Thank you for the opportunity to be here today.
CFIB is a non-partisan, not-for-profit organization that represents 95,000 small and medium-sized businesses across Canada. We are also a research-based organization. We take our direction from our members through surveys. We conduct them on a regular basis. I have a deck that I hope was sent to all of you. I want to walk you through it and share some of that research with you.
First, as you may see on slide 3, we found that only 42% of small businesses are back to normal sales, 35% have no pandemic debt, and just 18% feel that they've recovered from pandemic stress. For many smaller businesses, the pandemic is far from over. We need governments to continue to recognize that smaller businesses have been, and continue to be, amongst the hardest hit.
While it is good news that restrictions have lifted, many are now facing other challenges, which have already been cited today. As you can see on slide 4, the biggest impacts right now are rising prices, supply chain challenges, increasing government costs and labour shortages. I'm going to touch on the impact of each of these and then share some recommendations at the end.
First, over 90% report that their costs have increased substantially since the pandemic began. More than three-quarters think this will not be a temporary issue, as you can see on slide 5. The costs that are having the biggest impact right now are fuel and energy costs, followed by wage costs, insurance, taxes and regulatory costs, and product input costs.
While fuel costs have been going up more generally, so has the carbon tax, which is having a significant impact on many small firms. It's important to keep in mind that the federal carbon backstop has had a disproportionate impact on small businesses, a fact also recognized in a recent report by the federal environment commissioner. We estimate that small businesses pay approximately 45% to 50% of the federal carbon backstop, and only 8% and 10% is returned to them in the form of programs that have never been accessible or available to smaller companies.
Another significant impact, of course, is labour shortages, as you can see on slide 7. More than one in two are affected by labour shortages, but this grows to almost two in three in Quebec and almost three in four businesses in the construction sector.
There are many ways that small businesses have tried to address the shortage of labour, but some have proven to be more effective than others. You can see this on slide 8. For example, 33% of small businesses have invested in automation, and 81% of those folks found it to be effective in helping them address their labour shortages. Similarly, about 16% have used the temporary foreign workers program, but more than half found it to be useful in addressing their labour shortages. Those were the two most effective methods used by small businesses. They were more effective than increasing wages or bringing more flexible hours to their employees.
Another big challenge is the supply chain. As you can see on slide 9, product distribution constraints were relatively stable between 2010 and 2020, with only about 8% of small businesses on average having to deal with it. However, this started to shift when the pandemic hit, jumping to 18% by April 2020 and reaching as high as 28% this past February.
To respond, 84% have had to increase prices to absorb their increased costs, 79% have had to deal with delays in receiving shipments, and one in two have had to increase the cost of shipping goods to their customers. Particularly worrisome is that more than one in five had to turn down sales or contracts due to a supply chain issue.
Finally, before I get to recommendations, I want to touch on regulations and red tape.
Our most recent research found that regulations cost Canadian businesses about $40 billion per year, $11.3 billion of which is considered red tape—that is, unnecessary, duplicative or redundant regulations. As you can see on slide 11, the regulatory costs have a disproportionate impact on the smallest businesses, with costs being almost seven times higher per employee when compared with the largest businesses. Regulations have not only an economic impact. They have a social impact as well. As you can see on slide 12, almost 90% said that excessive regulations add significant stress to their lives, and almost two-thirds would not advise their children to start a business given the burden of regulations.
Despite the lifting of pandemic restrictions, many small businesses continue to struggle as they face rising prices, supply chain challenges and labour shortages. About two-thirds still have on average about $160,000 in pandemic-related debt, just as the last of the government-related COVID supports shut down on May 7.
On the last two slides, you'll see a series of recommendations. I'll include a few here.
We would suggest that the government could put a moratorium on any costs to small businesses, such as maybe a freeze on CPP or EI or carbon tax for the moment, or offset those costs by introducing rebates for small businesses; lower credit card merchant fees, as promised in budgets 2021 and 2022; and help the hardest-hit small businesses deal with their debt by increasing the forgivable portion of their CEBA loans to 50% and extending the deadline to repay.
To help with labour shortages, create a pathway to permanent residency for temporary foreign workers. Provide tax credits that help stimulate automation, or quickly pass legislation to advance immediate expensing, as promised in budget 2021.
We recommend as well to introduce a payroll tax credit for new hires to offset the cost of training.
To address red tape, we believe that a policy of mutual recognition between all provinces could improve the flow of trade within Canada, and that the federal government could play a pivotal role in making that happen.
We recommend as well to improve the one-for-one rule within the Red Tape Reduction Act so that it applies not only to regulations but to legislation and policies as well.
I'll leave it there, but there are many other recommendations that I encourage you to take a look at. I'm happy to answer any questions you might have.