Finance Committee on April 18th, 2024

[Daniel Kelly]

It is very good news that after five long years of waiting, small and medium-sized firms are going to see government make good on its commitments to rebate a small portion of carbon tax revenues to SMEs. We at CFIB estimate that businesses in general pay 40% of the cost of the carbon tax, but to date they've received almost none of the revenue back. Also, the $2.5 billion that has been sitting on the books of the Government of Canada obviously prevents the government from making a credible case that the tax is in fact revenue-neutral. It is really good news that the government is intending—I hope—to give that money back to small businesses later this year.

The breakthrough was significantly expanding the eligibility rules. Under the previous scenario proposed by government and planned for over the course of the past five years, the intention was to give the money back to only emissions-intensive, trade-exposed businesses. Government documents suggest that might have been only about 20,000 businesses. With the change that has been made, 600,000 small and medium-sized businesses will be getting back a portion of the carbon tax revenue. That is certainly good news.

We don't yet know the dollar amount, so we're waiting. There are a whole host of details that need to come back, but this is positive and we have received it as such with the 2024 budget package.

[Yvan Baker, Liberal, Etobicoke Centre, ON]

I think I have about a minute left.

Sticking to the topic of the budget, you said recently that most small business owners will come out ahead or be unaffected by the capital gains changes in budget 2024. Can you explain the rationale for that point of view?

[Daniel Kelly]

Small businesses look at capital gains from two perspectives. Primarily our members—small and medium-sized companies—look at the capital gains treatment when they sell their businesses. Most small business owners count on the sale price of their businesses to fund their own retirement. They don't have pension plans as other Canadians might.

On that front, it is very good news that the lifetime capital gains exemption will rise from $1 million to $1.25 million. We are also encouraged by the new Canadian entrepreneurs' incentive, which will provide, over a 10-year period, up to $2 million at a lower capital gains treatment than there was before. We think those two measures are positive.

There are a bunch of exceptions to this. I have to tell you that the Canadian entrepreneurs' incentive is going to be an incredibly divisive policy, because we estimate that about half of Canada's small businesses, given what the government has proposed, would be ineligible for that additional $2 million. We are quite worried about that.

The other capital gains treatment, though, involves capital gains within the corporation itself, and all of that will now be taxed at 67%. We're hearing from small and medium-sized businesses about their significant worries over the increase in capital gains and where it comes in. There's no keeping $250,000 at 50% for corporations. That's all going to be taxed at 67% now, and that is a big worry for a lot of small businesses, particularly start-ups and technology firms.

[The Chair, Liberal, Peter Fonseca]

Thank you.

MP Trudel, go ahead.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you, Mr. Chair.

I would like to turn to you, Mr. Kelly. We will continue along the same lines. Let's start with something more general.

Can you tell us whether the government's policy on SMEs and the industry is coherent? What big pieces are missing that could help SMEs in Quebec and Canada?

[Daniel Kelly]

No, I certainly don't. There have been some advancements, including in the 2024 budget, but sadly, there have been a host of government policies that set small businesses back.

I mentioned at the beginning of my commentary the four tax hikes we've seen just over the last four months. Those are not good for small and medium-sized firms. Small firms tend to be very payroll-intensive, and the increase in employment insurance premiums combined with the increase in CPP premiums creates big worries and takes a big bite out of the payroll budgets of every business across Canada.

Also, at the beginning of the year, we saw the Canada emergency business account deadline come and go. While many businesses were successfully able to repay the government by coming up with the $40,000 to repay their CEBA loan—many did that—I think about a quarter of small businesses did that by borrowing from the bank. The government got its money back, but the businesses didn't get any of their debt relieved other than the $20,000 forgivable portion. They still have that loan, and it is now at higher bank interest rates, which is a big worry.

Over the course of the past three years, the pandemic years, small firms were hit incredibly hard. Canada kept lockdowns in place for longer than almost any other jurisdiction in the entire world, so small firms in retail, hospitality, the service sector, arts and entertainment, travel and tourism were desperately weakened from the restrictions. Sadly, that damage—the debt that has been created and the lack of sales—has been a problem.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Right, let's talk about the Canadian Emergency Business Account, the CEBA, whose repayment deadline was never extended even though SMEs everywhere requested an extension. We in the Bloc Québécois pushed hard for an extension of the January 18 deadline. We exerted pressure. We asked questions in the House to make it happen. No extension was granted, however.

We know that SMEs are the entrepreneurial foundation in Quebec and Canada. They are essential. Based on certain reports, we expect there will be tens of thousands if not hundreds of thousands of bankruptcies.

Do you have any figures today that indicate what happened?

[Daniel Kelly]

We're starting to see the price of some of those policies and the lack of changes. We were, of course, very happy to have your party's support for an increase to the CEBA deadline. Unfortunately, that didn't happen. The consequences are significant. Right now we are seeing dramatically higher business bankruptcies—not just bankruptcies but also failures.

