Province’s tire policy flip-flop is a slap at small business

Tires have historically been environmentally problematic sources of waste. Recently, however, technological advancements have led to much more efficient recycling by manufacturing construction materials, developing tire-derived fuels (TDF) and repurposing.

When the province decided the direction for tire recycling, they chose the manufacture of Tire Derived Aggregate or TDA. It has a number of uses, such as foundation material for highway and railway beds, backfill, and other civil engineering applications. At the time, a tender was issued and a local small business, Halifax C&D Recycling, was given the contract.

They invested in the neighbourhood of $5 million in equipment to properly process used tires and for the last eight years have run a successful program. According to the folks at Halifax C&D, there have been no fires, no stockpiles of tires or TDA and no environmental issues.

To pay for all of this, as a consumer, you pony up a fee of $4.50 per tire at the point of sale. This goes to Divert Nova Scotia who in turn pay $2.00 per tire to Halifax C&D Recycling Ltd. to deal with it at end of life. Ostensibly, the other $2.50 is used for transportation, administration and other costs associated with its disposal or funneled off to pay for recycling of other products.

Ten years ago Rodney MacDonald’s PC government proposed using tire derived fuel. In response, Liberal opposition MLA Keith Colwell brought forward a bill to ban the use of tires as fuel. He was adamant in pointing out potential health risks and outlining what he saw as a sweetheart deal for multi-national concrete manufacturer Lafarge because they would be paid to burn the tires. The idea was shelved.

This month, in a stunning reversal, Nova Scotia’s newly minted Environment Minister Iain Rankin gave a green light to a one-year pilot for Lafarge to start burning TDF in its plant in Brookfield. So what changed in nine years? Not much. Lafarge will get $1.05 from Divert Nova Scotia for every tire it burns. It’s a great deal for Lafarge, which is getting a fuel subsidy, and for Divert NS, which gets a lower disposal cost. For Halifax C&D, not so much.

Remember, for eight years, Halifax C&D believed the Nova Scotia government would never permit burning and would focus exclusively on recycling tires. They built their business developing markets based on what they saw as a consistent policy direction of government and a reasonably predictable stream of used tires.

The science of burning TDF, some of which was developed at Dalhousie University, indicates health and environmental risks are almost non-existent. We could argue the relative merits of using TDF versus natural gas in the cement kiln, but it would miss the point. What is more troubling, with this reversal, the government of Nova Scotia has put at risk the future of a local family firm, which has grown and developed in alignment with environmental goals, in favour of mandating citizens to directly subsidize a large multinational’s fuel costs.

Meanwhile, the experience Halifax C&D developed as a tire recycler has allowed them to bid on and win a pilot project in Newfoundland and Labrador. While this is a good new business opportunity to export Nova Scotian knowledge, experience and business to another province, and to create more jobs, it will not replace what C&D are losing here at home.

The government, by reversing direction on tire recycling in favour of burning, has thrown a small business into chaos in favour of subsidizing the fuel costs of a large multi-national. For a government that purports to support small business in Nova Scotia, this is not the way to show it.

Jordi Morgan is Vice President Atlantic of the Canadian Federation of Independent Business.

This commentary originally appear in the Halifax Chronicle Herald, July 26, 2017

What if the results of the Nova Scotia election were declared unconstitutional?

vote-nova-scotia

This was a question some of us were mulling over on election night.

The ambitious and dedicated folks at community radio station CIOE in Lower Sackville asked me to moderate their coverage on election night with a panel comprised of broadcasting legend Al Hollingsworth, former NDP MLA Michele Raymond and former Nova Scotia finance minister and Senator Bernie Boudreau.

Bernie and I share a common failure. We ran in the 2000 federal election in Dartmouth. We both lost. Actually, former Buchanan era cabinet minister and now Senator, Tom McInnes was in the race too, so I was in pretty good company when we all failed to unseat incumbent NDP MP Wendy Lill. (I should point out, my ill-informed run failed much more miserably than the PC and Liberal candidates, mind you Bernie gave up his Senate seat to run, but I digress)

In advance of the provincial election night program in May, I asked Bernie if he would mind having a quick peek at the Reference of the Nova Scotia Court of Appeal regarding the Final Report of the Electoral Boundaries Commission (EBC). We all felt it was an important issue, but it wasn’t getting much media attention.

