It probably shouldn’t come as a huge surprise that Canadian businesses are happy with the federal government’s fall economic update. Relations between Ottawa and the business community had been downright frosty. But billions in tax breaks should go a long way to warming things up a bit.
Businesses and the government initially found themselves at odds over proposed changes to the way businesses are taxed in this country. Just as the United States was bringing in a $1.5 trillion tax cut, Ottawa was accused of dramatically increasing the tax burden on enterprises here.
So, tax breaks on business investment are being heralded as much-needed good news for small business.
“We’ve seen some pretty good movement from the Canadian government in terms of making it cheaper for businesses to invest in the first year,” says Ted Mallett, vice-president and chief economist at the Canadian Federation of Independent Business.
Very few expected Canada to match the American tax cut. Instead, lobby groups had called for targeted tax breaks, specifically around business investment. The new policy allows businesses that buy equipment or property to write off that investment more quickly. Mallett says this should help nudge business owners who have been reluctant to spend.
“They will now be able to write off three times as much as they normally would in the first year of that investment,” he says, “which may be enough to get them over the hump and buying that product or building that new building.”
The tax break comes at a time when the Canadian economy is shifting away from years of growth driven by consumer spending. Now, the Bank of Canada expects economic growth to come primarily from business investment and exports.
The Business Council of Canada says that rotation underscores how important it was for the government to take real action to address that competitive gap. CEO Goldy Hyder says mere words would not have been enough.
“Taking no action would have led to some serious consequences as businesses move their capital investments to another market,” says Hyder. “So I think the government got the message, and I congratulate them on that piece of it.”
The one glaring area for concern among the broader business community is the prolonged running of deficits.
The election promise from the Liberal campaign was to run some modest deficits that would be brought under control by 2019. The government was hit by the enormous shock to oil prices in 2014-15. That pushed the deficit higher and extended it longer than expected.
Now, though, Ottawa is forecasting a $19 billion shortfall this fiscal year. That’s projected to fall to around $12 billion by 2022-23.
The Canadian Taxpayers Federation says the government has missed yet another opportunity to address the ballooning deficit.
“If they can’t even balance the budget in these good times, when will they ever be able to?” asked CTF federal director Aaron Wudrick.
As if to compound that criticism, the Organization for Economic Co-Operation and Development released a report on the same day entitled Growth Has Peaked. The research paper says developed countries will have to carefully steer their economies toward sustainable but slower GDP growth.
Concerns like that will come as little surprise to people in Canada’s struggling energy sector.
Energy still makes up a big chunk of this country’s GDP. When the oilpatch struggles, the rest of Canada feels the pinch as well. And with oil prices collapsing and the differential on Canadian oil hitting all-time highs, a tax break on business investments won’t do much to help.