This piece first appeared in the Canadian Chamber of Commerce's Five Minutes for Business June 14, 2018
Tariffs. Trade talks. Pipelines. Electoral change. While the Canadian economy continues to grow (albeit somewhat slowly), these are just some of the factors that might slow it down. As we head into summer, and the mid-point of 2018, now is a good time to take stock of Canada’s economic performance and consider what the latter half of the year might have in store for us.
The economy stumbled into 2018, slogging its way through weak consumer spending and housing markets. Real GDP increased at a pace of 1.3 per cent in the first three months of 2018 — the slowest quarterly growth in nearly two years. The Canadian economy grew at less than a two per cent rate for the third consecutive quarter, a far cry from the nearly 4 per cent average between July 2016 and June 2017.
The good news is that economic growth seems poised to accelerate. While the cumulative result was disappointing, the quarter finished strong with February GDP up 0.4 per cent month-over-month, followed by a 0.3 per cent increase in March. Exports increased 1.6 per cent in April, a good sign for an economy that will need export markets to make a bigger contribution to growth in place of consumer spending. This encouraging finish has hastened confidence that the economy is improving with stronger momentum going into Q2.
The bad news is that uncertainty about a variety of economic issues is weighing on business investment. Any optimism about the economy taking a turn for the better is tempered by the risk that uncertainty will drive investment away from Canada. Imports declined in April, indicating that business investment and domestic demand were scaled back during the month.
Ongoing insecurity about trade policies continues to cast a shadow over Canada’s outlook. The recent steel and aluminum tariffs imposed by the United States—and the Canadian retaliation— are increasing investors’ concerns about the future of NAFTA, and even what a U.S. withdrawal would mean for Canada. With a new government in Ontario, Canada will have its work cut out to maintain a united front in response to further possible retaliatory measures.
Further complicating matters are the extraordinary measures taken by the federal government to buy the Trans Mountain pipeline — a step that never should have been necessary. This is another sign that we need to take a long hard look at our broken regulatory system and ensure Canada remains an attractive place to invest and do business.
These developments have heightened the existing doubts about Canada’s business competitiveness. The Canadian tax system is losing relative competitiveness compared to its peers due to recent tax reform in the United States and France. Significant uncertainty also surrounds how the Canada Revenue Agency will assess the new small business tax changes in the 2018 Budget. These factors are causing business investors to seek other markets or sit on their wallets.
The outlook for business investment is crucial because everything else the Bank of Canada usually considers in monetary policy decisions suggests the economy can handle higher borrowing costs. The central bank has been cautious thus far but recently signalled that higher interest rates will be warranted and that the governing council will take a gradual approach to policy adjustments.
The current data on economic growth supports this. Canadian households may be able to manage rising mortgage and consumer debt, as long as Canada’s economy continues to grow and unemployment remains relatively low. However, the risk that Canada’s economic prospects and investor confidence can be derailed by any number of uncertain issues remains high. The IMF’s recent mission to Canada concluded that our economic outlook is subject to significant risks—including a sharp correction in the housing market and a banking system with heavy exposure to household and corporate debt.
The Canadian Chamber of Commerce’s Crystal Ball Report predicted uncertainty for Canada’s economic and political outlook in 2018. Financial and economic imbalances have created a tenuous economic recovery. Rising protectionism has the potential to escalate into a trade war. Markets and business models are being disrupted by new technologies and opportunities. Overall, Canadian businesses are grappling with the speed of change.
Adding to this, Canada’s economic performance in the first half of 2018 demonstrates that one of the few certainties in today’s economy is an enduring state of uncertainty.
Thank you to the Crystal Ball Report sponsors
This piece first appeared in the Canadian Chamber of Commerce's Five Minutes for Business May 10, 2018.
Unless you’ve been living under a rock (or perhaps within a rolled steel coil), you have no doubt seen all the news these days about the looming threat of steel and aluminum tariffs being imposed by the United States.
Last year, the U.S. Department of Commerce initiated an investigation into whether steel and aluminum imports were impairing America’s national security. These investigations occurred under Section 232 of the Trade Expansion Act of 1962. The investigation’s recommendations were released in February and proposed a number of measures, including a mix of tariffs and quotas on steel and aluminum exports from around the globe.