The Honourable Justices Fichaud, Saunders, Oland, Bryson and Bourgeois were asked to provide opinion on the following; Does Section 1 of Chapter 61 of the Acts of Nova Scotia 2012, by which provisions the recommendations tendered by the EBC by its Final Report to the House of Assembly were enacted, violate Section 3 of the Canadian Charter of Rights and Freedoms by abolishing the electoral districts of Clare, Argyle, and Richmond?

The Court’s answer in late January? Yes.

Now I’m not a lawyer, but Bernie is and his opinion on this, which he freely shared on the radio, is the province could be in some pretty thick soup. If the EBC violated the Charter, does this mean the electoral boundaries are unconstitutional as the Acadian Federation asserts? How many? If the boundaries were illegal during an election, does this mean the result of the election is illegal? What would that mean?

Earlier in the spring, the Acadian Federation’s executive director Marie-Claude Rioux said, “I don’t think it is in the government’s best interest to call an election before this issue is resolved. It opens a whole Pandora’s box, and I don’t think the government wants to go there.” Well, they did.

So, the implication of this seems, at least on the surface, pretty serious and requiring some delicate unwinding.

The Liberals essentially said, our lawyers see it differently and the Premier can call an election whenever he wants. However, the loss of former Minister of Acadian Affairs Michel Samson’s seat in Richmond adds another layer of intrigue, as Samson was widely seen as one of Stephen McNeil’s senior lieutenants, and his loss in the election can be attributed, at least in part, to the redrawing of the boundaries.

Cape Breton Richmond

Progressive Conservative Alana Paon beat Samson in Cape Breton-Richmond by just 20 votes. In 2013, Samson got 50 per cent of the vote. Prior to the election, Tory Leader Jamie Baillie said the legitimacy of an election would be in question if the government doesn’t pay attention to the Acadian Federation. They picked up the Richmond seat, so what are they saying now?

The issue is apparently going to be resolved one way or another later this year, but it could make for some very interesting political posturing.

Nova Scotia’s pre election budget: anger and gratitude

delorey mcneil
Nova Scotia Finance Minister Randy DeLorey looks on as Premier Stephen McNeil speaks in Nova Scotia Legislature 

Premier Stephen McNeil must be listening to Tony Robbins. One of the tenets of the motivational speaker’s philosophy is it’s impossible to be angry and grateful at the same time. McNeil’s recent budget leverages the idea in spades.

CFIB members have been lobbying for tax relief over the last four years. Finance Minister Randy DeLorey delivered one of our key asks, to raise the small business tax threshold from $350,000 to $500,000, giving small business owners the capacity to retain more money in their business to innovate and create employment. Check that box.

Additionally, we’ve been adamant about providing some relief on personal income taxes, especially so lower-income earners can keep more of their earnings.

By raising the basic personal exemption by up to $3,000 for those earning less than $75,000, many low-and-middle-income earners in the province will see more of their paycheck, a much preferable mechanism than raising the minimum wage.

As we’ve argued for years, as a poverty-reduction measure, minimum wage is ineffective because government becomes the principal beneficiary through higher taxes. With this adjustment to the basic personal exemption, thousands more lower-income Nova Scotians will pay no provincial tax at all.

Another positive benefit of the budget for small business owners is the provincial government’s measurable commitment to reduce red tape. This is a principal file for CFIB. We have been supportive of the efforts of this government to put in place the structures to begin reducing unnecessary regulatory burden. Nailing down a target of $25 million in cost to business is the right thing to do.

CFIB members will be grateful for these improvements, which may temper taxpayer anger heading into the predicted provincial election. While these measures are sensible, and should be commended, there is still much work to be done on tax reform to put Nova Scotia in a competitive position.

We remain concerned, however, about the propensity of government to create boutique programs to benefit specific sectors. While there are programs geared toward small business growth in areas such as export and innovation, historically the programs go largely unnoticed or unused.

Leaving more money in the hands of small business owners to reinvest, without forcing them through the rigours of bureaucratic process to access benefits is a far more efficient and desirable approach.

