#CFIB gives #Halifax Budget a B-

#CFIB gives #Halifax Budget a B-. Positive steps for #smallbiz but still lots of work ahead. http://ow.ly/i/ayW3K

CFIB give Halifax Budget a B-

 Halifax, April 28, 2015 – The Canadian Federation of Independent Business (CFIB) is commending Halifax Regional Municipality (HRM) for taking positive steps in the recent budget to improve conditions for small business but sees considerably more work needed to reduce taxes and bureaucratic expansion.

The areas of biggest benefit to small business are:

  •  A slight reduction in the commercial tax rate
  • A balanced budget
  • Tightening of spending

CFIB members asked HRM to reduce the commercial tax burden by reducing the gap between residential and commercial tax rates.  In 2014/2015, Halifax’s tax gap was one of the highest in Canada at 3.22. This years’ budget shows a slight reduction in commercial tax rates for a second year in a row.  This is a positive step but HRM must address the issue of rising assessments which causes higher commercial property tax payments.

“Halifax’s property tax gap marginally improved to 3.16 but more needs to be done,” said Nick Langley, CFIB’s Director of Provincial Affairs, Nova Scotia. “Commercial owners are paying 3.16 times more for the same value residential property, but they do not enjoy the same services such as garbage collection. We hope to work with the Finance and Audit Committee to develop a multi-year plan to reduce the tax gap to 2:1.”

CFIB members will be pleased to see a balanced budget with reduction in HRM’s debt, reducing the amount spent on debt servicing. CFIB has expressed concern, over many years, about the rate of spending growth which over a ten year period was three times higher than it should have been. We commend HRM for keeping spending increases at 3 per cent which is in line with inflation and population growth.

On the other hand, growth in salaries and other employee compensation remains a problem. 40 per cent of the budget or $346 million is salaries and benefits.  In 2015/2016, Halifax is adding to its budgetary pressures by adding 63 new employee positions to the 4,200 Halifax FTEs and increasing Halifax’s “pay bands” or the range of salaries for public officials.

“Halifax’s public sector has grown considerably over the past ten years and we are adding an additional 63 FTEs this year,” noted Langley, “We need to question why HRM’s bureaucracy continues to grow at this pace and examine compensation levels to ensure they are in line with private sector equivalents.” The Halifax budget also states that there is a current unfunded pension liability of $200 million.

Two other issues of concern to small business that were not covered in this year’s budget were any measure to address red tape and a means to address the costs imposed by Halifax Water.  Multiple Halifax Water rate increases and the increased wastewater and storm water charges are having an impact on small business, which amount to a hidden tax on small businesses.  Small businesses in Halifax face an array escalating costs and CFIB wants Halifax Council to address Halifax Water issues in a more manageable and transparent  manner.

CFIB has consistently emphasized the biggest issues facing SMEs in Halifax are taxes and municipal and provincial red tape.

An Opportunity for Nova Scotia to do the Right Thing

Budget

It’s not often the Canadian Federation of Independent Business (CFIB) offers up a mark of A to a federal budget, but small business owners across the country should be thrilled to see several small business friendly measures. The 2015 budget includes an 18 per cent reduction in the small business corporate tax rate (SBTR) over the next four years.

Reducing the SBTR from 11 to 9 per cent over the next four years comes after years of steady CFIB lobbying and will save small firms $2.7 billion over four years ($1.2 billion per year when fully implemented). This announcement comes on the heels of Employment Insurance premium relief, new measures to address credit card fees and balanced budget legislation.

CFIB is applauds the government for lowering the tax burden on Canada’s small businesses now that the budget has been balanced. Reducing the overall tax burden is consistently viewed by CFIB members as the most effective measure the federal government could take to strengthen the performance of small firms. We’re especially pleased that government intends to legislate the full small business tax cut plan before the election.

There’s other good news for small business in two sectors important to the Nova Scotia economy. Farmers and fishers will benefit from the increase of the Lifetime Capital Gains Exemption for these businesses to $1 million as of today. CFIB’s agri-business members have called for such a measure for many years. We will now continue to lobby the government to extend this to all our members.

The provincial finance minister Diana Whalen must now take all of this into consideration when looking at tax reforms in Nova Scotia. In the 2015 provincial budget, the McNeil government kicked any significant tax policy changes (the NS Film Tax Credit notwithstanding) down the road for further consultation. This was in spite of a thorough Tax and Regulatory Review (The Broten Report) and many public consultations this past spring.

CFIB’s concern is the provincial finance department may swing it’s revenue hungry eye to the room now being made available by the feds in the SBTR. You may recall, one of the recommendations in the Broten Report called for an increase in the SBTR to pay for a big business tax reduction, something CFIB vigorously opposes.

 To what extent do you support or oppose increasing the small business corporate income tax rate to 8% from 3% over the next five years?  CFIB Small Business Tax Survey – March 2015 n=258
To what extent do you support or oppose increasing the small business corporate income tax rate to 8% from 3% over the next five years?
CFIB Small Business Tax Survey – March 2015 n=258

Nova Scotia taxpayers will remember what happened the last time the federal government provided tax room by reducing the federal portion of the HST by two percentage points. No sooner had the feds provided this tax relief than finance minister Graham Steele took the opportunity in the 2010 provincial budget to hike the HST by the same two points, extracting an additional $215 million from the economy.

