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5 Minutes for Business: R v Comeau and the Fight for Interprovincial Free Trade

What do Canadians want for Christmas this year? It looks like we all have good cheer on our minds: An Ipsos poll1 released a few days ago found that 89% of Canadians believe they should be able to buy any amount of alcohol they want in one province and transport it to another.

 

Restrictions on the movement of beer and wine across provincial boundaries are just one example of the barriers that impede trade within Canada, drive up business costs, and hurt Canadian consumers.

 

In many cases, the problem is unnecessary differences in provincial and territorial regulations, leading to complex, and costly compliance requirements for businesses operating across provincial boundaries. In other more egregious cases, like restrictions on the interprovincial movement of alcohol, it is nothing less than out-and-out protectionism.

 

There is no question that freer trade among provinces and territories would lower the cost of doing business in Canada, attract more investment, and provide more choices at more competitive prices for consumers.

However, governments have been slow to take meaningful action to remove these barriers.

Restrictions on the sale and transportation of beer and wine have been off limits to any reform initiative. But, not all hope is lost. Like an awkward holiday dinner with the in-laws, beer and wine might save us still.

 

The Canadian Chamber is an intervener in the Supreme Court Case, R v Comeau. Gerald Comeau is the New Brunswick retiree who five years ago drove to Quebec to buy some alcohol. On his way home, crossing back into New Brunswick, he received a ticket from the RCMP for transporting alcohol across the

 

border. He challenged the ticket in court won. Now the case has gone all the way up to the Supreme Court.

 

Although the Comeau case is about alcohol, its implications are much larger. With the Comeau case, the Supreme Court has the opportunity to take an historic step towards freer interprovincial trade. The case rests on the interpretation of s. 121 of the Canadian Constitution, which states, “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

 

The courts have interpreted this provision narrowly in the past, which has allowed provincial and territorial governments to enact trade barriers to protect domestic producers. However, the Chamber believes that a broader interpretation, which could outlaw many of the protectionist trade practices that have been engaged in for years, is appropriate.

 

As the Comeau case proceeds, there are signs that governments in Canada understand that the status quo is unsustainable. Earlier this year, the federal, provincial and territorial governments enacted the Canadian Free Trade Agreement, a pact which holds promise to remove barriers and facilitate regulatory harmonization between jurisdictions though a regulatory reconciliation process. While that is a nice stocking stuffer, a win for Gerald Comeau may be the perfect Christmas present for Canadians.

 

A short summary of the Comeau case and our legal argument is available here. Our lawyers present oral arguments at the Supreme Court hearing in Ottawa on December 6 and 7, 2017.

 

For more information, please contact:

 

Aaron Van Tassel, Policy Associate

613.238.4000 (262)

avantassel@chamber.ca

 

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5 Minutes for Business: Canada’s Economy is Booming, But Will It Last??

Boom! Canada hit 4.5% growth in the second quarter after a torrid 3.7% expansion in Q1! Sounds like growth in India, not a sleepy advanced economy. As a result, Canada’s deficit is lower than expected and the government announced additional spending. So is it time to stop worrying and pop the champagne?

 

 

There are four key drivers of this bonanza: (1) export growth thanks to the oil and gas sector; (2) consumption, because Canadians continue to borrow and spend like there is no tomorrow; (3) housing which saw the biggest gains in 8 years; and (4) a healthy gain in business investment. The question is whether these are likely to continue?

 

Firstly, Canada’s exports are set to rise 8% this year, which is superb, but is almost entirely driven by oil and gas sales which are up almost 42% so far this year (see chart on the following page). If you take out the petroleum sector, Canada’s exports grew just 1%.

 

But the export boom won’t last: the strong loonie and US weakness caused Q3 exports to fall 11.5%, while imports fell 7.1%. Net exports will be a drag on GDP growth for the rest of 2017.

 

Consumption will also slow down in Q3. Retail sales fell two months in a row (July and August). And job growth slowed:  just 43K jobs were created in Q3, the weakest quarter in a year, with gains entirely in the self-employment category. Private sector employment fell for the first time since 2015.

 

Housing has been a powerful driver of growth, but the foreign buyer tax hit Canada’s largest and fastest growing real estate market in May. Toronto’s home  sales have fallen 35% while prices were off 20%. The effects are likely to be temporary, as we saw in Vancouver, but will surely be felt in Q3.
 