Preparing for an election, it’s not hard to see why this government has chosen the former option. It provides more control over who will be the principal beneficiaries and constituencies. That is a simple political calculation.

Many small business owners remain frustrated by high taxes and governments that seem out of touch or ambivalent to their needs. This is a good start, but it’s only a start.

It has been a very long time since the people in Nova Scotia have seen any meaningful tax relief at all. A morsel can seem like a feast for the starving. Now that the math is done in the Department of Finance, it will, presumably, be put to the people of Nova Scotia to determine if they are indeed grateful or angry.

This post originally appeared in the Chronicle Herald, April 29, 2017 on day prior to the call of the 2017 provincial election.

The Atlantic Provinces “special snowflake” syndrome.

special-snowflake

The term “special snowflake” is generally used as a term of derision in the service industry. It comes from the term parents may use for their singularly wonderful child being “special”, like a “snowflake”.

After being popularized in the 1999 movie Fight Club, the term has transmuted into a sneering reference to those who feel they are or-so-very unique, but generally fall into columns of all-too-common attributes.

Kind of like our provincial governments.

In many ways, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador are indeed unique. The geography is somewhat different, the weather is more severe in some areas and in some locales, we speak in unique and charming dialects.

Beyond that, all of us, all 2.4 million Atlantic Canadians, are dealing with pretty much the same thing. Our economies are primarily resource based, we are in debt up to our ears (personally and publicly) and for a population slightly smaller than downtown Toronto, we are grossly over-governed with far too many people living on the public dime.

22.6% of all jobs in Atlantic Canada are in the civilian public sector. That’s fully five points above the national average.

To add to this problem, the public service continues to grow while public sector unions complain about “austerity” when governments simply try to reduce the speed of spending growth. There has been only one year in this century that Nova Scotia has seen a drop in the percentage growth of program spending, while most years spending has far exceeded the benchmark of population growth and inflation.

Do you feel we are getting 3 billion dollars worth of better government than we did in 2007? I didn’t think so.

To govern us across this region we elect almost 200 federal and provincial politicians and if we are counting just the major census areas (not including small villages, towns, county and other governments) we elect a total of 137 municipal councilors. To manage just the municipal and provincial affairs of the region we are forking over in excess of 33 billion dollars to politicians and the public service.

If we were getting absolutely awesome service from our over-investment in politicians and the public service, perhaps we wouldn’t have reason to complain. If we were getting “World Class” public services, we could all look at our tax bills and rejoice at the universal higher standards of living here in Atlantic Canada.

Except we don’t because the vast majority of our citizens know our total tax burden is much too high and “government customer service” is the punchline to a joke.

For mostly parochial or political reasons, governments in Atlantic Canada have historically felt our uniqueness trumped all. Because our respective provinces were somehow unlike any other province in the region, it was necessary to have separate provincial regulations, laws, and labour standards reflecting our “specialness”.

Not so much. There is no longer any rational economic justification for the layers of unnecessary governance Atlantic Canadians must contend with. A recent APEC report clearly explains the problem and quantifies the burden, and it isn’t pretty.

However, a glimmer of hope has arisen in our region. Perhaps because of the tireless lobbying of group like CFIB, or maybe the stars lined up to provide four political parties of the same stripe in power at one given time, or perhaps just because of the urgent need to finally try to address the problem, we have a body to attack some of our ridiculous regional redundancies.

With Newfoundland and Labrador signing on in December to complete the quartet at the Joint Office of Regulatory Affairs, the region now has a central tool to start dismantling some of the unnecessary costs and confusion that comes with four sets of rules to do business.

While such an event may have only titillated the wonkiest of public policy aficionados, it could prove to be a pivotal moment in the political and economic evolution of our region.

If the four governments finally come to grip with reality and accept the tax load on our shrinking population to support our unnecessary layers of government is unsustainable and must be lowered,  if they can come together to find governance efficiencies between provinces and enact sensible regulatory and interprovincial trade policy, perhaps Atlantic Canada has a fighting a chance at being a special snowflake.

