Good morning.
Thank you so much for seeing us this morning. We're happy to be here.
We have several ideas that we wanted to share with you for the 2019 budget, of course, and for the election platforms that your respective parties will be putting together. We want to start by talking about some of the challenges that small and medium-sized firms, our members, are facing in Canada right now.
Obviously trade is a big worry for many of our members. We have looming ahead in January five straight years of Canada Pension Plan premium increases facing every employer in the country, reducing payroll budgets for every small business in the country. On the positive side, we do recognize last week's idea that employment insurance rates are going to come down next year. I do want to add that employment insurance rates are going to go down by about 5¢ per $100 of payroll for small firms' employers, whereas CPP rates next year are going to go up by 15¢ per $100 per employer, so the net effect on payroll taxes is still a negative one.
We had, of course, the uncertainty created by last year's round of small business tax changes, new carbon taxes coming into effect, or higher rates in several provinces, and of course a growing shortage of labour facing small and medium-sized firms.
In terms of what we're asking your committee and government and political parties to focus on, we have several ideas.
Our biggest worry right now, of course, on the tax front is what's happening with respect to CPP premiums in the months ahead. We believe there are two ways that government can help address the burden of Canada Pension Plan premiums. One of them would be to implement a permanently lower rate for small and medium-sized firms under employment insurance rules. As you know, in the case of corporate taxes, you pay a lower rate under $500,000. We suggest that you could establish a permanently lower rate of employment insurance—under, say, $500,000 in payroll—at which the level would be that of the employee.
Another way to do that would be to resurrect the Liberals' election commitment to implement an EI holiday for hiring young people. The 2015 election platform of the Liberal Party included a commitment to allow employers not to pay employment insurance premiums when they hire a young person between the ages of 18 and 24 for three straight years. Unfortunately, that election commitment was ditched in the 2016 budget.
Looking at competitiveness with the U.S., I do want to underscore the recommendation that was made a moment ago by the Association of Equipment Manufacturers. We believe the time is right to implement a full cost deduction for investments in business equipment and productivity-enhancing tools. This was started under the Obama administration at $500,000; you could deduct that amount in your very first year. The Trump administration has raised that to $1 million, and we don't have a similar measure in Canada. We think the time has come to do this. The nice thing for the finance committee is that small and medium-sized firms, I think, would benefit and be optimistic if you were to implement a multi-year plan to get there. It doesn't have to cost the treasury massive amounts of money in its first year. You could implement a plan, and then raise that threshold, as has happened in the United States.
When I look back at the small business tax changes last year, I don't think I would be helping the committee if I were hiding the fact that the anger level among small and medium-sized firms with respect to the measures, with respect to the government's actions on that front, remains extremely high. Yes, we are pleased the rate is coming down, but you're going to see another round of heat over this issue when the audits of the 2018 tax year kick in because of the new rules around splitting income with family members. I would say most businesses in Canada have taken no action to address the new rules and there will be thousands and thousands of small firms that will be caught outside of the rules on audit, not because they're trying to skirt their tax obligations but because these new rules gave them no time to factor them into their business decisions.
On that front, we are recommending the new rules be delayed, that you indicate to the CRA to give 2018 as a year of grace for small firms to catch up with the new rules to avoid these audits that we expect to start very soon.
On the passive investment front, we are pleased that there were some modifications made in the 2018 budget, but again it's created a new group of losers, sadly, as a result of passive investments. We're hearing from firms that have saved up passive investments from the past and were told by the finance minister that they were going to be grandfathered. Unfortunately, now that is not the case, and we will be seeing higher taxes for many of those firms. Unfortunately, that is not the case now, and we will be seeing higher taxes for many of those firms. A member of ours in Newfoundland and Labrador has estimated that he will pay $80,000 a year more in taxes as a result.
We are also asking you to consider a full exemption for spouses. I wrote a column in today's National Post about the importance of the spouse in a business environment, and we do believe there are some possible relief measures there.
We're pleased to see some progress on the regulatory reform front, both interprovincially and at the federal level, with respect to lowering the red tape burden. We have some recommendations in our deck. I won't dwell on those.
As has been noted by Trevin, we do see the shortage of labour ticking up in Canada. We have a couple of ideas there: implementing a training tax credit or a pathway to permanent residency for temporary foreign workers to ensure that they can provide some relief to the economy on that front.
Last, we are deeply worried about the state of debt and deficits. Small and medium-sized firms know that today's deficits are tomorrow's taxes. We implore you to introduce a multi-year plan to tackle Canada's growing deficit and debt problems.
On an optimistic note, the last thing I will raise, hoping the committee comes in behind the government initiative, is that one of the few elements of the 2017 small business tax reform package that we like was the concept that you would allow small and medium-sized firms to sell their businesses to the next generation without getting clobbered with a whole bunch of new taxes. That has been a problem for some time. There was some hope that this might happen as a result of the 2017 tax package. Emmanuel Dubourg, a Liberal member, and Guy Caron from the NDP have both put forward private member's bills; we ask you to look at the inspiration behind these bills and put something together as a recommendation from the finance committee in the months ahead.
I have lots of other recommendations, but I'll conclude with that. Thank you.