The News Rundown

Parliament's $100B small business relief program mostly went to large corporations: Report

It's undeniable that the last 2 years have been tough for Canadian businesses. With enduring restrictions that have closed many across Canada for long stretches of time, often with no rhyme or reason, many have been forced to close permanently, reduce hours, reduce staff, or reduce stock.
The Canadian government set aside a $100B subsidy for small businesses to offset some of these challenges, and now we're starting to see just how ineffective it was, as instead of helping out small businesses as intended, it instead bankrolled large corporations, many of which are the direct competition to smaller businesses in the first place.
According to Statistics Canada data disclosed earlier this week, large corporations were three times as likely as small businesses to receive the Canada Emergency Wage Subsidy. The Statistics Canada report says: “Smallest businesses have the lowest usage rates. Less capital intensive small businesses may have lower fixed costs than more capital intensive larger businesses. Thus it may be better for the smallest businesses to close rather than to continue operating.”
Back in March of 2020, Parliament passed Bill C-13 — an act respecting certain measures in response to Covid-19 — to offer a 10% wage subsidy to small businesses facing insolvency. Prime Minister Justin Trudeau at the time said the program was crucial for small business. On April 27th 2020 he said: “Right across the country it’s going to keep businesses and workers connected. That gives people certainty they will have a job now and in the months to come.”
So we now know just how little help throwing money at the problem was, because we have stats as to who actually benefited from the program. Only 29% of small operators with fewer than five employees received subsidies under the program. 13% of small businesses closed. By comparison, 61% of large corporations with more than 100 employees received subsidies. Only 2% of them closed.
The program paid $100.2 billion in subsidies to 459,070 businesses, by official estimate. Rules also allowed payments to publicly-traded corporations that issued shareholder dividends, and Canadian subsidiaries of foreign corporations, including the Bank of China, Habib Bank of Pakistan and Shinhan Bank of South Korea. This means that Canadian taxpayer money was being diverted to foreign banks, for no reason at all.
Now we see that spending billions of taxpayer money on small businesses was actually just going to fund those who didn't need it: the largest corporations that were able to weather the storm better, as well as foreign companies and multinationals. Once again in Trudeau's Canada, we see a policy that is specifically designed to benefit the rich, off of the backs of the working poor and middle class.
Meanwhile, small businesses across the country are looking forward to the light at the end of the tunnel, in the form of the end of restrictions. All provinces except BC and New Brunswick have tabled plans to end their restrictions in the coming month or so.
Hannah Kovacs, a Halifax fitness gym operator who was forced to close 3 different times, says it bluntly: “Can we take what we’ve learned from the past two years to make policies that aren’t devastating for small businesses? We need to find a new way forward. We can’t be asked to sacrifice and take on more debt again.”
Louis-Philippe Gauthier, senior director of legislative affairs with the Canadian Federation of Independent Businesses in Atlantic Canada, agrees. He says that businesses are cautiously optimistic about reopening plans, but that many are worried about a potential fresh round of restrictions if a new wave comes along. He says: “We can’t keep on slamming the brakes on businesses and their operations. Capacity restrictions are just choking off businesses.”
As restrictions lift, Gauthier said it will take time to rebuild consumer confidence. Another round of lockdowns would decimate the hard-won gains of small businesses: “We need to find other solutions and apply new ways of dealing with this if cases rise. We’re going to have some more real casualties in the business world if we keep pumping the brakes on and off.”
Whatever happens in the future, it is up to our federal government to ensure that small businesses aren't left behind. They are vital to further innovation and market competitiveness, and if large corporations are soaking up taxpayer money, it doesn't benefit consumers either. With our recent inflation crisis that the government has also done little about, more competition is what is needed, not putting Canada further into debt for little benefit.
Supplementals:

For the first time since 2014 Alberta has tabled a balanced budget. That budget in 2014 though did not end up balanced in the end because of the oil price collapse.
Prior to this we have to go back to 2008 to find a budget that was balanced in Alberta.
For those who voted for the UCP this is another case of the government keeping their election promises - which still surprises many to this day.
The UCP were elected on a platform of protecting jobs, building pipelines, and growing the economy. Through all this, balancing the budget was also a priority.
Alberta plans to have a surplus of about $500m (could be higher if resources stay high or spending falls).
Surpluses of $900m and $700m are forecast for the following 2 years.
The province will also provide upwards of an additional $100m per year in targeted new spending to increase health care capacity. This includes things like new ICU beds to ensure the system can respond to system wide challenges from external forces.
We’ve highlighted time and time again over the last 2 years on this podcast that our healthcare system has remarkably low capacity compared to other countries with both public and private healthcare systems.
This will be addressed not only by the new spending but in the province’s throne speech this week combined with capacity the province will be looking to provide non-urgent surgeries in private clinics where feasible to take strain off the public system.
This at the end of the day will have the net benefit of creating more spaces where procedures like hip and knee replacements can be done out of our hospitals.
And yes, these services will still be publicly funded.
The general thought was that the UCP would need to embark on Ralph Klein era hack and slash budgeting to reach this goal but thanks to global energy prices that is not the case.
A new initiative called Alberta at Work will provide more than $600m that will build the skills of Albertans and get them into the labour force.
$47m of the Alberta at Work fund will go towards capital funding (infrastructure) and $25m over 3 years will be given to support collegiate programs and charter school expansions, creating pathways for students into higher learning and in-demand careers.
This creates school choice for people who may not want to put their kids in the public school system - this was another of the UCP’s election promises.
The big headline of course is that the budget is balanced with the sky high energy prices we’re seeing but in reality, these prices were expected - that is, the price that the budget uses as its benchmark.
The budget uses the benchmark price of $70USD WTI oil to make its calculations.
The opposition has been out since the budget dropped pointing out that the budget is balanced on resource revenue.
But if you go back to the last budget the NDP tabled and enacted before being defeated, they were forecasting $63 oil and had a $6.7b deficit.
But what’s more, for 2022-23 (the year we’re in now), they also forecast $70 oil.
University of Calgary economist Trevor Tombe put together some wonderful graphs on Twitter showcasing where money comes in and leaves the budget.
He also projected government spending using the expenditures from the latest government fiscal update on both the UCP’s track and the NDP’s track.
If the NDP kept spending at the levels in which they were spending, we would still be seeing roughly $3-$4b defects going into 2023.
Economy wise, Alberta is still growing at north of 4% GDP per year and in January while Canada lost 200,000 jobs on the whole, Alberta gained more than 7,000. That doesn’t begin to mention the 130,000+ jobs that were gained in 2021.
There will be a time and place for the discussion on what happens to prevent the next oil downturn from plunging Alberta into deficit again.
A strong and diverse economy will help which remains a central pillar of this budget.
But there’s also that revenue panel discussion to happen sometime this year where the province will look at ways to stabilize the revenue stream. We’ll have more on that when it happens but, just a glimpse into the future of how this could look.
It’s entirely possible that we could face a fall referendum or referendum along with next year’s election asking if Albertans want a 2-3% sales tax. This would bring in new revenue but would also allow for some accounting on the taxation side.
If you examine the tax tables in the budget, you’ll see that the tax rates above 10% bring in about $1.2b worth of revenue.
What that means is that if surpluses were sufficiently high or there was another source of revenue to offset, Alberta could return to its flat tax model.
Though whether or not this is needed is up for debate since even with this budget Alberta remains the most tax competitive province for both business rates and overall tax burden for citizens.
The UCP was famously ribbed over its tax cuts when they came into office but the corporate tax rate has fallen to 8% and corporate tax revenues have gone up year over year since the tax cut.
Albertans pay $10b less in sales tax than Ontarians, almost $12b less than Saskatchewanians, and $8b less than BCers. And for Ontario, Saskatchewan, and BC Albertans pay overall 14.8, 17.4, and 20.4b less in taxes than those provinces and those are just the lowest 3.
For a family making $75 grand per year, Albertans save $1400 over those in BC, $1000 over those in Saskatchewan, and $3800 over those in Ontario. That goes up if the family in question makes $150 grand per year to $4900, $3300, and $8700.
The UCP has delivered on its core promise of balancing the budget and the economy is set to boom barring any major shocks. The Alberta Advantage is back.
Supplementals:

B.C. budget’s tax increases affect used vehicle sales, tobacco

In the same week as the Alberta UCP released their budget for the upcoming fiscal year, the BC NDP also released theirs. For those thinking that there might be a bit of a contrast between the two, based on the wildly different approaches the two political parties take on pretty much anything, you'd be right.
Unfortunately, those looking for good news from the BC budget will be disappointed, as it forecasts higher taxes, lower small business investment, revenue losses in the natural resource sector, and an undeserved pay hike for cabinet ministers.
Delivered by BC's Finance Minister Selina Robinson, Budget 2022 vows to take bold action to fight climate change, reduce the cost of living, and grow an inclusive and sustainable economy. It also promises new health spending, and working towards $20-a-day child care.
But what it doesn't do is balance the province's finances. The NDP government is projecting deficits for the next several years, while the forecast shortfall for the current budget year has dropped by more than $9 billion.
Due to better than expected economic growth, fueled by an astonishing turnaround by the Insurance Corporation of British Columbia and a sizzling real estate industry, the 2021-22 budget is forecast to end with a deficit of $483 million, down from a projection of $9.698 billion last year. The 2022-23 budget is expected to have a deficit of $5.461 billion. In addition, billions of dollars are set aside in contingencies.
The province is going to be changing its sales tax rules, meaning the PST will apply to more things, including used vehicle sales, in order to prevent "tax avoidance". The tax change for used vehicle sales was included in Tuesday’s provincial budget, and takes effect on Oct. 1. At that time, tax will apply to either the reported purchase price or the average wholesale price of that type and year of vehicle, whichever is greater.
The budget: “This approach would align B.C.’s treatment of private vehicle sales with the majority of other provinces and is intended to address tax avoidance arising from the underreporting of the price of motor vehicles from private sales. The measure will not apply for motor vehicles involved in a trade-in.”
It also adds, for some reason, that “Individuals involved in private vehicle transactions are more likely to be low to medium income, living in a rural area, and male.” Robinson was asked about the measure, and she said: “It’s not a new tax, it’s closing a loophole.”
Elsewhere in the budget news, the Opposition B.C. Liberals say cabinet ministers stand to gain 10 per cent on their salaries that's normally withheld when the provincial government posts a deficit budget.
The Liberals say the New Democrat government's budget includes a proposed amendment to the Balanced Budget and Ministerial Accountability Act that would give ministers the extra pay despite a deficit. Liberal house leader Todd Stone says while people in B.C. are struggling with rising costs, Premier John Horgan and his cabinet ministers are about to give themselves pay raises.
Finance Minister Selina Robinson defended the proposal, saying the 10-per-cent holdback could be viewed as a deterrent to fund programs and policies that affect the budget.
Stone put it bluntly: “Fighting unaffordability is not one of the priorities of this budget. But what was one of the priorities: making life more affordable for the premier and for NDP cabinet ministers.”
The budget also includes a projected $700 million drop in revenue for the forestry industry, and blames this on the reduction in old growth forest logging. The government attributes the revenue drop to other factors in addition to the old growth deferrals, including “an assumed decrease in lumber prices from the historically high levels experienced in 2021.
It also expects a reduced harvest from Crown land as a result of a recent court finding that provincially authorized resource exploitation has infringed the treaty rights of the Blueberry River First Nations, located north of Fort St. John.
In reality, there is not much that is positive for everyday British Columbians in this budget, it feels more like a "let's continue to get through this" rather than a bright outlook for 2022/23. With more taxes on the way, along with lower revenues, it looks like things aren't going to be any more affordable in BC in the upcoming year.
Supplementals:

Firing Line

U.S. Urges Canada to Abandon Digital Service Tax

One of the Bills that died when Parliament was dissolved last summer for the election was Canada’s digital services tax.
That means a tax on things like Netflix, streaming services, and digital purchases made on platforms like Amazon, Apple, or Google.
The digital services tax would amount to about 3% on revenue earned by large companies that sell any digital service to Canadian users or if the sale of Canadian user data is involved.
Most of the news this week has of course been rightly focused on Ukraine and the horrible invasion by Vladimir Putin and before that the revocation of the Emergencies Act order.
But despite all that, despite everything our governments are focused on, this story of the US threatening action if we impose the digital services tax got zero traction.
The story appeared in the Wall Street Journal, various tech news outlets, and Reuters picked it up as well. Readers of the Globe and Mail may have seen it online as they reposted the Reuter’s story.
In particular, “the U.S. on Tuesday urged Canada to abandon its plan to impose a digital service tax on large businesses, warning that Washington would examine all options under bilateral trade agreements and domestic law to retaliate if such a levy is adopted."
The term retaliate applied by the US on an economy the size of our own, should make everyone re-consider what we’re doing.
We were long told that the so-called “trade war” between Canada and the US was the fault of Donald Trump but things didn’t get better under Joe Biden and could - if this tax is implemented - get worse.
Canada’s imposing this tax because they hope that globally everyone will implement a new international system.
An international system of taxes on digital goods that would create a level playing field, but as we know with free market economics, the US, one of the world's biggest economies, isn't bound by what the will of the many want.
If Canada and others adopt such a tax, it will just make digital investment more favourable in the US.
The US is concerned because Canadian companies are exempt while the US feels American companies providing similar services are singled out.
For those in Canada of course, this is the CanCon that’s always talked about, ensuring that the CRTC regulates well enough so that a portion of all programming Canadians are exposed to is Canadian for cultural reasons in the past (and now) but also economic reasons.
Canada will implement the tax if the OECD does not implement a similar tax by January 2024.
The US in October withdrew tariff threats against 5 European countries over similar taxes in October in an effort to move to that potential global option for such a tax, why not Canada?
Reporting last month in Reuters suggests that concerns about bilateral trade disputes regarding steel and lumber are to play.
The world is turbulent as we’ve seen this week and even more so over the last 2 years. Canada needs a stable relationship with the United States.
Canadians also need to know what’s at stake when it comes to these trade relationships.
Does it make sense to risk US tariffs, an economy way bigger than our own, to implement a 3% tax on tech giants?
Do people want Netflix and other streaming services to go up even more in price than they have?
In 2015 when Stephen Harper said that Justin Trudeau would tax Netflix, people laughed.
I doubt anyone imagined what amounts to a Netflix tax or more broadly a streaming services tax, would be putting a strain on our relationship with the US. A strain we don’t need.
Supplementals:

Word of the Week

Discord - A disagreement between different groups

Quote of the Week

“Can we take what we’ve learned from the past two years to make policies that aren’t devastating for small businesses? We need to find a new way forward. We can’t be asked to sacrifice and take on more debt again.” - Hannah Kovacs, a Halifax fitness gym owner, on the possibility of continuing COVID restrictions

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Show Data

Episode Title: A Tale of Two Budgets

Teaser: Trudeau’s small business subsidy actually went to large corporations, Alberta’s budget forecasts a surplus and investment, while BC’s budget forecasts a deficit and more taxes. Also, Trudeau’s new digital services tax faces backlash from the US.

Recorded Date: February 25, 2022

Release Date: February 27, 2022

Duration: 55:38

Edit Notes: None

Podcast Summary Notes

Duration: XX:XX