President Trump opted to impose global tariffs of 25 per cent on steel products and 10 per cent on aluminum products that are entering the U.S. To be exempted from the tariff stick, Washington seems to be offering the quota carrot to countries. South Korea has already negotiated its package, which focuses on quotas, and agreements in principle have been reached with Brazil, Argentina and Australia on yet to be specified measures. Although, as recent news from Brazil indicates, some of these agreements in principle may have a ways to go.
But looking closer to the home, the threat of tariffs continues to loom large for Canada. We received a temporary exemption — along with the European Union and Mexico — until June 1. The Canadian Chamber of Commerce’s position continues to be that Canada should be fully and permanently exempted from any tariffs, quotas or other measures designed to reduce the cross-border flow of steel and aluminum products. Canadian imports to the U.S. do not pose a national security threat. In fact, Canadian aluminum is integrated into the U.S. defence industry to allow America to build its military hardware. In the case of steel, Canada is the top export destination for U.S. steel products, with trade roughly balanced between our countries.
The Chamber applauds the federal government for its firm stance on this issue in opposing U.S. pressure for Canada to accept export restrictions. We also fully support the government’s position to oppose any links between these tariffs and the NAFTA negotiations. Such a connection would only be an unhelpful distraction from what should be our main focus.
There are certainly wider systemic issues that affect the industry; U.S. tariffs will divert third-country steel and aluminum products onto already saturated global markets. Additionally, there is the issue of trans-shipment, where companies could attempt to use Canada as a backdoor to circumvent U.S. tariffs. It is vital the government be watchful of these issues. The government’s recent announcement of additional funding for the Canada Border Services Agency is a good first step, meeting a request from the Chamber and our members. At the end of the day, it is about providing certainty for business. This means no arbitrary implementation of tariffs or quotas and ensuring the rules are consistently enforced.
This piece first appeared in the Canadian Chamber of Commerce's Five Minutes for Business April 12, 2018
A few years ago, BC Comfort Air Conditioning, a B.C.-based company with over 45 years experience in mechanical HVAC services, noted employees were leaving the doors wide open in the chilly season for convenience.
One simple change—asking workers to keep that bay door closed—helped cut natural gas use by 65%, saving the company $7,000 a year and reducing carbon emissions by the same amount as planting 500 trees.
The company appears as one of 12 case studies in a new report, 200 Million Tonnes of Opportunity: How small and medium-sized businesses are driving Canadian clean growth, a report from Climate Smart Businesses. 200 Million Tonnes features stories from 800 SMEs in 13 sectors Climate Smart has worked with, offering real-world examples on how to cut costs by reducing emissions through actions like route optimization, paperless operations, heat recovery, employee engagement and more.
In another example, a company saved $65,000 in hauling costs by diverting 35% of its waste from the local landfill, reducing emissions by an amount equivalent to three tanker trucks of gasoline. A hotel chain in the Yukon was able to save $180,000 a year by upgrading its incandescent light bulbs to LEDs. Sometimes the company’s return on investment was not in savings but in happier employees or improved reputation.
Many small businesses, however, are short on resources but long on to-dos. When it comes to considering the sustainability of business operations, it can be intimidating to figure out that first step.
Luckily, there are tools to help. The World Wildlife Fund’s Living Planet @Work program provides a list of activities and programs people can use to start the conversation in their workplaces. The WWF’s Smart Office Challenge focuses on IT, which as a part of almost every business and a significant energy consumer, is a natural starting point for sustainability newbies. The tool offers a check list of simple actions that can have a big impact. For example, cutting energy consumption from PCs by half can be as simple as getting employees to turn them off at night. More information is available in this interview with the Canadian Chamber.
The Canadian Chamber is also partnering with Climate Smart to help share its training program across the chamber network. The Victoria Chamber of Commerce and the Mississauga and St. John’s boards of trade will pilot the outreach program, offering their members a $1,000 discount. SMEs that belong to other member chamber of commerce are also able to access the discount on a first come-first served basis. Contact Christine VanDerwill to learn more.
