Budget 2014: Help for small fry?

For the 2014 budget, the IIAC’s pre-budget submission recommends that the federal government consider several initiatives that would give the small-business sector in Canada a much needed boost – including studying the benefits of a lower capital gains tax rate for small-business investment. That sector has been hit hard by the collapse of the venture-capital market, Russell says, making it difficult for small-business firms to raise capital.

“Small businesses are the heart and soul of the Canadian economy, when you think about it,” Russell says, “in terms of employment, in terms of the economic engine of the country. I think if there’s a need for small-business capital, it’s never been greater than it is now.”

Organizations in the financial services sector, such as the IIAC, have made a host of recommendations to the federal government. These proposals, the groups contend, would be in the long-term economic interest of the country and would help Canadians save for retirement and for their long-term health-care needs, boost investment in Canadian infrastructure projects or ensure the stability of the financial services sector, among other benefits.

Small tokens

However, some experts suggest that the government may choose to avoid big, costly initiatives this time around, concentrating instead on keeping spending in check and working toward eliminating the deficit.

“I would be surprised if we see much in this budget,” says Rick Robertson, associate professor with the Richard Ivey School of Business at the University of Western Ontario in London, Ont. “I could see them give out small tokens out of [the list of financial services sector requests], but nothing involving big numbers.”

The Conservatives, Robertson says, are likely to position themselves for the federal election next year, which must happen by Oct. 19, 2015. During the 2011 campaign, the Tories made a number of promises – including introducing income-splitting for parents with dependent children and raising the annual contribution limit for tax-free savings accounts to $10,000 – that were contingent on the government balancing the books. If the feds meet that target, as it has signalled it will, they can include these proposals in next year’s budget, thus setting up for the election campaign.

“The one card that they’ve always played, whether true or not, is that they’re good economic managers,” Robertson says. “And if they can deliver on a bunch of these promises, then they can say, ‘Not only can we manage the economy better than any other party, but we’re going to give you the rewards you deserve’.”

However, even if the 2014 budget is not set to make blockbuster headlines, the government may still surprise by making a number of smaller changes. After all, the government will want to be seen to be doing something to boost economic growth.

“I’m not going to say this will be a ‘do nothing’ budget,” says Russell.

In addition to asking for a lower capital gains tax rate for small-business investment, the IIAC’s wish list includes implementing a small-business financing incentive program and eliminating Canada Pension Plan and employment insurance taxation of employer and employee contributions to group RRSPs, which would make it easier for small businesses to offer workplace pensions to their employees.

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Financial advice

The Toronto-based Investment Funds Institute of Canada‘s (IFIC) pre-budget submission also asks for similar changes to group RRSPs, as well as advocating automatic employee enrolment and locking in employer contributions for retirement. These changes not only would help Canadians save for retirement, argues IFIC’s submission, but they would reinforce the value of financial advice.

“Individuals are more likely to learn about, and participate in, tax-advantaged programs if they are reminded by a financial advisor,” says Joanne De Laurentiis, IFIC’s president and CEO. “We want the government not to lose sight of the fact that the financial advisory channel is really an important avenue through which you can encourage general savings – and specific savings, including retirement savings.”

The submission from Toronto-based Canadian Life and Health Insurance Inc. (CLHIA) also asks the feds to consider automatic enrolment in workplace pension plans and contribution-escalation features similar to features of the pooled retirement pension plan program. The CLHIA submission also requests that the government provide tax incentives for personal savings for long-term care through either an RESP-style government program or through insurance.

“Particularly for low- and middle-income earners, there is a large shortfall between long-term care needs and the savings that Canadians have actually accumulated,” says Noeline Simon, vice president of taxation and industry analytics with CLHIA. “We need to recognize how big this issue is even now, let alone down the road.”

Meanwhile, the Toronto-based Canadian Bankers Association’s submission encourages the federal government to continue working with international groups to address systemic risk in the global financial sector and to make sure that regulations are harmonized across jurisdictions.

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