Thank you for the opportunity to be here today.
With me is Dan Kelly. He will be assisting with answering questions.
CFIB is a not-for-profit, non-partisan organization representing 107,000 small and medium-sized businesses across Canada. They collectively employ more than one and a quarter million Canadians and produce about $75 billion in GDP. Our members represent all sectors of the economy and they're found in every region of the country.
Almost all businesses in Canada, about 98%, are small or medium-sized, and they employ about 64% of Canadians and produce almost half of Canada's GDP. They hold on to their employees, shedding far fewer jobs during the last two years than their larger counterparts, and they tend to be, typically, the first to create jobs during tougher times, helping to drive economic growth.
You should have a slide deck presentation in front of you that I want to walk you through over the next few minutes.
The past two years have not been easy, and many small firms continue to struggle. On slide 2 is CFIB's latest business barometer, and it clearly shows that optimism was at its lowest in early 2009 but steadily improved after that. However, this growing optimism has stalled more recently, as business expectations have been gradually decreasing since May, suggesting that the economy is moving into low gear. Unfortunately, this also seems to be translating into fewer new jobs, as more firms plan to decrease employment in the next few months than those who plan to increase it, as shown on the next slide. This suggests that many smaller firms are remaining cautious as they wait to see what happens in the global and local economies.
So how do you best address issues facing small firms and help foster their growth? Slide 4 shows the issues of highest priority for small firms in Canada between January and June 2010. Taxes, regulations, and government debt and deficits top the list, so our pre-budget recommendations are based on these priorities.
First, taxes. As you can see on slide 5, most small businesses want governments to stick to their current tax plans or cut taxes further. What is very clear here, though, is that governments should avoid increasing any taxes.
As you can see on slide 6, payroll taxes are the most important to address, as they have the biggest negative impact on job creation. Some progress has been made with the recent announcement of limiting the 2011 EI rate increase to 5¢. While we would have preferred to see this as a complete freeze, it is far preferable to what was originally planned. Now the key is not to add new costs to the EI system and to eliminate those EI programs that do not yield positive results.
We're also very concerned about threats to increase CPP and QPP, which is an even more significant payroll tax for employers, so we're opposed to seeing any increases at this time.
While we would love to see other significant tax cuts, we understand that the current economic situation may make this more difficult, so we recommend a number of smaller measures aimed at fostering job creation, savings, and investment. Those recommendations are listed on slide 7, and they include an EI hiring and training credit, similar to the Liberal's new hires plan in the late 1990s, which would provide employers with an EI holiday for any increase in payroll for a set period of time to encourage job creation; rather than increase CPP or QPP, government should treat RRSPs more like RPPs when it comes to payroll tax exemptions and income splitting; to encourage capital investment, we suggest a capital cost allowance measure that allows small businesses to expense the first $75,000 in annual business capital costs; and we believe tax treatment between publicly traded and private companies for share donations to charities must be equalized.
These are just some of the ideas that we have listed here, and we'd be glad to discuss others that we believe will not cost that much but will be of great benefit to smaller companies.
The next highest priority concerns government regulations and paper burden, which costs Canadian businesses more than $30 billion a year to comply. As you can see on slide 8, the cost of complying is more than five times higher for firms with fewer than five employees than it is for those with more than 100 employees.
So what can be done? As outlined on the next slide, we recommend that the Red Tape Reduction Commission announced in the last budget focus on making regulatory reform permanent by appointing a minister responsible and tabling legislation that commits to paper burden reduction targets and that places constraints on regulators, conducting ongoing measurement and publicly reporting progress on all this activity.
We'd also like to see follow-through on another previous budget promise to strengthen taxpayer fairness at CRA. We believe this can be done by following British Columbia's example, which allows taxpayers to get written responses to their questions and have those written responses honoured by CRA, even if they are incorrect.
Finally, small businesses are very worried about growing government deficits and debt. This is the fastest growing issue among our membership, because they know that if this is not brought under control, it will result in higher taxes down the road.
First, as you can see on slide 10, the largest group wants the government to eliminate the deficit in the medium term, preferably by 2015.
Next, they'd like to see government cut back spending, just as many of them have done over the last two years. As you can see on slide 11, 82% believe there should be spending cuts in government administration, including employee wages and benefits. In fact, we found that federal public sector employees, on average, earn 17% more than those in equivalent occupations in the private sector, and when benefits are added, this premium jumps up to more than 40%.
We're also alarmed by the ballooning unfunded liability in the federal public sector pension plan, which we understand is around $150 billion. As it is unclear how this will be addressed, we fear it will result in higher costs on those who cannot access such generous pensions down the road.
As you can see on slide 12, the CFIB recommends governments start addressing government administration costs by limiting public sector wage increases; requiring public sector pension plans to undergo the same disclosure and transparency requirements as private plans; increasing federal employee pension contributions to 50-50, as is the case in most provinces; and eliminating early retirement inducements.
We also believe you can look at cutting spending in some other areas, such as economic development agencies, as those are some of the areas from which our members don't necessarily believe they get a lot of benefit.
Small businesses are the backbone of Canada's economy and the heartbeat of our communities, so we believe the government's role is to foster their spirit and create the conditions that allow small businesses to grow into medium-sized and larger companies.
Thanks very much.