The star of investment spending has been the recovery in the oil and gas sector but that is also facing tough times. The National Energy Board’s expanded focus on downstream emissions has created an effective moratorium on new energy projects. TransCanada finally pulled the plug on Energy East and in the last two years, $82 billion of investment has been cancelled.

 

So, we can expect a sharp downturn in exports and housing alongside much weaker consumption and business investment. Statistics Canada will release Q3 growth on December 1st and we expect it to be below 1%. What should we do? How do we keep growing?

 

Look around the world - these are exciting times in tax policy! France has just embarked on major tax reforms, with a 2017 budget that reduces or eliminates several business taxes, while lowering overall rates. The UK Government undertook a major tax reform effort last year, but backed away from the most contentious measures in April 2017. And in the US, Congressional Republicans are determined to press ahead with a biggest tax reform in 30 years, to slash the general corporate rate from 35% to 20% while eliminating certain tax credits.

 

What is Canada doing in the midst of our trading partners' laser-like focus on competitiveness? We've just spent most of the summer in a ferocious battle over income sprinkling.

 

Instead, Canada could create an internationally competitive system of business taxation that rewards entrepreneurship, encourages businesses to invest in the technologies, skills, and capacity they need to grow, and attracts capital and highly qualified people from around the world. That would ensure Canadian growth for generations!

 
For more information, please contact:

 

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

hbrakel@chamber.ca

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5 Minutes for Business: Fighting for NAFTA—Better to Have No Deal than a Bad Deal

 

Never in the history of trade negotiations have we seen a country’s largest, most important business  association openly call its government’s trade proposals “dangerous” and say they should be withdrawn. That is exactly what the U.S. Chamber of  Commerce did yesterday.

 

Canada’s negotiators have done their very best in a challenging environment. They have reached out to Canadian people and business, they have extended a warm hand of friendship to their U.S. and Mexican counterparts and they have tabled sensible, generous proposals to improve NAFTA. But, we all have to prepare for the possibility that the U.S. will withdraw from NAFTA, based on the poisonous proposals U.S. negotiators have presented.

The craziest is a sunset clause that would terminate NAFTA after five years unless all three parties agree it should continue. Imagine the uncertainty of having all three countries debate the merits of trade every five years. How could anyone plan to build a factory with a useful life of 30 years? NAFTA would cease to exist for the purposes of long-term business investment.

 

The second troubling proposal concerns the rules of origin. Currently, 62.5% of a car or a truck must be produced in the U.S., Mexico or Canada for it to qualify for duty-free treatment under NAFTA. The U.S.’s proposal would require that 50% of the vehicle be produced in the U.S. This would be immensely harmful to the North American auto industry. It’s impossible to replace long-established multi-billion- dollar supply chains so most companies would simply pay the generally low U.S. tariffs. Manufacturers would then source more inputs from Asia.

 

The third concern is the administration’s proposal to eliminate Chapter 19, the process for dispute  settlement for anti-dumping and countervailing duties.
 
This comes at a time where the U.S. wants to impose a ludicrous 300% tariff on Bombardier jets, which is above even what Boeing had asked for. Chapter 19 is a critical safety net because it enables an independent, binational panel of five arbiters, agreed by both parties, to determine whether or not the duties have merit based on U.S. domestic laws. This is a must-have for Canada.

 

The final jaw-dropping proposal would drastically reshape NAFTA’s procurement rules. U.S. negotiators are proposing a “dollar for dollar” approach to North American procurement markets. That would mean “the total value of contracts the Canadians and Mexicans could access, together, couldn’t exceed the total value that U.S. firms could win in those two countries.” This is quite simply the worst offer ever featured in a trade agreement and is worse than basic access to government procurement offered under the WTO. Canada would be better off with no agreement at all than signing on to this nutty nonsense.

 

At the Canadian Chamber of Commerce, we salute the government’s efforts on NAFTA. The government has done everything possible: our negotiators have been outstanding, Minister Freeland and the entire Cabinet have invested enormous time in building relationships in the U.S., and the PM has invested his political capital and considerable charm to go to bat for NAFTA.

