Despite some encouraging words for the housing industry and some tax relief for high-tech firms and farmers, Ottawa’s latest bundle of economic promises is being criticized for being both short on details and in failing to provide small businesses with concrete measures they need to weather Alberta’s struggling economy.
“My overall take of the federal budget is that it is consistent with any pre-election budget,” said Grant Popowich, an Edmonton-based partner with Grant Thornton, an international accounting and business advisory network.
“There is really nothing tangible for private businesses. From my perspective, it didn’t go far enough in improving business in Canada or business in Alberta comparative to other countries, particularly the U.S.”
In other words, let the promises begin, it’s election time again.
Finance Minister Bill Morneau’s fourth budget - and his last before this fall’s federal election - was tabled March 19. To business people, including Popowich and the Alberta Chambers of Commerce, the document’s omissions speak more loudly than the promises it makes.
“I don’t see anything in here tangible that would encourage private businesses to think things are going to get better,” Popowich said.
Silence often speaks volumes, and Prime Minister Justin Trudeau’s budget doesn’t say anything about reducing the tax burden of small business, or of offering any specific help to Alberta’s oil and gas sector or the pipelines they so badly need.
“There was no mention of pipelines that help support us in Alberta or even in Western Canada for that matter,” Popowich said. “It kind of gets to the competitiveness of what we have to offer in support of our people versus buying our oil from other countries in other parts of Canada.
“There is nothing that would really help Alberta or the oil and gas industry. The problem is how to get Alberta oil to different parts of the country.”
(A week after the budget, while pitching his government’s strategy in Edmonton, Morneau did announce spending of $100 million over 10 years for clean oil and gas technology research across the nation, which may help some Alberta-based companies.)
“You are seeing our neighbour to the south, in particular, drastically reducing taxes which is having a tremendous impact on the U.S. economy in terms of driving growth,” Popowich says. “Our taxes are quite a bit higher and it seems to be that as a result of that we are losing investments in Canada and we are losing investments in Alberta, because there are cheaper ways to earn a buck, so to speak.
“From my perspective, lower taxes just encourage more investment in Canada,” he says. “If there is more money to go around and more money to invest then Canadians will be better off.”
Ken Kobly, president of the Alberta Chambers of Commerce, also sees little help for Alberta’s small businesses in the budget and is disappointed with the lack of changes to Canada’s overly complex tax system, which has not been fully overhauled since 1967.
“There have been a lot of comments in the past two or three years that the federal government wants to make our tax system fairer and more equitable and less complex and one of the things we’ve been advocating is to do a Royal commission on that since the last one was more than 50 years ago,” he said.
“There is some suggestion that they will reduce the small business tax rate as they have promised, but there was no further particular action taken in this budget to show they were going to reduce that rate.”
The chamber was also concerned that Ottawa ignored the oil and gas industry when spelling out new tax regulations involving the capital cost allowance, which allows a business to write off 100 per cent of an asset after the last fiscal update.
“On one hand it is good, but we are disappointed that the federal government did not extend that to oil and gas when it seems like every other industry in Canada except oil and gas would be eligible for the accelerated capital cost allowance,” Kobly says. “There wasn’t really anything specific in the budget to deal with the problems we are having in Alberta right now with our economy because we are so strongly based on oil and gas.”
Kobly is also frustrated by the budget’s lack of technical detail concerning new rules aimed at making it easier for first-time buyers to get into their own home with planned shared equity mortgages from the Canadian Mortgage and Housing Corporation of five per cent of the purchase price of existing houses and 10 per cent on new homes.
Specifics on how that money will be paid back could have a big effect on a homeowner’s future, he said.
“What usually happens with a shared equity mortgage is that if there is a profit made when the property is sold it means you will be sharing those profits with whoever holds your equity. So, they made a big deal about it being a non-interest program, but we have to see what the details are,” Kobly said.
If the Liberals were really concerned about making homes easier to buy, Kobly says the budget should have considered the stress test, which requires buyers to qualify for a much higher mortgage rate if rates rise. The likelihood of that happening, however, has been dramatically reduced recently with the softening of the Canadian, Chinese and even U.S. economies.
“This hurts a number of businesses,” Kobly said. “The home builder, realtors, trades people, mortgage brokers and municipalities because if there aren’t houses being built it means they can’t collect property taxes on them.”
On the more positive side, the budget increases the amount home buyers can withdraw from RRSPs for their down payments. They can now take out $35,000 - not subject to tax - to be repaid within 15 years. It’s essentially borrowing from themselves, but the amount is up from $25,000 and should help more people get into their first homes.
Popowich welcomes this change for struggling Alberta home builders as well. Many are no longer building on speculation and may be carrying an expensive inventory.
“Housing affordability has become a big issue,” he says. “Our home builders have had some lean years, so I see this as positive step to get some inventory moving for home builders in the province.”
He’s a little less enthusiastic about the budget’s measures to help mid-career workers retrain for the changing economy. It allows taxpayers to claim a tax credit of $250 a year, which they can bank to a maximum of $5,000. Any help sounds good, but realistically, $250 a year does not go very far for laid off oil patch employees or autoworkers who need the help now.
“It is a welcome program for people who are retooling, but it is going to take time for them to realize any material benefits from the program,” Popowich said. “Albertans who have lost their jobs recently need the money. If they were to retool now. They might get $250 and that is about it because it takes time to build this so-called training account.”
Popowich is more positive about tax changes for companies involved in research and development. The potential savings could result in big savings for Alberta’s fast-growing high-tech sector such as nanotechnology, medical and artificial intelligence companies.
“Private companies in Canada, that are for the most part controlled by Canadians, are currently eligible for a 35 per cent tax credit for their research and development,” he said. “That is a very good program but the program penalizes successful private companies in that if their taxes are above a certain level they didn’t get a 35 per cent credit, they only got a 15 per cent credit.”
The new budget eliminates that income test.
“Even successful private businesses that spend money on research and innovation can now get the full 35 per cent credit,” he says.
The budget also brings some good tax news for Alberta farmers who sell their grain or other products to co-operatives that may be partly owned, but not in any significant way controlled by a relative. Even if that is the case, they can now claim what is called the small business deduction on the first $500,000 of their taxable income. Earlier tax rules instituted a couple of years ago prohibited that.
“The government said this wasn’t our intent so farmers who sell their grains to a co-operative, that income would still be subject to a small business deduction at a preferential rate for incorporated farmers.”