Cutting Red Tape: An old problem finding new solutions

scissor-red-tape

I was having coffee with an old political warhorse recently and we were talking about red tape. He told me a story about how after John Buchanan won the 1981 election, his government promised to cut red tape. The classic line from Digby Liberal Joe Casey in the legislature was, “He sure is cutting, but lengthwise.”

This is to say, there’s nothing really new about politicians promising to cut red tape. The idea has been kicked around for years because red tape is a horrible drag on the economy. What’s new, however, is after years of hounding federal and provincial governments, the Canadian Federation of Independent Business (CFIB) is beginning to see some results.

To give credit where it is due, during John Hamm’s government, there was some movement on red tape, but it was no secret the bureaucracy regarded the project as bothersome. The “Better Regulation” initiative was largely ignored, then quietly shelved during Rodney MacDonald’s years and completely jettisoned during the Darrell Dexter years.

However, under Stephen McNeil regulatory reform has been revived and Nova Scotia’s grade on CFIB’s annual Red Tape Report Card has climbed from the “D” he inherited in 2013. As it is Red Tape Awareness Week, CFIB is announcing Nova Scotia is receiving a mark of “B” for 2016 putting the province back in the top half of Canadian jurisdictions.

The improvement in the mark is not because we’ve seen significant regulatory burden reduced for business, it’s because of the political leadership and excellent groundwork completed by a small group of dedicated individuals led by Chief Regulatory Officer, Fred Crooks.

We were very pleased to see Regulatory Accountability and Reporting Act passed, the creation of the Joint Office of Regulatory Affairs and Service Effectiveness, the Premiers’ Charter of Governing Principles for Regulation adopted, the creation and implementation of the ground-breaking business economic impact analysis tool and the initiation of a “Business Navigation” project to help new businesses get off the ground.

In particular, the Premiers’ Charter is a beacon of hope for small businesses in Nova Scotia. The commitment to enact fewer and better regulations, as well as the cost-for-cost rule, should keep the current regulatory burden in check. It’s now also been adopted by the three other Atlantic Provinces with mirror legislation as part of their participation in the Joint Office.

While this is all good, to see improved satisfaction levels from business owners, the government must begin producing results in time and/or money saved. With new technologies designed to make secure, online transaction readily available, there are tremendous opportunities for government to find creative solutions to cut costs, fix the government customer service experience, measure improvement and deliver real results.

To advance this, CFIB is recommending the province establish a baseline measurement of the existing red tape burden faced by Nova Scotia’s small businesses, set clear targets for its reduction, and publicly report on how it’s going. We believe only accountability will force this innovation.

If the Premier really wants to make Nova Scotia “the best regulatory environment in Canada”, we need to get at it, and now. The groundwork is done, it’s time to take action. Let’s navigate away from bureaucracies that are simply held accountable for process and move to a service oriented public sector that is held accountable for results.

This article was originally published in the Chronicle Herald on Thursday, January 26, 2017 

The $15 Minimum Wage. Good politics, bad policy

burrill-gary-npd

The latest salvo in the Nova Scotia NDP’s battle back from electoral oblivion has been fired. Newly minted leader Gary Burrill is launching the Nova Scotia franchise of the “fight for 15” minimum wage war. Good politics perhaps but this is bad economic policy. This massive minimum wage hike is modelled on the Alberta government’s last election platform and has become somewhat of a Cause Célèbre for organized labour across Canada and the U.S.

The “Fight for 15” walks hand-in-hand with the discussion of the Living Wage, a somewhat arbitrary economic line-in-the-sand being drawn by anti-poverty and social activists.

In a study commissioned last year by the United Way the Living Wage for Halifax was identified by the Canadian Centre for Policy Alternatives at $20.10 per hour. This benchmark describes what the CCPA believes each money earner in a family of two parents and two school age children must earn to provide what they saw as a “reasonable quality of life”, free of the stress of financial hardship.

However the 20 dollar plus Living Wage is more a Trojan horse. Behind this is what its supporters feel is the much more “reasonable” 15 dollar minimum wage. While the Living Wage is promoted as a voluntary measure, it’s not hard to draw a line directly to the minimum wage policy discussion. The headline in the Herald last year read, Study: Minimum wage only half of what it needs to be.