 

ut, if the U.S. administration is not serious about negotiating a mutually beneficial agreement, then we believe no deal is preferable to a bad deal. This is because a trade agreement will last many years. The Trump administration, we’re not so sure…

 

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) 

hbrakel@chamber.ca

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Growing coalition confirms tax proposals will affect middle-class business owners

Leading tax practitioners say that business owners with income as low as $50K will be affected

 

Ottawa, September 27, 2017 – The Coalition for Small Business Tax Fairness, a unified voice of more than 70 organizations representing hundreds of thousands of business owners across the country, has written a new letter to Finance Minister Bill Morneau with professional analysis confirming that Ottawa’s tax proposals will affect middle-class business owners, resulting in higher tax rates than other Canadians with similar income levels.  

 

“We are alarmed by the huge gap between the government’s statements about the impact of their proposals and the detailed analysis by Canada’s tax professionals,” said Dan Kelly, President of the Canadian Federation of Independent Business (CFIB) and member of the Coalition. “Tax practitioners are united in the view that these changes have the potential to affect all small business taxpayers, no matter their income.”

 

"It is the farmers, mom and pop shops, and entrepreneurs, who invested everything into their businesses, that will be most affected by these changes, instead of targeting the real problem. The government needs to go back to the drawing board, hold a real consultation and listen to what tax professionals, provincial governments and the business owners who fuel the growth of our communities are saying," added Perrin Beatty, President and CEO of the Canadian Chamber of Commerce.

 

The government has claimed that these proposals would not affect business owners with incomes under $150,000. Tax practitioners disagree.

 

One of the new rules introduced by the government would restrict small business owners from sharing income with family members. Tax practitioners say that this can affect business owners with incomes as modest as $50,000. Also, as two-thirds of Canadian incorporated businesses are majority owned by men, the restrictions on sharing income with a spouse are likely to remove a disproportionately higher number of women from benefiting from their family’s business.

 

The government is also proposing changes that would discourage small business owners from holding certain types of investments in the incorporated company. According to tax practitioners, business owners retain business earnings in the corporation to safeguard against economic downturns, secure bank financing and invest in other start-up companies.

 

Tax practitioners have confirmed that the proposed tax changes would result in higher combined corporate and personal taxes for business owners across the board and in many cases, small business owners would incur tax rates far greater than what an employee with a similar level of income would pay. 

 

The Coalition, which has doubled in size since August 31, is asking the federal government to review carefully the analyses of tax professionals across the country, take these proposals off of the table, and launch meaningful consultations with the business community to address any shortcomings in tax policy.

 

The Coalition for Small Business Tax Fairness is encouraging business owners and other concerned Canadians to contact their Members of Parliament and use the hashtags #unfairtaxchanges #taxesinéquitables on social media. For the full list of Coalition members, please visit smallbiztaxfairness.ca.  

 

For media enquiries or interviews, please contact:

Andy Radia
Media Relations Specialist
647-464-2814

 

What some are saying:

 

“The agriculture equipment manufacturing sector represents 12,000 Canadians and their families predominantly in rural areas; as entrepreneurs who have put their lives on the line to invest in and grow their family business, the sector consistently exports more than $1.8 billion of farm equipment to over 150 countries. The scope and complexity of the proposed tax changes puts a lot of this at stake, and we must fight to ensure that fairness prevails for our members.” — Leah Olson, President, Agricultural Manufacturers of Canada

 

“Franchisees are the backbone of the communities they serve, by employing people of all backgrounds, supporting local initiatives, and helping grow the economy. As business owners, they assume significant risk, but have been able to achieve success through hard work and support from family members. Simply stated, CFA believes the changes being proposed by the Minister will hurt Canadian franchisees.” — Ryan J. Eickmeier, Vice President, Government Relations & Public Policy, Canadian Franchise Association

 

“The residential construction and renovation industry has always largely consisted of family-run businesses that help build the communities they operate and live in, many over several generations. These are hard-working Canadians trying to earn a middle-class living, hire local workers, and create a future for their families. The government’s proposed tax changes threaten the very existence of these businesses, posing a threat to small local companies in every community and the jobs they create.” —Kevin Lee, CEO, Canadian Home Builders’ Association

 

“We look forward to working with the Minister of Finance to ensure that any changes help secure the future of agriculture and not hinder it.” — Mark Wales, Chair of the Canadian Horticultural Council’s Business Risk Management Committee

 

