The Canadian Federation of Independent Business (CFIB) is urging the federal government to implement significant policy changes to spur economic growth and job creation, as the country faces multiple economic challenges. In a pre-budget submission to the House of Commons finance committee, the CFIB recommends cutting the small business income tax rate, enhancing capital investment incentives, and adopting measures to improve hiring conditions.
Entrepreneurial Drought
The CFIB argues that these changes are essential to reverse the ongoing 'entrepreneurial drought,' where more businesses have closed than started over the past four quarters. The organization emphasizes that small and medium-sized enterprises (SMEs) account for 64% of private sector jobs and about 50% of Canada's economic output. Without action, the CFIB warns that economic resilience and community vitality will suffer.
Key Recommendations
- Reduce the small business tax rate from 9% to 6%.
- Increase the small business income tax threshold from $500,000 to $700,000.
- Raise the passive income threshold from $50,000 to $60,000.
- Expand the capital cost allowance (CCA) to cover more types of capital investments.
- Lower the capital gains inclusion rate for second tranches of gains.
- Introduce a reduced Employment Insurance premium rate for smaller businesses.
- Eliminate internal trade barriers between provinces and territories.
Economic Context
The Canadian economy has been relatively resilient despite U.S. tariffs on key industrial sectors and global uncertainties. However, weak productivity, a sluggish job market, tepid inflation, rising government debt, and international conflicts in Iran and Ukraine continue to weigh on growth. Don Drummond, former senior Finance Department official and TD Bank chief economist, supports many CFIB proposals, particularly expanding CCA provisions and promoting inter-provincial free trade.
The submission has been sent to the parliamentary committee but not yet to Finance Minister François-Philippe Champagne. The federal budget, typically released in spring, was moved to late fall last year.
