We have just endured one of the most telegraphed budgets in memory. In an era of TikTok and depleted attention spans even budgets need to be pre-released to garner attention.
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Unfortunately, the assaults on business from provincial and federal levels of government continues in response to actors who seem unable to constrain spending; fueling inflation and then seeking taxation offsets to support financial dysregulation. Discipline is hard, and it seems an attribute absent in our cohort of elected officials.
While the full impacts of overspending have not manifested beyond increased costs of living, they will. The hardships of inflation are immaterial to hardships which "may" evolve as rational actors reflect on options in a deteriorating business environment.
Worst in decades
Before even seeing the released budget, respected former deputy finance minister and governor of the Bank of Canada David Dodge stated this budget was “likely one of the worst in decades.”
Even Prime Minister Justin Trudeau's own recent finance minister Bill Morneau, who in his own right deteriorated the environment for business, confirmed he resisted the consideration for many of these budget options including reducing capital gains. Morneau affirmed: “From my perspective, this is clearly a negative to our long-term goal, which is growth in the economy, productive growth and investment”.
At a time when the economy needs to spur value creation and pay down unregulated COVID-19 spending debt, the outcome of the policy decision to not restrain spending but increase taxation will result in a flight of wealth creators.
Devoid of strategy
Economic inducers need to be encouraged; we have provincial governments impairing property developers and landlords, competing for limited resources by over stimulating public investment and public hiring all in competition with fragile industries. A recent compounding policy is to strip the labour supply by denying newcomers immigration programming.
We are on the wrong side of the parabola and at a time when tourism operators will not be able to find critical workers to support their operations. The policies are devoid of strategy and perplexing business.
Now the Trudeau government is directing entrepreneurs and corporations to evaluate what tax jurisdictions they should be operating from.
Profit generation is, and should be, the primary motive of any entrepreneur or corporation. This week's budget discourages the sole objective of these individuals and entities. Profit, success and growth are all viewed as unnecessary – I hope there are public sector opportunities for all.
Uncompetitive markers
When comparing Canadian provinces with the 51 United States jurisdictions, all provinces are in the top 15 of combined marginal tax rates —the highest taxes! According to the Fraser Institute, Canadian provinces are also uncompetitive when comparing personal income tax rates from $50,000-$300,000. Out of 38 OECD countries, Canada’s top combined income tax rate is ranked at only 5th. These are not compelling positions our elected officials have created.
As of June, corporations will endure an increase in capital gains from the current astounding 50 per cent to 66.67 per cent. Overspending has increased these tax rates in recent budgets. A smaller and smaller margin is the benefit for the risks entrepreneurs and businesses take in Canada.
I am confident larger productive corporate entities will respond to these impositions as expected – and government will then receive no tax revenues from relocated companies. This government has been targeting profits from banking to groceries to small operators; now to the point of critical location evaluation.
Collective tax assault
There are attempts at good measures in the federal budget, such as a modest inflationary increase in individual gross capital gain allowance for selling a business and a new entrepreneur’s incentive to reduce capital gains on the disposition of a small business. But these do not offset the collective tax assault and micro-aggressions from fuel tax to property tax to payroll remittances.
Our society continues to accumulate net-debt by spending much more than we can raise. This is unsustainable and becoming an expectation. As long as we continue to spend, we can’t reduce taxation, and as a result we will lose the most mobile contributors to our economy and tax base; prospective entrepreneurs will not be attracted to risk but to public sector employment.
While governments have a role to play in supporting economic development and addressing societal needs, excessive taxation and overspending does have detrimental effects on the economy. It is essential for policymakers to strike a balance between fiscal responsibility and the provision of essential services, while ensuring sustainable economic growth for the future.
Blake Doyle is a regular business columnist for SaltWire based in Charlottetown. [email protected] @blakedoylePEI