“We are fully supportive of the government’s pledge to advance evidence-based policy-making. Our members are concerned that the government’s proposed changes to small business taxes are not sufficiently informed by the level of research, analysis and consultation required to ensure a full appreciation of the impacts this will have on Canadians - not just entrepreneurs and small business owners but also on the overall health of the Canadian economy and competitiveness in the short and long term.” — Leigh Harris, Vice Chair (Interim) National Board of Directors, CMC-Canada

 

“Canadian business families are scared, confused, and demoralized. Years of planning for business succession will potentially go up in smoke! And we’re being called tax cheats along the way. Canada can do better, we must do better—our economy depends on it.”— Allen S. Taylor, Chair, Family Enterprise Xchange

 

“These egregious proposed tax changes would negatively impact the family farm in ways that are both profound and complex. The federal government needs to reverse course on their ill-advised tax hike attack on our middle-class family farms. — Levi Wood, President of the Western Canadian Wheat Growers Association, grain farmer

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Are you a business owner? Your MP needs to hear from you

If your business is incorporated, you could be facing a larger tax bill and big compliance costs from the government’s new proposals to change the way corporations are taxed. Here are three things you need to know about the tax changes proposed by the federal government:

 

  • Do you employ family members? The government wants to scrutinize their compensation to apply a much higher tax rate on income they consider “unreasonable.”

  • Do you invest the profits from your business? The federal government is proposing to tax that income at an effective rate of 70%. 

  • Do you want to pass your business on to your children? Tough new rules make it difficult for younger kids to get the capital gains exemption. They could be double-taxed.

 

Small and medium-sized businesses (SMEs) are the engine of the Canadian economy – estimates range from 85 to 90% of all businesses in Canada are SMEs.

 

The chamber network across Canada is using its collective voice on this issue; your voice as a business person needs to be heard as part of this initiative. Send a message to your MP today. Government needs to know that this tax reform will harm businesses of all sizes.

 

Don’t know where to send the message to your Member of Parliament? Look up their address using your postal code.

 

Thirty-five business groups, including the Canadian Chamber—on behalf of the hundreds of thousands of members they represent—have presented a letter to Finance Minister Bill Morneau asking the government to take these proposals off the table and instead meet with the business community to address any shortcomings in tax policy affecting private corporations.

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5 Minutes for Business: Hammering Business – Finance Canada’s New Crackdown

These are not tweaks! The government has just proposed the most radical tax overhaul in 50 years. We’re particularly worried about the impact on business from (1) a new tax on investment income in a corporation and (2) tough new rules for compensation in family businesses. Why is the government doing this?


The Minister says it’s all about “fairness,” and his consultation document compares the tax treatment of a business owner with that of an employee to point out corporations have “unfair” advantages. But, the comparison makes no sense—there are good public policy reasons for why owners are taxed differently.


Because unlike an employee, a business owner doesn’t get a pension or health benefits or vacation pay. She invested her own money to get the business started. Or, she pledged her personal assets (house, car) as collateral for a loan. She has employees who depend on her. And, if nobody wants her goods or services next month, she does not earn a penny.


That’s why in every advanced economy in the world, businesses can accumulate and invest after-tax retained earnings so they have money to get them through an economic downturn or to make big capital investments. One owner told us, “I keep most of the earnings in the company because we’re trying to grow and because in construction, we go through tough cycles when business dries up.”


The government wants to tax “passive” (invested) income. It says it’s a crackdown on “high income individuals,” but the rules would apply to all incorporated businesses in Canada, most of whom are restaurants, retailers, farmers and consultants—to punish them for saving and investing. It gets worse!

 

Finance Canada also expects to raise $250 million by cracking down on “unreasonable” salaries paid to family members, which it says diverts corporate income into lower tax brackets. But, to pull in $250 million, CRA will have to tax over $1 billion in salaries and audit hundreds of thousands of businesses. Imagine the litigation! You’re paying your spouse $80K, but the CRA believes he or she should only be earning $50K. Do you go to Tax Court? An owner told us, “if my son had not worked 12 hours a day, my business might not have succeeded. Painting us all as cheaters is unfair and discriminatory.”


Incredibly, Finance Canada has managed to design a set of tax measures that would hit the maximum number of businesses in the most complicated way for a small amount of revenue. The expected $250 million is less than 1% of the federal deficit.