I will note something that often surprises people: For every one business that goes bankrupt, there are nine other businesses that just quietly close their doors. We believe bankruptcies represent, essentially, one in 10 business closures. Most businesses just find an orderly way to close their doors, pay their bills and cease operations. It's heartbreaking to see some of those businesses fail.

I will say that business failure is an accepted part of being an entrepreneur. Businesses fail in good times and in bad times with good government policies and bad government policies. However, we are seeing such a dramatic rise in business bankruptcies and, along with it, a reduction in the number of business start-ups. Those two things have not been seen together in the way they're happening right now—ever. We now have a net outflow of business owners. I worry the back-end damage of the CEBA loan program will push more over the edge. Businesses are not going to make it, not because they're not viable businesses but because they can't outrun their debt.

It is good news that there's going to be some money coming back from the carbon tax rebate. It's long overdue. That, of course, isn't going to be the case in Quebec or British Columbia, but it is the case in the eight other provinces. Also, we are hoping that some pieces of the capital gains changes that are positive will send a good message to some entrepreneurs. However, I worry about where we're headed in Canada. For small business owners, these are not easy days.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you, Mr. Kelly.

Once again, Bill C‑59 includes a reform of the intergenerational transfer rules for farms and businesses. We in the Bloc Québécois fought for a long time to make headway on this.

Can you tell us how this is really useful, important and helpful to business owners?

[Daniel Kelly]

The intergenerational transfers are very significant. We have a massive exit of business owners, but not because of business failures. The other demographic reality facing us as Canadians is the fact that many business owners are getting older.

Business owners often talk about their retirement in very different terms. My favourite story is about a farmer who was delighted that his dad finally showed him the books of the company, because he was the successor. The son in the story was 65. The dad shared the books of the operation so his son could take it over. This is a classic entrepreneurial story. Time runs out for business owners, and we have to make sure the succession from one generation to the next is made successful.

The reason these intergenerational transfer rules are so important is we want to make sure that when people transfer their businesses to their kids, people in their community or employees, there's a greater chance the business will stay in the community rather than be bought up by, perhaps, a big American company that would be buying it for its client list or product. The jobs often disappear after that.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you very much, Mr. Kelly.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Trudel.

Now we have MP Davies.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Dr. Allison, in a July 2023 editorial in the Canadian Journal of Public Health, you wrote the following:

...the [Canadian dental care plan] is an excellent and much-needed step forward in reducing the considerable inequalities in access to dental care in Canada, but there remain a number of important further steps to be taken to more fully address those inequalities as well as those in oral health and disease, including the possibility of making dental care part of Canada’s universal coverage medical system.

What specific additional steps do you believe are necessary to further reduce inequalities in access to dental care, beyond the CDCP?

[Dr. Paul Allison]

As I alluded to in my opening remarks and previous response, I think we need to create clinics and infrastructure in community health centres, long-term care centres and rural settings. We need to put the facilities that provide dental care, and the professionals, where the people are who need them.

At the moment, the model that works very well for most people is setting up a private office and having people come to it in the normal way. That works for most of us, and that's fine, but it doesn't work for lots of people, unfortunately, such as people with disabilities, people who are in rural and remote areas, very young kids, and seniors. They tend to be the poorest people and they tend to be the people with the highest level of disease, so we need to do that sort of thing moving forward.

Ultimately, in my opinion, we should be making oral health care part of the medical care system, as we do with all other parts of the body.

[Don Davies, NDP, Vancouver Kingsway, BC]

This is my last point. Is there any principled reason or difference in care, diagnosis or service that would differentiate oral care from the health care of any other part of the body?

[Dr. Paul Allison]

No.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

The CDCP fees were initially set by the government at about 82% of provincial fee guides across the country. Now the provincial fee guides are set unilaterally by the provincial dental associations. Is that correct?

[Dr. Paul Allison]

Yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

They set their own fees.

The 2024 CDCP fee guide has been amended to now approach about 88% of the provincial fee guides across the country. Were you aware of that?

[Dr. Paul Allison]

I was not, no.

[Don Davies, NDP, Vancouver Kingsway, BC]

Do you think the fees being under the provincial fee guides might be a reason the provincial dental associations have been recommending to their dentists that they not sign up for this program?

[Dr. Paul Allison]

I can imagine that is the case, but I don't know.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay.

Do you know how a rate of 88% of fee guides under the CDCP—if in fact that's the average—compares to provincial public dental care plan fee guides?

[Dr. Paul Allison]

I think it compares well with a lot of those fee guides, yes.

[Don Davies, NDP, Vancouver Kingsway, BC]

I visited the University of Alberta's dental school. It's a fabulous facility, by the way. They told me they need patients, and they generally charge their patients some fees, sometimes just for the supplies that have to be used.

If they sign up for the CDCP, they can bill the CDCP, thereby providing themselves with patients and probably increased revenue. This is because at 88% of the fee guides, they'd to be getting significantly more revenue than they're getting directly from the marginalized people who are paying them out of their pockets now.

Might that go some distance in allaying your concerns?