Flashy new innovations or clean technology start ups are exciting stories that make headlines and it can sometimes seem that is what sustainability is all about, but much of the time, going green can simply mean finding ways to use resources more efficiently.
When a business reduces its environmental impact by making better choices about how it uses energy and materials, some call it sustainability, but the practice has an older name: common sense. For more information, please contact: email@example.com.
Automation, artificial intelligence and advanced robotics have the potential to either take over jobs or be the key to increased productivity and competitiveness, according to a new report from the Canadian Chamber of Commerce, Skills for an Automated Future. Only by bracing for the changes to come in the next decade can Canadian business take full advantage of the automation revolution.
“Between one-third and one-half of workers will be affected by automation in the next decade. Those changes do not have to be negative, however. By investing right now in skills development and lifelong learning, businesses can ensure their workers will have the tools to face these disruptions,” said the Hon. Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. “Automation will change the way we work, but it also represents significant opportunity for the businesses that are ready.”
Waiting until after workers lose their jobs to automation and relying on traditional training programs could represent a significant cost to the Canadian economy, between $6 and $18 billion each year. By mapping out core, essential skills, making training programs more flexible and by starting now, Canada can make that amount more manageable.
“What we’ve found in preparing this report is that much of the retraining infrastructure is already in place. By leveraging on-the-job training and focusing on shorter programs, we can ensure Canada leads the way in adapting to automation and the changes it will bring,” said Patrick Snider, Director of Skills and Immigration Policy at the Canadian Chamber.
Properly harnessed, automation can represent greater production capacity, GDP growth and even job creation. That will require a concerted effort between workers, business, educational institutions and government.
Read the recommendations in Skills for an Automated Future
Today, Canada's Senate called on Finance Minister Bill Morneau to withdraw the government's proposed tax changes and study our entire tax ecosystem.
Because these proposed changes will have consequences. They'll hurt small businesses.
The Senate committee in particular drew attention to the feedback your Chamber provided through our Board Member Mark Jones on the consequences of changing passive investment rules:
"If the government hits investment income with a 73 percent tax, business owners will have no incentive to keep surplus assets in the business... This punitive tax would cause them to invest less, cap the size of their savings, and hold less productive assets... ultimately it will impact job creation."
We continue to work on this important issue. It's an honour to serve our members and ensure the voice of Winnipeg business is heard on Parliament Hill.
This article first appeared on the Canadian Chamber of Commerce Five Minutes for Business on December 5, 2017
What do Canadians want for Christmas this year? It looks like we all have good cheer on our minds: An Ipsos poll released a few days ago found that 89 per cent of Canadians believe they should be able to buy any amount of alcohol they want in one province and transport it to another. (The poll was commissioned by the Montreal Economic Institute, Canadian Constitutional Foundation and the Atlantic Institute for Market Studies.)
Restrictions on the movement of beer and wine across provincial boundaries are just one example of the barriers that impede trade within Canada, drive up business costs, and hurt Canadian consumers.
In many cases, the problem is unnecessary differences in provincial and territorial regulations, leading to complex, and costly compliance requirements for businesses operating across provincial boundaries. In other more egregious cases, like restrictions on the interprovincial movement of alcohol, it is nothing less than out-and-out protectionism.
There is no question that freer trade among provinces and territories would lower the cost of doing business in Canada, attract more investment, and provide more choices at more competitive prices for consumers. However, governments have been slow to take meaningful action to remove these barriers. Restrictions on the sale and transportation of beer and wine have been off limits to any reform initiative. But, not all hope is lost. Like an awkward holiday dinner with the in-laws, beer and wine might save us still.
The Canadian Chamber is an intervener in the Supreme Court Case, R v Comeau. Gerald Comeau is the New Brunswick retiree who five years ago drove to Quebec to buy some alcohol. On his way home, crossing back into New Brunswick, he received a ticket from the RCMP for transporting alcohol across the border. He challenged the ticket in court won. Now the case has gone all the way up to the Supreme Court.