Nobody supports tax evasion or loopholes. But these changes will punish legitimate businesses. And, they come after the government cancelled reductions in the small business tax rate, tightened rules on partnerships and started taxing work in progress. That’s on top of new carbon taxes, raised CPP premiums and an increase in the EI rate. Our members are asking why this government keeps raising taxes on business.


We’re not sure what to tell them, but there is an important test ahead. Finance Canada has launched a consultation even though it is clearly determined to move forward—the legislation is already drafted. So email or call your local MP to tell him/her the government is proposing to hammer business with tax changes that will hurt families and punish
entrepreneurs. Only MPs have the power to slam the brakes on Finance Canada’s runaway train.


For more information, please contact :
Hendrik Brakel
Senior Director, Economic, Financial & Tax Policy
613.238.4000 (284) | hbrakel@chamber.ca
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5 Minutes for Business: Business Costs and Canadian Competitiveness—We’re Not Crying Wolf

 

Every so often, one of our government contacts will ask a question that goes like this, “Why is the Canadian Chamber complaining about (pick one): the new carbon tax/the CPP premium increase/the deferral of small business tax reductions/the proposal to tax passive income/this new regulation/that increase in fees? It’s not a huge cost to business. Why are you making a big deal?”

 

We politely explain that all of these tax increases come out of the same pocket. If you take one of these tax hikes individually, it may be small, but when you add them all up, we’re accumulating a rather large pile of straws on the camel’s back. And that’s the problem. Canada is an expensive place to do business.

 

Last week, the President and CEO of the Canadian Chamber of Commerce and his provincial and territorial colleagues wrote to the Prime Minister to point this out. The letter was also sent to all of the provincial premiers because, right across the country, we are worried that “the cost of doing business in Canada is rising. This concern is not limited to the costs generated by the fight against climate change, but reflects the serious cumulative impact of the growing burden posed by fees, taxes and regulations the private sector is being asked to bear. Our members are deeply worried about their ability to both grow their businesses within Canada or compete for investment and customers from abroad. This concern becomes even more substantial when we see the determination of the U.S. administration to dramatically cut both regulation and business taxes in that country.”

 

As luck would have it, our letter was published on the same day that Petronas cancelled a $36-billion LNG investment in British Columbia. It’s impossible to pin the blame for the decision on any one factor (Petronas vaguely cited “market conditions”), but the uncertainty around project approval, along with regulatory, tax and cost burdens all contributed. The effect is a loss of jobs for Canadian families, truly a missed opportunity for Canada.

 

It’s not just Petronas, Canada has seen a mass exodus of investment, a staggering $60 billion has left over the past two years (in 2017, Shell divested $7.5B, Marathon sold $2.5B and ConocoPhillips $17.7B. Most has gone to other jurisdictions). And we’ve seen some of the players shedding Canadian energy assets while investing more in the U.S. It’s true that U.S. shale enjoys a modest cost advantage over oilsands production, but we worry that Canada’s high costs and dithering over pipelines is having a big impact. As the Globe and Mail pointed out last week, “It’s beginning to feel it is becoming impossible for any new interprovincial pipelines to ever get built […] because of obstructionist games played by premiers and mayors. […] Environmental benefit: Nil. Economic cost: High.”

 

 And it’s not just oil and gas. Last week, we sat down with a major multinational agri-food producer who told us that, for his company, regulations are a bigger cost than taxes. The company was struggling with Canada’s new food labelling rules and asked if the current government is “sensitive” to the cost burden of regulation. I said the word “sensitive” is too strong. “Blissfully unaware” might be a better descriptor. The government wants to attract more foreign investment, but in a tough globalized environment. What really attracts investors is the rate of return. That’s why costs, rules and regulations are so important.

 

And they have real world impacts on Canadian families and their prosperity. Last week, we wrote to the Prime Minister, “As we increase business costs to address climate change, we urgently need to find ways to lower costs elsewhere. […] to strengthen Canada’s economic competitiveness.” Global capital can go anywhere. The wolf is at the door.

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

 613.238.4000 (284) | hbrakel@chamber.ca

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Canucks in the Volunteer State

Guest Column by Perrin Beatty, President & CEO, The Canadian Chamber of Commerce

 

Want to understand the reality of trade in North America? Start at the FedEx Super Hub in Memphis, Tennessee at 1:00 a.m., watching the incredible flood of 3.3 million packages daily, ripping with machine-like efficiency over 300,000 conveyor belts spread out over 862 acres.

