Ian: Welcome to the Business Coach Podcast, an advice-oriented series that tackles the top issues and opportunities facing Canada’s small businesses. I’m your host, Ian Portsmouth, the Editor of PROFIT Magazine. And we’ve developed this podcast in cooperation with BMO Bank of Montreal.
After two of the most eventful months in Canadian political history, the Conservatives recently tabled the federal budget for the 2009 – 2010 fiscal year. Its defining feature? Deficit. In the hopes of at least keeping the Canadian economy above water through the global downturn, the government brought forth a stimulus plan that will run $34 billion into the red in its first year alone. But somewhere in all of that is something for small business. Standing by to talk about the small business aspect of the recent federal budget is Catherine Swift, President and CEO of the Canadian Federation of Independent Business. Catherine, welcome to the Business Coach Podcast.
Catherine: Thank you.
Ian: So Catherine, let’s get your vote, good, bad or otherwise on this budget for small business?
Catherine: Well, there’s good but there’s bad and I would say on balance more good than bad. You mentioned right off the top there the deficit and that is the big 800-pound gorilla in the room if you will. Our members, our small business members, we have actually poled them on this issue late last year prior to the budget and their view was, deficits should be an absolute last resort basically. They did see if there was an absolute essential need to run deficits, it should be for the shortest possible period of time and they should be kept as small as possible. And $30+ billion deficit is by no means consistent with that wish on the part of the small businesses that are out there. So we were very very critical on that and the main concern being I just don’t think we’re really going to be getting out of it in 5 or 6 years as the budget supposedly put forward. That being said, there are a number of good measures, one very specific one that, say if I’d be, had actually requested, was the increase in the threshold for the small business corporate income tax rates increasing from $4,000 to $5,000, that’s worth about $80 million a year. It’s not massive money but nevertheless, it improves sort of the sticking point in the corporate tax system. I mean, ideally of course, we would like to see no threshold at all, but we would like to see everyone’s corporate income tax rate down where the small business rate is and of course that is not the case right now. But anyway, that’s an improvement.
Ian: And I guess one of the great things about a tax break in the stimulus plan is tax breaks tend to be very difficult to reverse. Given that, so many smaller businesses aren’t expecting to make a profit or very minimal profit during the next couple of years. I am wondering how much of a difference this will actually make to a lot of people out there on the ground.
Catherine: Well Ian, that’s a very good question. That’s kind of why I prefaced it by saying it wasn’t huge. It’s not huge in terms of dollars but at least it’s going in the right direction. And then when things do come back, which they will, we don’t tend to believe it’s going a protracted recession or even a particularly deep one, and again our member input is one of the key reasons we believe that, but you’re right, it’s not the be all and end all. In fact, in the bigger picture, things like the personal income tax cuts that were in the budget, again, they’re about $2 billion a year so they’re a little more substantive in terms of absolute volume. And it was interesting because for the last couple of years, our small business members have actually told us of all the taxes you could reduce out there, that was their number one priority, personal income tax. So, that was welcome and was also welcome that it was directed sort of to the middle and lower income groups who do tend to spend more of their overall income than say higher income groups. Not to say that we don’t need further action on the income tax system, we certainly do, but that was something in the right direction.
But more to your point, things like having the EI premiums frozen for 2 years, that was welcome, we believe they should be frozen if not even reduced for much longer than that, but we’ll take this for now and we will work on that down the road. We also saw of course a number of measures targeted at different sectors of the economy, there was money for agriculture, money for manufacturers, changes in various sources of capital cost allowance provision which will be more immediate and will benefit a wider group of businesses should they feel, you know, will they want to be investing in computer equipment and so on. So there were a number of measures, I thought the renovation issue was rather interesting to be perfectly honest. That was something that was very broadly based, it’s quite time limited and obviously, the renovation sector is dominated by small businesses. So I think that I am hoping that that will be a significant thing to pump some money into that sector. And overall, that’s $3 billion in a year, once again, not chump change.
Ian: Now when we talk about renovation, it makes me think about infrastructure because that’s just a renovation on a very large scale. A lot of these infrastructure projects are going to benefit construction companies immediately and anyone who supplies those projects. But what’s out there for, say, the mainstream retailer?
Catherine: Well, hopefully the personal income tax reductions will be somewhat helpful at least, to, say, the retail industry because is consumer spending is a huge amount of our economy in general. Things like the EI freezing, at least they know they are going to have some stability on that front and also there were some moneys freed up in terms of trying to target easing the credit crunch that’s going on right now. Again, that will be more broadly based, obviously that will benefit a range of different businesses out there. But one thing I think is worth noting, and it was quite interesting, I happened to take a taxi recently and I was talking to the cab driver who owns his own business and he said, “Boy, I am so glad that we finally have some stability in Ottawa” and normally you wouldn’t necessarily expect him to even pay attention to that but he said his banker was telling him until they felt there was stability on the federal front, they were being extraordinarily cautious in terms of lending. And this person already had a relationship with his financial institution. So I think maybe one of the most important things in the Ottawa sort of environment right now is that we have got ride of, for a while, I mean it’s not for ever, but at least for a while, it looks like we are going to have some stability there because for the last few months, we basically had a government that has not been there at a time when the economy badly needs a focus in the right direction obviously. And all the in-fighting we saw last year, you know, I think for all small businesses in every sector, that is a very important factor.
Ian: The Canada Small Business Financing program is benefiting from this stimulus package to a small [indiscernible]. Can you tell us what changes have been made there and what they mean to Canadian small businesses?
Catherine: Yes, it will be interesting to see because they actually increased the ceiling and this is money that is 85 per cent guaranteed by the government. And so the bank, you know, is taking less of a risk loaning out that money and it is focused on small businesses. But they did it, they increased, basically increased the amount by about $300 million, which again is not nothing but it is also not enormous. I tend to think if we can actually give the banks a few more kicks in the pants to get them to ease borrowing or even existing lines of credit not increase the costs on it, because we are actually hearing it’s not just a liability issue, it is also a cost issue. But that being said, yes, they have increased the moneys through the Small Business Financing Act, something else important they did to the Small Business Financing Act is, and we have yet to see the details on this, but one of our “beefs” was that the banks keep saying, “It’s so complicated, there is so much paperwork we have to fill out,” so they are looking at streamlining that. And actually, that might be an important thing and innovative itself because it’s delivered through the chartered banks. You know, you go to your bank and you ask them, you know, can I get a loan through the Small Business Financing Provision, which is the Government guarantee.
Ian: Now, innovation is one way that we can get out of this recession. The Industrial Research Assistance Program has got some extra money. How does that work?
Catherine: Well the IRAP program, again one of the challenges of it for smaller firms is that it does involve a reasonably involved application program. But that being said, IRAP has got, and it’s basically for innovative like you say, it’s an innovation focus, so you apply to the Government and say I’ve got this project, I am using this technology, I am modernizing this, whatever happens to be, so I would certainly, if there is anything that a business is doing that they believe is innovative, using the technology differently, they should consider applying for moneys under this program because it is actually one Government program, it’s been around for a long time and it’s got pretty positive feedback.
Ian: Catherine, thanks for taking us through the small business aspects of the latest federal budget.
Catherine: My pleasure.
Ian: Catherine Swift is the President and CEO of the Canadian Federation of Independent Business.
That’s it for another episode of the Business Coach Podcast. Be sure to check out other episodes which you can download from BMO.com, profitguide.com or iTunes. If you have any comments or suggestions about the podcast, please send them to me at email@example.com
Until next time, I am Ian Portsmouth, the Editor at PROFIT Magazine, wishing you continued success.