Although the Comeau case is about alcohol, its implications are much larger. With the Comeau case, the Supreme Court has the opportunity to take an historic step towards freer interprovincial trade. The case rests on the interpretation of s. 121 of the Canadian Constitution, which states, “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”
The courts have interpreted this provision narrowly in the past, which has allowed provincial and territorial governments to enact trade barriers to protect domestic producers. However, the Chamber believes that a broader interpretation, which could outlaw many of the protectionist trade practices that have been engaged in for years, is appropriate.
As the Comeau case proceeds, there are signs that governments in Canada understand that the status quo is unsustainable. Earlier this year, the federal, provincial and territorial governments enacted the Canadian Free Trade Agreement, a pact which holds promise to remove barriers and facilitate regulatory harmonization between jurisdictions though a regulatory reconciliation process. While that is a nice stocking stuffer, a win for Gerald Comeau may be the perfect Christmas present for Canadians.
A short summary of the Comeau case and our legal argument is available here. Our lawyers present oral arguments at the Supreme Court hearing in Ottawa on December 6 and 7, 2017.
This article first appeared in The Canadian Chamber of Commerce's Five Minutes for Business November 9, 2017
Boom! Canada hit 4.5% growth in the second quarter after a torrid 3.7% expansion in Q1! Sounds like growth in India, not a sleepy advanced economy. As a result, Canada’s deficit is lower than expected and the government announced additional spending. So is it time to stop worrying and pop the champagne?
There are four key drivers of this bonanza: (1) export growth thanks to the oil and gas sector; (2) consumption, because Canadians continue to borrow and spend like there is no tomorrow; (3) housing which saw the biggest gains in 8 years; and (4) a healthy gain in business investment. The question is whether these are likely to continue?
Firstly, Canada’s exports are set to rise 8% this year, which is superb, but is almost entirely driven by oil and gas sales which are up almost 42% so far this year (see chart on the following page). If you take out the petroleum sector, Canada’s exports grew just 1%.
But the export boom won’t last: the strong loonie and US weakness caused Q3 exports to fall 11.5%, while imports fell 7.1%. Net exports will be a drag on GDP growth for the rest of 2017.
Consumption will also slow down in Q3. Retail sales fell two months in a row (July and August). And job growth slowed: just 43K jobs were created in Q3, the weakest quarter in a year, with gains entirely in the self-employment category. Private sector employment fell for the first time since 2015.
Housing has been a powerful driver of growth, but the foreign buyer tax hit Canada’s largest and fastest growing real estate market in May. Toronto’s home sales have fallen 35% while prices were off 20%. The effects are likely to be temporary, as we saw in Vancouver, but will surely be felt in Q3.
The star of investment spending has been the recovery in the oil and gas sector but that is also facing tough times. The National Energy Board’s expanded focus on downstream emissions has created an effective moratorium on new energy projects. TransCanada finally pulled the plug on Energy East and in the last two years, $82 billion of investment has been cancelled.
So, we can expect a sharp downturn in exports and housing alongside much weaker consumption and business investment. Statistics Canada will release Q3 growth on December 1st and we expect it to be below 1%. What should we do? How do we keep growing?
Look around the world - these are exciting times in tax policy! France has just embarked on major tax reforms, with a 2017 budget that reduces or eliminates several business taxes, while lowering overall rates. The UK Government undertook a major tax reform effort last year, but backed away from the most contentious measures in April 2017. And in the US, Congressional Republicans are determined to press ahead with a biggest tax reform in 30 years, to slash the general corporate rate from 35% to 20% while eliminating certain tax credits.
What is Canada doing in the midst of our trading partners' laser-like focus on competitiveness? We've just spent most of the summer in a ferocious battle over income sprinkling.
Instead, Canada could create an internationally competitive system of business taxation that rewards entrepreneurship, encourages businesses to invest in the technologies, skills, and capacity they need to grow, and attracts capital and highly qualified people from around the world. That would ensure Canadian growth for generations!
This article first appeared in The Canadian Chamber of Commerce's Five Minutes for Business October 13, 2017
Never in the history of trade negotiations have we seen a country’s largest, most important business association openly call its government’s trade proposals “dangerous” and say they should be withdrawn. That is exactly what the U.S. Chamber of Commerce did yesterday.
