Discuss payroll taxes with biz owners

Business owners weren’t happy with Budget 2014.

A few helpful measures were introduced (such as higher tax remittance thresholds and help to cut credit card fees) but the government didn’t prioritize business growth, says the Canadian Federation of Independent Business.

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The government stopped the hiring credit for small businesses, for example, despite the organization’s suggestion that the government convert the benefit into a training credit, at a cost of about $200 million, since employers spend more than $12 billion on informal, on-the-job training each year.

Business owners will continue to push for help since the government’s promised significant tax reductions in future budgets. They’re hoping for lower corporate taxes and EI premiums, as well as a continued freeze of CPP premiums.

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A delicate balance

Payroll taxes weigh heavily on business growth. In fact, most owners consider cutting wages (72%) and reducing company investments (55%) when payroll taxes rise, says a 2013 CFIB poll.

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Canadian and U.S. Unemployment stats

Canada’s unemployment rate is stagnant despite the freeze of EI premiums that was announced in September. In January, Statistics Canada found the nation added 29,400 jobs and that the unemployment rate only inched down 0.02% to 7%. As well, gains were offset by the fact that 40,000 fewer people were working in business, building and administration-related positions.

In contrast, the U.S. unemployment rate has dropped to 6.6%, its lowest level since 2008. However, analysts say more business support is needed. Unemployed Americans can receive between 40% and 50% of their previous earnings through Unemployment Insurance, depending on which state they reside in, for about six months. The Emergency Unemployment Compensation program, which extended benefits, expired at the end of 2013.

This could be a major problem, says Frank Di Pietro, director of tax and estate planning at Mackenzie Investments, since EI and CPP premiums could climb, and our economy may continue to struggle. There could be upward pressure thanks to the growing number of retirees, as well as the higher number of EI users due to more-relaxed eligibility rules.

Hiking premiums now would be detrimental, adds Mark Jasayko, a portfolio manager with McIver Wealth Management Consulting Group, since the government was already “pretty aggressive about raising payroll taxes” up until the last few years. During the recession, EI was drained and our coffers had to be rebuilt.

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Though EI benefits help support Canadians, he says, businesses may hold back on hiring and expansion when the economy is struggling and when premium rates are unpredictable.

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And currently, employers in almost every province are pessimistic—in all regions except Saskatchewan, a 2014 CFIB report found fewer than 50% of business owners are confident. They need assistance and clear direction.

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Taking a fresh approach

The good news is, Canada’s headed for an EI surplus over the next few years, according to Budget 2014. This suggests premiums are high enough.

The government projects a surplus for 2016, and says premiums may fall in 2017, with annual adjustments limited to five cents.

Prior to the budget release, CFIB suggested the government could also earmark the EI Operating Account for unemployment purposes only, especially since past surpluses have been “spent on non-EI initiatives.”

Jasayko notes that with EI, “Provincial politics and agendas sometimes come into play.” For example, many provinces have asked that their jobs programs be funded through EI. Yet, the aims and benefits of these programs can be unclear.

Unless EI funds are collected specifically for unemployed people through explicit legislation, he adds, “We don’t know how funds will be used…The more EI there is [to use], the more slush fund potential there is.”

Regarding CPP, Di Pietro says the pension plan is currently in good shape and serves the needs of today’s retirees, especially since people between age 60 and 70 can work, as well as contribute to and receive CPP.

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In case EI and CPP premiums don’t drop as hoped, adds Di Pietro, businesses should review start reviewing their five-year plans. They should consider how they’d manage to pay higher premiums if they intend to grow their companies and hire.

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