Where Should Economic Hopes Be Pinned?

Now that the date of the Federal Budget has been announced, Tuesday April 21, and the Minister has met with learned private-sector economists, who confirmed the March private-sector forecasts will do in interpreting plans for the near future, there is much speculation on what the budget will announce and for whom

Given recent business statistics, a renewed look at incentives for small and medium sized businesses in Canada might be warranted. 

According to recent news releases issued by Finance Canada:

• Canada has one of the strongest job creation records in the G7  with more than 1.2 million net new jobs created since the recession.

• According to KPMG, total business tax costs in Canada are the lowest in the G-7 and 46% lower than in the United States

• Canada has AAA credit ratings and a stable outlook from all the major credit rating agencies.That makes Canada the 2nd most desirable location in the world to grow a business.  Recent business statistics from Industry Canada, based on the 2012 year, tell us  there are just under 1.1 million businesses in Canada, which contribute 25% to 41% to Canada’s GDP.  They contribute 70% of the total private labor force in Canada, employing 7.7 million people.

Fully 55% of these businesses hire 1 to 4 employees; 87% have 1 to 20 employees.  They contribute $4.8 billion or 31% of the total spend on research and development in the manufacturing, knowledge-based and professional services.  While they export only 10.4% of all exports from our country, small businesses export a total value of 41% of all Canadian exports.

The vast majority of surviving business owners have more than 10 years experience.  The vast majority of their leaders are male (68%),  18% are jointly run by male and female leaders and 14% are females.  Over 50% of them are 50-64.

This presents three observations for professional advisors and politicians to consider:

1.  Tax incentives targeted at small businesses would go a long way to increasing meaningful economic development and labor market growth in Canada.  Increased taxes by way of marginal tax rate increases, mandatory increases to CPP or  provincial pension plans may hurt both.

2. There are many established surviving businesses that turned the corner on low survival rates (80% of businesses fail in year 1; 72% in year 2) to produce both profits and equity through challenging economic times. 

3. Because so many are held by those looking to retire soon, there is significant opportunity for the under 50 demographic.

Stepping up to embrace the opportunities for economic growth is important.  Indicators appear to suggest unspectacular catalysts in the near future.  In Canada, however, highly educated and entrepreneurial minds can catapult forward, given the right tax climate.  This, however, requires an involved strategic approach by governments, who challenge is to fund social services in the meantime.

The sweet spot in intergenerational wealth management, for millions of Canadian families, could very well focus on business services and succession planning, as a result.  Advisors interested in growing tax and financial practices, therefore, might focus ongoing professional development there.