The Living Wage has been officially adopted by New Westminster, British Columbia and several cities in the United States. The Mayor of Vancouver is now mulling over the idea. The outcome for city employees is nominal as the vast majority of municipal government jobs pay near or above that mark anyway. Where it is really felt is in the private sector.  As a Living Wage community, it is a requirement for private contractors also to also meet that benchmark in order to be eligible to contract with the municipality.

Unions like this policy because it drives up wages and reduces the ability of private sector contractors to compete for union jobs. It effectively increases the government employee wage floor, makes collective bargaining easier and freezes out small private contractors, a perfect union trifecta.

While this Living Wage conversation goes on, discussions around the minimum wage are ramping up in Canada with the help of Alberta`s new government. It was in the NDP platform. When the NDP swept into power, Alberta was left with a minimum wage policy that remains nothing short of horrifying for small business.

Since that time the Alberta government’s own advisors say: “it’s reasonable to assume significant job loss is one realistic possibility” and the NDP government has not produced a single economic impact analysis demonstrating otherwise. Premier Rachael Notley even admitted Alberta’s fragile economy cannot handle this shock.

Nova Scotia’s economy is certainly no more equipped to handle this kind hike and the NDP here are proposing they can meet that goal by 2018. There is no economic impact analysis. They say small business will be exempt, but no criteria is identified. How will they determine how one business must pay a $15 minimum wage and another does not? The prospect of implementing this kind of discriminatory economic policy is nightmarish.

Punishing jumps in the minimum wage mean targeted business owners will need to hike prices, lay off staff, reduce employee work hours and reduce training. Profitability will decline, reinvestments and growth in business will diminish, and jobs which may otherwise have been created will simply not appear. In other words, nothing good.

On the other hand, government will reap benefits through higher personal income and payroll tax revenues. For the low-income employee, the benefit will be marginal at best.

In fact, minimum wage earners lost more in 2015 due to higher government deductions (e.g. CPP/QPP, EI, federal and provincial taxes) compared to 2010 in all provinces and territories except Newfoundland and Labrador. For example, Alberta minimum wage earners could see their payroll deductions increase from $1,965.60 in 2010 to $5,576.22 in 2018 with the minimum wage rate increase to $15 per hour.

Minimum wage hikes are harmful to youth employment.  According to a recent report from the Fraser Institute, for every ten per cent increase in minimum wage there is a resulting decrease of youth employment by three to six per cent.  The NDP proposal of a 29 per cent to the minimum wage would mean a reduction of 9 to 18 per cent in youth employment in Nova Scotia.

The report also notes that nearly 59 per cent of people earning minimum wage are people aged 15-24 who typically are entering the workforce.  Only 2 per cent are people who are single parents who have at least one dependent living at home.

Basic Personal Exemptions 2016

BPE

If government is looking for a policy change to help low income workers, they need look no further than the Basic Personal Exemption (BPE). This is the annual income at which a worker begins to pay taxes. Nova Scotia has the second lowest BPE is Canada at $8,481. We urge the Nova Scotia government to address this shameful statistic first before looking at reckless minimum wage hikes.

We were very pleased to see this week the Premier suggesting this is his preferred option. If so, CFIB will be looking for it in the next budget. Nova Scotians face some of the heaviest tax burden in the country. By allowing low income earners to keep more of what they earn, rather than enrich the treasury through minimum wage hikes, the government can actually do something meaningful to benefit those who need it most.

Economic barbed wire

Barbed Wire

Steps are being taken by Atlantic Canadian political leaders to dismantle a virtual wall erected between provinces over more than a century.

