based tax relief and elimination of unnecessary regulatory burden or red tape.

While this new direction is encouraging, it is treating a symptom, not the disease. Reliance on government hand-outs has grown not because business can’t survive on their own but because when one business is given an artificial, temporary, competitive advantage other businesses are naturally going to look to government for similar treatment.

If this government truly wants to address this addiction it must start the process of weaning businesses off government assistance programs and create a truly level playing field with incentives for the investment of more private capital, broad based tax relief and sensible, clear regulation.   

The tax and regulatory review being conducted now is a tremendous opportunity to effect meaningful change to the tax code to achieve these goals and set the province in a better direction. It will take courage and vision. The same courage and vision demonstrated by every entrepreneur starting up a small business.