Industry association highlights lack of fiscal anchor, absence of measures to strengthen and rebuild business capacity
For many Canadian households and stakeholder groups, the much-anticipated federal budget has provided vital answers to critical problems and questions.
Opponents of the wealth tax and the principal residence exemption have been vindicated, though a newly unveiled tax on luxury goods could be a cause for concern among affluent clients in years to come. Canadians still reeling financially from the pandemic will also likely appreciate a proposed expansion of eligibility for the disability tax credit, as well as extensions to COVID-19 aid programs.
But while declarations to widen the social safety net are a sure way to score popularity points, one industry group asserts that the government missed a crucial opportunity to create long-term confidence in the capital markets and economy.
“The budget measures will not inspire confidence among domestic and foreign investors, nor encourage much support from the credit-rating agencies,” Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), said in a statement.
In a statement responding to the federal budget, Russell said the Liberal government’s plan “raises concerns about vulnerability of public finances to higher interest rates.”
Following the recent surge in Canada’s public debt, the International Monetary Fund (IMF) last month said it must establish a medium-term fiscal anchor to ensure its sustainability. That was noticeably absent in the budget, which Russell said addressed the issue simply by stating the government’s commitment to “reducing the federal debt as a share of the economy over the medium-term.”
He said that previous calls by the IIAC to make the tax system more efficient, which would “stabilize public finances and make room for productive spending in the future,” were also unheeded in the budget. The budget, he asserted, should have been focused on making tax bases as broad and comprehensive as possible, as well as reviewing tax exemptions, deductions, credits, and rebates to eliminate or scale back those whose intended policy goals are not being met.
“The priority should have been to impose effective measures to spur business investment spending and risk taking to strengthen the foundation of the business sector and re-build the small business sector, critical for Canada’s recovery in both the short and long term,” Russell said. He pointed to the U.K. as an example, where citizens are encouraged to invest in equity shares of qualified small and medium-sized businesses with a personal tax credit.
The Canadian Federation of Independent Business (CFIB) aired similar concerns in a separate statement.
It welcomed the government’s decision to extend the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) into the fall, as well as a new Canada Recovery Hiring Program that’s aimed at incentivizing small business owners to bring back their staff. The association also welcomed its commitment to reducing credit card swipe fees paid by merchants, and supported a plan to levy existing taxes on international digital and e-commerce players to level the playing field between Canadian and foreign business.
But the association also called on parliament to make exceptions to the planned luxury tax for certain car, truck, and boat purchases made by small firms. The fact that new businesses were shut out of accessing any support, as well as the lack of measures to help small firms with their new COVID-related debt, which CFIB says amounts to $170,000 on average.
Learn in this article what luxury items are covered in Canada's luxury tax law.
“While small firms understand the need for large short-term deficits to address the many COVID-related costs, we are concerned about the significant amount of non-COVID spending in this budget,” said CFIB President Dan Kelly. “Small business owners worry that today's deficits will turn into tomorrow's taxes. The government must put forward a long-term plan to balance the budget to give business owners much-needed certainty as we all work towards economic recovery.”