Canada’s negotiators have done their very best in a challenging environment. They have reached out to Canadian people and business, they have extended a warm hand of friendship to their U.S. and Mexican counterparts and they have tabled sensible, generous proposals to improve NAFTA. But, we all have to prepare for the possibility that the U.S. will withdraw from NAFTA, based on the poisonous proposals U.S. negotiators have presented.
The craziest is a sunset clause that would terminate NAFTA after five years unless all three parties agree it should continue. Imagine the uncertainty of having all three countries debate the merits of trade every five years. How could anyone plan to build a factory with a useful life of 30 years? NAFTA would cease to exist for the purposes of long-term business investment.
The second troubling proposal concerns the rules of origin. Currently, 62.5% of a car or a truck must be produced in the U.S., Mexico or Canada for it to qualify for duty-free treatment under NAFTA. The U.S.’s proposal would require that 50% of the vehicle be produced in the U.S. This would be immensely harmful to the North American auto industry. It’s impossible to replace long-established multi-billion dollar supply chains so most companies would simply pay the generally low U.S. tariffs. Manufacturers would then source more inputs from Asia.
The third concern is the administration’s proposal to eliminate Chapter 19, the process for dispute settlement for anti-dumping and countervailing duties. This comes at a time where the U.S. wants to impose a ludicrous 300% tariff on Bombardier jets, which is above even what Boeing had asked for. Chapter 19 is a critical safety net because it enables an independent, binational panel of five arbiters, agreed by both parties, to determine whether or not the duties have merit based on U.S. domestic laws. This is a must-have for Canada.
The final jaw-dropping proposal would drastically reshape NAFTA’s procurement rules. U.S. negotiators are proposing a “dollar for dollar” approach to North American procurement markets. That would mean “the total value of contracts the Canadians and Mexicans could access, together, couldn’t exceed the total value that U.S. firms could win in those two countries.” This is quite simply the worst offer ever featured in a trade agreement and is worse than basic access to government procurement offered under the WTO. Canada would be better off with no agreement at all than signing on to this nutty nonsense.
At the Canadian Chamber of Commerce, we salute the government’s efforts on NAFTA. The government has done everything possible: our negotiators have been outstanding, Minister Freeland and the entire Cabinet have invested enormous time in building relationships in the U.S., and the PM has invested his political capital and considerable charm to go to bat for NAFTA.
But, if the U.S. administration is not serious about negotiating a mutually beneficial agreement, then we believe no deal is preferable to a bad deal. This is because a trade agreement will last many years. The Trump administration, we’re not so sure…
35 organizations from across the country have come together to form the Coalition for Small Business Tax Fairness—a unified voice to oppose the federal government’s tax proposals that would dramatically change the way incorporated small businesses are taxed in Canada.
“These proposals, while intended to target the wealthy, will hurt middle-class business owners from every sector of the economy. These are shopowners, farmers, doctors, financial planners, homebuilders and trades in all sectors—the entrepreneurial families who are the backbone of the economy and responsible for the majority of the job creation in Canada,” said Dan Kelly, President of the Canadian Federation of Independent Business (CFIB) and member of the Coalition. “Our coming together highlights the urgency of combatting these proposals which, if legislated, would signify the biggest changes to the business tax system in decades.”
“In 10 years at the Canadian Chamber, I’ve never seen an issue that has generated greater concern among our members. To make matters worse, allotting only 75 days for comment in the midst of the summer holidays is not a consultation, it’s a stealth attack on farmers and family businesses. The vast majority of our network’s more than 200,000 members across Canada are SMEs. They will be contacting their MPs to say that these proposals must be scrapped and replaced with measures that support Canada’s entrepreneurs,” added Perrin Beatty, President and CEO of the Canadian Chamber of Commerce.
If implemented, the proposals will restrict small business owners from sharing income with family members; limit certain forms of saving in the business, making the firm more vulnerable in bad economic times and less able to innovate and grow; and change capital gains rules which could make it more difficult for business owners to transfer their business to the next generation.
The 35 business groups—on behalf of the hundreds of thousands of members they represent—have presented a letter to Finance Minister Bill Morneau asking the government to take these proposals off the table and instead meet with the business community to address any shortcomings in tax policy affecting private corporations.