In perhaps one of the most memorable moments of his presidency, in 1987 Ronald Reagan stood before the Brandenburg Gates in Berlin and implored Soviet Union leader Mikhail Gorbachev to “Tear down this wall!” The purpose of the speech was to compel the Soviets to submit their economy to accountability, transparency, and greater freedom. While there may be lingering questions about the impact of Reagan’s rhetorical flourish, there’s no doubt the subsequent destruction of the Berlin Wall was transformative for the European economy.
While not the magnitude of Reagan’s oratorical overture, steps are being taken by political leaders in Atlantic Canada to dismantle a virtual wall erected between provinces over more than a century by creating a new office to begin pulling apart the red tape that often acts like economic barbed wire between provinces. Mention of internal trade barriers is frequently met with confused stares. After all, there are no border guards on the Confederation Bridge or economic sanctions against the province of Nova Scotia. Our members tell us that these barriers take the more insidious form of unnecessary and burdensome regulation.
Whether due to political interference, parochial interests, or simply grown from the nature of our different bureaucratic cultures, red tape inhibits businesses that aim to work in other jurisdictions by creating a prohibitive and expensive maze of differing rules, requirements, regulations, and practices.

From a business perspective, why do New Brunswick and Nova Scotia have different requirements in fall arrest requirements when gravity appears to act with remarkable similarity in both provinces? Why would first-aid kits in each province require different contents or trucks require different wide-load signage? Some of the examples border on the ridiculous, but either by default, or in some cases by design, all of these differences add cost, drag productivity, and ultimately make things more expensive for consumers.

The recent signing of the Comprehensive Economic and Trade Agreement (CETA) with Europe further highlights the need to move on freer trade within Canada. In some cases, the new agreement means that European companies will have access to opportunities across Canada that companies in a neighbouring province or territory may not. With a more global business environment and greater opportunities for free trade, we can’t continue to ignore the impact that our own provincial differences have on our economic competitiveness.

In fact, a recent poll conducted for the Canadian Federation of Independent Business (CFIB) by Ipsos-Reid shows that the majority of working Canadians agree it’s time for premiers to work together to remove impediments to the flow of goods, services, and workers across provincial and territorial boundaries.

With that in mind, CFIB has been cheering some of the recent work being conducted by both the Council of Atlantic Premiers and the Council of the Federation to help tear down those walls. Earlier this year, Premiers Gallant and McNeil took the significant step of creating the Joint Office of Regulatory and Service Effectiveness between New Brunswick and Nova Scotia. More recently, Prince Edward Island’s Premier Wade MacLauchlan and Newfoundland and Labrador’s government are showing interest in the process.

All of the Atlantic provinces stated in January that they would create an Atlantic Red Tape Reduction Partnership that would help streamline business requirements to create a more competitive economic environment within the region. Our neighbours are important trading partners, and we encourage these bodies to set meaningful regulation reduction targets, reach them, and report publicly on their achievements.

Further to regional work, the Council of the Federation (Premiers) has also been the scene of some encouraging progress. While we’ll have to wait until next spring to see what progress is made with reforms to our main national trade agreement, the Agreement on Internal Trade, we did see a positive step with the premiers signing the Provincial–Territorial Apprentice Mobility Protocol at their recent meeting in St. John’s.

Most notable about this new mobility protocol is that it follows the principle of mutual recognition. Rather than a lengthy bureaucratic process of trying to harmonize each and every regulation across each jurisdiction, the premiers simply said, “If it’s good enough in Province A, it’s good enough for Province B.” This is the gold standard for modern trade agreements and is precisely the direction we want our governments to go when removing barriers.

While the stakes may not seem as high in Atlantic Canada as for the Soviets in 1987, reality shows that we’re facing many daunting economic challenges and unfavourable demographics. With the world of trade changing around us, it’s becoming increasingly important that we work together to break down barriers between our provinces to make the best use of our economic and human resources. If we don’t, we risk isolating ourselves behind our walls of red tape.

Jordi Morgan is the vice-president, Atlantic Canada, and Erin McGrath-Gaudet is the director, P.E.I. and intergovernmental affairs, for the Canadian Federation of Independent Business. CFIB represents the voices of 11,000 small and medium-size firms in Atlantic Canada, with 109,000 members across Canada.

This piece originally appeared in Progress 101 issue online, by subscription and on newstands across Canada

Of Torches, Pitchforks and the Small Business Business Tax Rate

torches

As the story goes CFIB founder John Bulloch was sitting in his tub reading a federal government white paper on tax reform in 1969. When he saw the government planned to “realign” the economy by raising taxes on small businesses in Canada, he took action. He exposed the scheme in the Toronto Telegram and the ensuing protest was the closest thing Canada had seen to the villagers storming the castle with torches and pitchforks. Thousands of independent business operators came together to protest the idea and out of this movement, CFIB was created.

