Good provincial budgets encourage entrepreneurs to expand their businesses while unsupportive budgets may discourage small business investment. The 2014 Manitoba budget was simply uninspiring -- unsustainable spending, high taxes, and the threat of an imminent minimum wage hike will make it tougher for entrepreneurs here to do what they do best: create jobs and grow the economy.
Instead of focusing on fundamental fiscal problems, the 2014 budget continues a pattern of chronic deficit fuelled by unsustainable spending. The deficit is smaller than it was in 2013, pegged at $357 million, but it's a far cry from the $185-million surplus Manitobans were promised in the last election. Just as troubling is the fact the reduction is mainly due to revenue growth from higher taxes, not sustainable spending practices. Instead of taking concrete action to reduce spending, the Manitoba government is simply taking more from taxpayers' pockets.
While other provinces move ahead with personal income tax reform, the 2014 budget didn't provide even modest tax changes to ensure Manitoba taxpayers don't lose ground to other Canadians. For instance, almost every province in Canada indexes income-tax brackets and the basic personal tax exemption to inflation. Not so in Manitoba. Here, the provincial government continues to reap millions more each year in undeserved income-tax revenues due to inflation-fuelled "bracket creep." Ill-advised policies such as this have a huge impact on the bottom line of Manitoba families. A Manitoba family of four earning $60,000 a year will now pay a whopping $2,751 more in income taxes than the same family in Saskatchewan ($2,813 versus $62). This gap widened by $287 this year alone because Saskatchewan, like other provinces, is moving faster and further when it comes to creating a competitive personal income tax system.
The 2014 budget also poured cold water on hopes for progress on corporate tax relief and red-tape reduction. The small business income-tax threshold remains stalled at $425,000 despite an election promise to raise it. Manitoba and Nova Scotia are the only provinces that do not have the threshold set at $500,000, meaning small businesses here start being taxed at the much higher general corporate tax rate sooner than almost anywhere in Canada. As for red tape, one of the biggest hurdles for small business growth, it wasn't even mentioned in the budget speech.
While the facts on tax were bad enough, the budget signals about government labour policy were worse. The announcement of yet another increase to the minimum wage will limit the ability of small businesses to create jobs. The province's current minimum wage of $10.45 an hour is already the highest in Canada (with the exception of Yukon and Nunavut) and Manitoba entrepreneurs cite wage costs as the second-highest cost constraint to expanding their business, second only to the overall tax burden. This minimum-wage hike will make it a lot tougher, if not impossible to create the jobs needed to reach the government's goal of adding 75,000 people to the workforce by 2020.
The icing on the cake for this disappointing budget was the threat of higher payroll taxes for Manitoba's job creators. The province once again signalled its commitment to increase CPP premiums. What's worse, because the federal government has chosen not to go ahead with higher CPP rates, Manitoba's government is preparing to join a "made-in-Ontario" provincial pension plan that would increase the payroll-tax burden. As the only province in Western Canada with a provincial payroll tax, higher provincial payroll charges would simply exacerbate Manitoba's competitive disadvantage with the "New West" provinces. It seems it may get worse before it gets better.
Manitoba's entrepreneurs were looking for a budget that signalled the provincial government understands the realities of running a small business. Instead, small-business owners got a budget that leaves Manitoba further behind on many fronts and creates more storm clouds on the horizon. It's going to be a long and lean year ahead for small business.
Elliot Sims is the Manitoba director of provincial affairs with the Canadian Federation of Independent Business. To view the full budget submission, Fixing the Fiscal Fundamentals, please visit www.cfib.ca.