To assuage the business community, the Dexter government announced they would reduce the SBTR by .5 percent. In a clever sleight-of-hand it then promptly reduced the threshold of eligibility to $350,000, effectively eliminating any meaningful benefit to the small business community as a whole. So we know how that played out politically.

Since that time, CFIB has continually asked the provincial government to lower the SBTR and raise the small business tax threshold to the national average of $500,000. With the approach in the latest federal budget, we believe Nova Scotia small businesses should be able to benefit equally from this new rate drop.

Unfortunately, there are those in the Department of Finance who are doing a good job convincing the finance Minister that the small business tax rate applies to businesses that use the rate either unfairly as a tax haven or to “stay small”. It’s an odd proposition.

The argument they make would suppose business owners would opt against making another $100,000 dollars to avoid paying $15k in taxes. If it isn’t clear, business owners focus on after-tax earnings, not the tax itself. Yes, there may be some finagling on the fringes, but the vast majority of small business owners are in business to succeed and grow.

It should also be pointed out that the vast majority of all those big companies which are the darling job creators of the economists, didn’t start out with 1000 employees. K.C. Irving started with a retail gas operation in Bouctouche.

It’s also difficult to accept the logic that somehow smaller businesses would be better off with a higher tax rate. Limiting the already limited access to capital available to small enterprise would not serve as an advantage. In fact, quite the opposite.

Another rationale often floated is a lower SBTR would place larger firms at a competitive disadvantage. These are the same companies who have enjoyed the general tax rate that has been almost cut in half since the 1990s.

The McNeil government has made some very positive moves with its reorganization of the Department of Business, its focus on putting structures in place to reduce red tape and its efforts to reign in growth of the public sector.

We would encourage the Premier and the Minister of Finance to recognize the importance of the SBTR and our unfailry low small business tax threshold of $350,000. Raising the threshold to national norms and not raising the SBTR will allow small business in Nova Scotia to reinvest and the provide them with the opportunity to grow.

Parsing Nova Scotia’s Partial Budget

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Left to right, Nick Langley, CFIB Director Provincial Affairs Nova Scotia, Jordi Morgan and Erin McGrath-Gaudet, CFIB Director Provincial Affairs for PEI and Intergovernmental Policy at Nova Scotia Department of Finance 2015-2016 Budget lock-up, April 9, 2015.

 

Finance Minister Diana Whalen delivered a budget which she says will set a path for economic growth. Perhaps, but there’s still a lot of work to do, especially getting public spending under control and providing much needed clarity on taxes. The Canadian Federation of Independent Business (CFIB) was very pleased to see there was no increase in the small business tax rate…yet. Unfortunately there are still many question marks as the Finance Minister is looking to further review taxes in the months ahead.

This budget also did nothing to address many of the recommendations highlighted by CFIB and the Tax and Regulatory Review including the reduction of personal income tax, elimination of “bracket creep” (indexation of tax brackets with inflation), raising the small business tax threshold or reducing the general corporate tax rate.

Another disappointing feature was the reduction of the Non-eligible Dividend Tax Credit to 3.5 per cent, from 5.87 per cent. This will extract another 30 million from small business owners. The action was taken to correct what was essentially an oversight of not aligning the tax credit with the small business rate which should have been done for the past three years. This means many small business owners who pay themselves in dividends will be hit hard in 2016 by these changes. CFIB hopes the government will offset this tax increase by raising the small business tax threshold in the next budget and implementing small business tax reductions when the budget is balanced.

The budget also included some much needed trimming of the public service through the re-structuring of departments. The Finance Minister indicated a new Ministry of Business, recommended by CFIB, the Tax and Regulatory Review and the Ivany Report, is designed to save money, streamline services and encourage more private-sector economic activity. We are hopeful this department will operate using the principle that changes to the tax system must be predictable and consistent to allow time for small business to transition and avoid the chaos created with the removal of the Film and Digital Tax Credits and the Dividend Tax Credits.

This new department will also include an office to deal with regulatory reform which we hope will provide direction and political accountability to red tape reduction. At one time, Nova Scotia was a leader in reducing red tape, it’s hoped this new structure will again both measure and publicly report its activities. CFIB will be monitoring this department closely and hope to work with the government to see meaningful reform.

CFIB has also been advocating for a reduction in inter-provincial trade barriers to cut down on regulatory interference when doing business between the Maritime Provinces. A commitment was made prior to the budget by the Premier that this new office will work closely with New Brunswick to address these concerns. We hope the Premier and the new Minister will also be reaching out to their counterparts in PEI and Newfoundland and Labrador.

So, while small businesses are pleased to see some financial restraint, CFIB remains very concerned about the level of spending in the public service in Nova Scotia. Public sector wage and benefits are outpacing economic growth leaving a deficit and debt burden which is clearly unsustainable. Had previous the government not committed to these generous settlements, the Finance department indicated Nova Scotia would be reporting a $200 million surplus this year.

Over 81 percent of small business owners when asked what the Nova Scotia government should do to balance its budget said reduce the size of government and 61 per cent said reduce spending. With significant labour negotiation ahead, CFIB is recommending the government hold the line on public sector wage and benefit settlements.