Promise Kept. Seriously?

It’s been a big week for small business in Canada. Small Business Week and Small Business Saturday roll around once a year, but it’s rare to have the occasion festooned with quite so much high-level attention.

Kicking off the week was some great news for small firms delivered in perhaps one of the most awkward political pronouncements in the history of Canadian politics. The setting was Stouffville, Ontario and it was all-thumbs on deck as the Prime Minister and the Finance Minister showed up in town with Challenger jet and black Suburban fleet in tow to occupy the Pastaggio Italian Eatery.

Complete with the red “Support for Small Business” sign and its matching banner on the back wall, the Prime Minister stepped to the podium, sleeves rolled up, hair slight tussled, to say that his government would be re-instating the small business tax rate reduction they had campaigned on in 2015 and yet jettisoned in the last two budgets. Curiously, he also relegated the Finance Minister to the back of the house, offering up that he would be fielding any questions for Mr. Morneau. It was just…well…weird.

Under normal circumstance, kicking off Small Business Week with this kind of announcement would be politically run of the mill. Given the last three months of hellfire raining down on both the PM and Finance Minister from CFIB and others, however, made the exercise seem completely disingenuous.

According to the PM’s talking points, we are encouraged to believe this was the plan all along. The government simply needed to have a little look at the tax system before implementing such this three-year-old campaign promise. Now, after having done so, they will honour their campaign pledge. Promise kept.

Uh huh.

Small business owners were about one more Economic Club of Canada speech away from storming the Bastille with pitchforks and torches. The Finance Minister and the Prime Minister have been under withering fire on this issue from every conceivable direction including within their own caucus. If they expect Canadians to believe this was their intention all along, they must think we are very naïve indeed.

Even though this is, unquestionably. damage control of the highest order, there is none-the-less a silver lining in the tax rate reduction as it will result in savings for some small business owners.

Part two of this peculiar week-long tragi-comedy was staged Wednesday with the Finance Minister traveling to Hampton, New Brunswick to announce changes to the proposed changes in passive income application. One might acknowledge this could be good news in that the government is beginning to recognize the important roles passive income plays, and yes it could, if administered properly, allow many small firms to continue to use passive income to ride out challenging times, save for investments or set aside money for a leave or retirement.

On the other hand, these changes have the potential to discourage growth. The $50,000 annual threshold will help the small firms that remain small, but it may be too low for small firms saving to grow and create more opportunities. Think of it as a million dollars under investment with a 5% return. Canada needs medium-sized businesses and the size of the threshold may not be enough to help businesses looking to grow, so it is likely business will be looking to raise that threshold. As the Finance Minister and the Prime Minister should know, 50k just won’t go as far as it used to.

On Thursday, Mr. Morneau did a full climb down on the issue of conversion of income into capital gains. Business owners asked the government to step away from the vehicle and they not only stepped away, they lay down on the ground and put their hands behind their head. Those rules would have made it more costly for small business owners — including farmers and fishers — to sell or transfer their business to their children and the political fallout was potentially far too damaging.

Friday’s pronouncement on angel investment was underwhelming at best, and thus spake Morneau to end the government’s response to Small Business Week. With the political backdrop of Mr. Morneau’s personal financial affairs under scrutiny, one might argue this was the worst week the Trudeau Liberals have seen in their short two years in power. There must be some folks in the Liberal backrooms feeling a bit sheepish about trotting out class warfare, even in the dog days of summer.

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