Since that time, CFIB has argued for a lower small business tax rate to recognize, among other things, the disadvantage small firms face when trying to access credit and raise capital to reinvest in their businesses. When it comes to tax policy, the Small Business Tax Rate (SBTR) is our DNA.

That being said, as governments prepare their spring budgets, the recommendations are now beginning to flow from vested interests to guide the decisions being made by Ministers of Finance and their departments. Right on cue, the Atlantic Provinces Economic Council (APEC) has released its Atlantic Report titled Exploring Opportunities for Tax Reform, providing fiscal policy recommendation for each of the four Atlantic Provinces.

Three key recommendations were put forward for Nova Scotia. Interestingly, the first two have been long standing positions articulated by CFIB in its pre-budget submissions over the past decade. The first recommendation is to “focus on expenditure restraint in balancing its budget beginning and laying the groundwork for growth-oriented tax reform”. CFIB members would agree wholeheartedly. Government must begin its budgeting exercise not by searching for new and exciting ways to tax us, but to apply a very sharp pencil on the spending side of the ledger.

The second recommendation is to begin annual indexation of its personal tax brackets. CFIB has been fighting what is otherwise known as “bracket creep” since the Hamm government de-indexed the personal tax brackets some 15 years ago. If you’re wondering why, my CFIB colleague Nick Langley summed it up pretty well when he said “If you are earning minimum wage in Nova Scotia, the amount of personal income tax collected by the provincial government has increased by 275 per cent in the last 15 years.”

It should also be noted bracket creep was highlighted in Laurel Broten’s Nova Scotia Tax and Regulatory Review ‘Charting a Path for Growth,’ released in 2014. Her recommendation is a built-in cost-of-living adjustment for personal income taxes. It’s a sensible approach CFIB put forward when we met with Ms. Broten during her stakeholder consultations. So far, so good.

However, it’s the third recommendation from APEC where we part ways. It should also be very alarming to all small business owners. APEC recommends more than doubling the provincial Small Business Tax Rate, beginning January 2017, from 3% to 7% and a reduction of its general corporate tax rate from 16% to 12% by 2021. This recommendation echoes Ms. Broten’s original notion the taxes on larger corporations in Nova Scotia should be reduced and the reduction should be paid for by smaller business.

Nova Scotia currently has a competitive SBTR, but it continues to have the lowest small business tax threshold, the amount below which a business is eligible for the rate, at $350,000. Every other province in the country has a $500,000 threshold. This already puts small business in Nova Scotia at a competitive disadvantage with the rest of the country, raising the SBTR would only add insult to injury.

At risk of attributing motivation to these recommendations, it should be noted that APEC board is comprised of representatives of some of the biggest corporate entities in Atlantic Canada, so it’s not hard to see where this is coming from. To be fair, CFIB agrees with APEC the general corporate tax rate should indeed be lowered. It will create a more competitive environment to attract larger firms and offers greater opportunity for job creation and investment. That’s fine, just don’t make small businesses pay for it.

It’s hard to imagine the Premier would be prepared to head out on the election trail in 2017 selling the idea to small business operators that the reason they’re paying higher taxes is so the province could provide a break for Irving, Fortis, Emera and Sobeys. Really?

If the past two budgets are any indication, this government doesn’t seem to have much appetite for going to war with small business over the SBTR. Both of the previous Finance Minister’s budgets wisely ignored Ms. Broten’s suggestion and there are few indications Premier McNeil, a former small business operator, would embrace the suggestion from APEC.

In fact, CFIB has been very supportive this government’s efforts to help small business by laying the groundwork to reduce regulatory burden in Nova Scotia. However, any move to add additional financial burden on small business through an increase in the SBTR is, from CFIB’s perspective, a non-starter.

Should the government actually decide to heed the advice of large corporate interests and raise taxes on small business to pay for a break for larger corporations, it won’t be just the film industry circling province house, every small business owner in the province will have reason to pick up the torches and pitchforks.

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.