 

Our delegation’s four days in Tennessee were designed to provide an opportunity to make the case for Canada. The southern reputation for hospitality is well-deserved in Tennessee. And it seemed like everyone has a connection to Canada. I discovered that the Mayor of Nashville, Megan Barry, once worked for Nortel, that FedEx’s 4,000 pilots train on Canadianmade flight simulators and that Memphis residents can enjoy poutine and Canadian beer at the area’s two Kooky Canuck restaurants.

 

And who says Americans don’t know much about Canada? I met dozens of people who appreciate the importance of Canadian businesses, often because of large Canadian investments. We visited CN’s massive intermodal hub, located slightly outside of Memphis. This hub is CN’s gateway to the south, where it can switch containers from one mode of transportation to the other easily. These connections helped us spread the word about the benefits of doing business with Canada.

 

Most folks weren’t aware that Canada was their biggest trade partner, but they were happy to hear it. Currently, there is nearly $14 billion of trade between Tennessee and Canada (that’s more than our trade with France and Italy combined), and over 170,000 jobs in Tennessee depend on trade with Canada. The numbers are astonishing, and when I met Matt Wiltshire, Director of Nashville’s Economic and Community Development Office, he enthusiastically offered to help spread the word.

 

We had very positive discussions about NAFTA. When we met the Memphis Chamber, the participants rallied around the idea of “do no harm.” We agreed that although NAFTA can and should be modernized, the current structure should be the starting point, without having to reinvent the agreement. Overall, the Americans we met believed the NAFTA renegotiation will go well. That’s why this work is so important.

 

Last week the U.S. Trade Representative released its objectives for renegotiating NAFTA. There are areas of concern for us, but it emphasizes building upon the current NAFTA relationship. However, we worry the scope of the negotiations is extraordinarily ambitious—everything from dispute resolution to rules of origin, services, intellectual property. A major rethink could take years.

 

In Washington, politicians will be under pressure to talk tough and tweet crazy things. The negotiators will set “red lines,” deadlines and “deal breakers.” Things can get hot. I remember the Cabinet meeting when Brian Mulroney ordered our negotiators to walk away from the Canada-U.S. talks. But behind the rhetoric and theatre, Tennesseans reassured us that real business people are still sensible, cooperative and ambitious.

 

Whether it’s a fight over NAFTA or any other friction between our countries, it is so important that we have business allies who will stand with us to say that Canada is a friend, an ally and a partner.

 

Our next stop is Texas and then on to Georgia. If you’d like to participate in any of our delegations, please email us. If you’re looking for more info, click here.

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

 613.238.4000 (284) | hbrakel@chamber.ca

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5 Minutes for Business: The Explosive Debate around Minimum Wage

Big increases to minimum wage are becoming fashionable in Canada: first Alberta (from $12.20 currently to $15 in October 2018), then B.C. (from $10.35 to $11.35 in September 2017) and now Ontario (from $11.40 to $15.00 in January 2019, a 30% hike in 18 months). Are workers better off or does it mean fewer jobs?


The debate has been ferocious because economists don’t agree, but let’s look at the fundamentals. The government accepts that carbon taxes are effective at reducing emissions because if you make something more expensive, people will use less of it. We agree, but the same logic must apply to wages. And, actually, a business owner faced with the rising cost of an input (labour) has three options:

  • Absorb the added cost out of her profit margin
  • Raise prices
  • Reduce use of labour by substituting in morecapital or simply making do with less work

Let’s take these in order. Some businesses are so spectacularly profitable that owners can just absorb rising labour costs. But Apple and Microsoft don’t use minimum wage labour. If we look at profit margin by industry, the biggest users of minimum wage labour are in retail and food service, with razor thin (below 3%) margins. There is very little room to absorb these costs, and if a business is not profitable, there is not much point in keeping it going.


What about raising prices? The critical ingredient in business success is getting the right price point for your market. One restauranteur told us that the lunch menu in her neighborhood has to be $5-$8, any higher means flirting with disaster. In retail, the competition is with online giants, like Amazon. Often, there is no room to raise prices without driving away customers.


