The following report was first published by RBC Economics on April 8, 2022.
Budget 2022 wasn’t quite the “big spending” fiscal plan some expected. With a strong economic recovery boosting revenue, the federal government was able to trim deficit projections while still announcing $31 billion in net new spending over six years. Most of that new spending focuses on issues like housing affordability, health and dental care, Indigenous reconciliation, defense and climate transition. In moving on from pandemic-era supports, Budget 2022 didn’t have as much for the small business sector. In fact, we counted only 40 references to small businesses or SMEs in the 304-page document, down from 152 mentions in Budget 2021. That said, there were a few announcements in April’s budget that will benefit Canada’s small businesses.
1. Small Business Tax Rates Changes
The most significant proposal is a more gradual phase-out of the small business tax rate. Access to a reduced 9% corporate tax rate (rather than the standard federal rate of 15%) on the first $500,000 of taxable income will now only be fully phased out when a business’s taxable capital reaches $50 million, rather than $15 million currently. Phasing out tax breaks too early has often been viewed as an impediment to growth, so this more generous treatment—estimated to save small businesses $160 million annually in the coming years—will be welcome news to companies that are expanding quickly.
2. Focusing on Small Business “Frustrations”
The government pledged to continue working on issues that have frustrated some small businesses, including returning a portion of carbon pricing proceeds to SMEs in jurisdictions where the federal backstop applies (Alberta, Saskatchewan, Manitoba and Ontario). Beginning in the current fiscal year, businesses will receive $1.5 billion in fuel charge proceeds collected since FY 2020-21, as well as $120 million outstanding from FY 2019-20 that hasn’t already been returned through the Climate Action Incentive Fund.
3. Labour and Supply Chain Support
Other measures that aren’t specifically targeted toward small businesses could also benefit the sector. While there are no quick fixes for current supply chain disruptions, Budget 2022 proposes $600 million in funding over five years to help build “more resilient and efficient supply chains.” Changes to the temporary foreign worker program and measures to improve labour mobility of tradespeople might help address labour shortages, though we think the scale of these programs pales in comparison to Canada’s job vacancy challenge.
Future Implications for Small Business
Despite lower deficit projections, a $53 billion shortfall in the current fiscal year is still sizeable for an economy that already appears to be running at or beyond full capacity. At nearly 16% of GDP, program spending remains higher than it was during the 2008-09 recession. And there may be more to come—Budget 2022 left out funding for big ticket items like pharmacare (despite a commitment to pass legislation in 2023) and some $16 billion in platform promises from last year’s election. With borrowing costs on the rise, persistent budget deficits raise the prospect of tax increases down the road—an unwelcome prospect for business owners.
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