Signatories of the letter include:
Canadian Association of Optometrists
Canadian Association of Radiologists
Advocis – Financial Advisors Association of Canada
Canadian Advanced Technology Alliance
Canadian Association of Farm Advisors
Canadian Association of Management Consultants
Canadian Bar Association
Canadian Cattlemen’s Association
Canadian Chamber of Commerce
Canadian Construction Association
Canadian Dental Association
Canadian Federation of Agriculture
Canadian Federation of Independent Business
Canadian Mortgage Brokers Association
Canadian Pork Council
Canadian Taxpayers Federation
Canadian Water Quality Association
Coalition of Ontario Doctors
Conference for Advanced Life Underwriting
Family Enterprise Xchange
Federation of Ontario Law Associations
Grain Farmers of Ontario
Grain Growers of Canada
Independent Financial Brokers of Canada
Mechanical Contractors Association of Canada
National Exempt Market Association
Canadian Home Builders’ Association
Canadian Horticultural Council
Canadian Institute of Financial Planners
Canadian Institute of Heating and Plumbing
Canadian Medical Association
Ontario Association of Radiologists
Ontario Medical Association
Retail Council of Canada
The Coalition for Small Business Tax Fairness is encouraging those concerned about these changes to contact their Members of Parliament and use the hashtags #unfairtaxchanges #taxesinéquitables on social media.
This op-ed first appeared inThe Canadian Chamber of Commerce's Five Minutes for Business August 22, 2017
These are not tweaks! The government has just proposed the most radical tax overhaul in 50 years. We’re particularly worried about the impact on business from (1) a new tax on investment income in a corporation and (2) tough new rules for compensation in family businesses. Why is the government doing this?
The Minister says it’s all about “fairness,” and his consultation document compares the tax treatment of a business owner with that of an employee to point out corporations have “unfair” advantages. But, the comparison makes no sense—there are good public policy reasons for why owners are taxed differently.
Because unlike an employee, a business owner doesn’t get a pension or health benefits or vacation pay. She invested her own money to get the business started. Or, she pledged her personal assets (house, car) as collateral for a loan. She has employees who depend on her. And, if nobody wants her goods or services next month, she does not earn a penny.
That’s why in every advanced economy in the world, businesses can accumulate and invest after-tax retained earnings so they have money to get them through an economic downturn or to make big capital investments. One owner told us, “I keep most of the earnings in the company because we’re trying to grow and because in construction, we go through tough cycles when business dries up.”
The government wants to tax “passive” (invested) income. It says it’s a crackdown on “high income individuals,” but the rules would apply to all incorporated businesses in Canada, most of whom are restaurants, retailers, farmers and consultants—to punish them for saving and investing. It gets worse!
Finance Canada also expects to raise $250 million by cracking down on “unreasonable” salaries paid to family members, which it says diverts corporate income into lower tax brackets. But, to pull in $250 million, CRA will have to tax over $1 billion in salaries and audit hundreds of thousands of businesses. Imagine the litigation! You’re paying your spouse $80K, but the CRA believes he or she should only be earning $50K. Do you go to Tax Court? An owner told us, “if my son had not worked 12 hours a day, my business might not have succeeded. Painting us all as cheaters is unfair and discriminatory.”
Incredibly, Finance Canada has managed to design a set of tax measures that would hit the maximum number of businesses in the most complicated way for a small amount of revenue. The expected $250 million is less than 1% of the federal deficit.
Nobody supports tax evasion or loopholes. But these changes will punish legitimate businesses. And, they come after the government cancelled reductions in the small business tax rate, tightened rules on partnerships and started taxing work in progress. That’s on top of new carbon taxes, raised CPP premiums and an increase in the EI rate. Our members are asking why this government keeps raising taxes on business.
We’re not sure what to tell them, but there is an important test ahead. Finance Canada has launched a consultation even though it is clearly determined to move forward—the legislation is already drafted. So email or call your local MP to tell him/her the government is proposing to hammer business with tax changes that will hurt families and punish entrepreneurs. Only MPs have the power to slam the brakes on Finance Canada’s runaway train.