The third option to cope with rising wages is making do with less staff. This is controversial because many studies show that minimum wage can be increased without a corresponding rise in unemployment.

 

That’s why the recent Seattle study produced such a bombshell. Washington state collects detailed data on hours worked and it showed how part time workers with irregular schedules are cut back. Seattle’s minimum wage hike reduced the total hours worked by the low-wage workforce by about 9% while raising their wages by only about 3%. The net loss to workers was an average of $125 a month. This is a big, immediate hit to the most vulnerable workers.


In the long-term, minimum wage hikes can also drive labour-saving capital investment. The former CEO of McDonald’s told Forbes, “demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives.” At the time, labour groups accused business owners of crying wolf. McDonald’s is now rolling out touchscreen selfservice kiosks across Canada and the U.S.

 

There is some evidence that modest increases in minimum wage can be done without disrupting labour markets, but governments have to be cautious about hurting competiveness. Previously, I had said there are three options to deal with rising costs, but there is actually a fourth and a fifth option: shut down or move to a different jurisdiction. Let’s provide input to the Government of Ontario to prevent this from happening. The Ontario Chamber of Commerce has
done some great work on this issue and has a report that can be viewed here.

 

For more information, please contact:

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) | hbrakel@chamber.ca

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5 Minutes for Business: Modernizing NAFTA – Come Join Our Campaign!

We remain optimistic that NAFTA 2.0 could be a huge boost to the economies of North America because there is so much to be gained. But we’re also starting to worry: anti-trade rhetoric and posturing could veer the talks towards trouble. There are a lot of contentious issues to resolve in an unreasonably short deadline. Trade, in general, and NAFTA, in particular, are massively unpopular with Trump supporters.

 

And the decision-making in Washington D.C. around trade issues has become increasingly chaotic, with U.S. business groups pushing back aggressively against nationalists in the administration. We’ve already seen an executive order to withdraw from NAFTA, where President Trump told the Washington Post, “I looked forward to terminating. I was going to do it.” It was the uproar from U.S. business that forced the Trump Administration to reverse its position.

 

And again this week, the U.S. government appeared poised to make a dangerous decision on steel tariffs. The Commerce department was supposed to brief Congress on the tariffs last Friday, but the meeting was cancelled. Officials are now scrambling to alter the decision after ferocious blowback from U.S. business.

 

The lesson is clear: the most important group advocating trade is not politicians or (god help us) economists. It’s the business community because businesses understand the real world consequences, the jobs that depend on trade. These folks have a very powerful message that resonates with the general public as well as local members of Congress and Senators. And they are the most credible on the benefits of trade.

 

It’s exciting to see business at the forefront of this campaign, and we need your help. The Canadian Chamber is organizing visits to key U.S. states, including Tennessee, Texas and Georgia. (We’ve already been to Virginia and South Carolina.) We’ll be meeting local businesses and U.S. political leaders to raise awareness of the benefits of the Canada-U.S. relationship and to point out the risks of damaging it.

 

Our CEO, Perrin Beatty, recently pointed out, “When you go to Washington and meet politicians on Capitol Hill, you’re just another foreign lobbyist. But when you go out to their congressional district in Memphis, with Canadian business leaders who are investing in the local economy, importing their goods and hiring their workers, then you are priority number one.”

 

Participants are needed to make this strategy effective. Businesses, large and small, in all sectors are invited. We would also appreciate if you could provide us with information about your relationships in those states— the key suppliers, major investments, etc. Canadian firms with local offices in these states can help by alerting the local branches of our visits and asking them to participate in events or perhaps host site tours, etc. If you’d like to participate or join any of our delegations, please email us.

 

We’re also playing a direct role in Canada’s NAFTA negotiations. Our CEO met last week with the Cabinet Committee and our Vice President is on the Chief Negotiator’s consultative committee. Our framework NAFTA brief has been submitted to the Global Affairs department. We’ll be providing additional information to our trade negotiators in the coming weeks and months. If you have trade issues that you want us to bring to Canada’s NAFTA negotiators, please email us.

 

Let’s put the power of the network behind NAFTA. Our economies and our jobs depend on it.

 

For more information, please contact :

Hendrik Brakel

Senior Director, Economic, Financial & Tax Policy

613.238.4000 (284) | hbrakel@chamber.ca

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