The Number One Threat to America — Border Taxes

March 15, 2017 | Network News

5 Minutes for Business

We’ve all been so focused on the renegotiation of NAFTA—the lists of demands (ours and theirs), how long will this drag on for, rules of origin—that maybe we’ve missed a much bigger threat to North American trade. The proposed Border Adjustment Tax might be a bigger problem because it’s more immediate and because the darn thing might actually pass.

Firstly, let’s just call it a ‘border tax’ because it’s a 20% tariff on imports and it exempts exports from corporate income taxes. This is an obvious violation of World Trade Organization (WTO) rules according to every expert we’ve talked to. In fact, the Peterson Institute for International Economics has calculated that if the U.S. goes ahead with the border tax, U.S. imports would decline by $200 billion, and the WTO could authorize a staggering $370 billion of retaliation by trading partners. So why would Congress and the Trump administration even contemplate such a thing?

The answer is: revenue. House Speaker Ryan is pushing a tax reform package that would reduce corporate tax rates from 35% to 20% and lower the top personal income tax rate from 39% to 25%. All of this could cost $1.8 trillion over 10 years, so the big question is how to pay for it.

The border tax is bad policy, but it’s simply the only conceivable way to raise $1.1 trillion of revenue and pass the tax reform. And it can be pitched as improving competitiveness because it reduces the corporate tax rate to 20% in such a way that imports can no longer be deducted from income—but export revenues are. So, effectively, it acts as a 20% value-added tax on imports, a corporate income tax on domestic U.S. production and a subsidy for exports.

Spare a thought for the Republican congressmen from the party of Reagan, for 70 years the proud defenders of free trade now pondering the biggest trade-destroying tax hike since the Smoot-Hawley tariffs of 1930. Understandably, the U.S. business community is split. There’s a group of all the major retailers and importers called Keep America Affordable that vigorously opposes the border tax. They see it as an existential threat because their tax bill on imports would be many times greater than their operating income. On the other side are the large manufacturers in the American Made Coalition that would benefit from a border tax by eliminating foreign competition.

These manufacturers that think they might benefit are mistaken. After a sugar-high of profitability in the first year, they would struggle with lower trade, higher prices and angry consumers. More importantly, consider that Apple uses 172 major suppliers in 40 different countries to produce the iPhone. Apple has the gold standard in global supply chains, which is a tremendous competitive advantage. You can only get the best quality parts at the best prices by going out to the most innovative companies in the world. Withdrawing from those global supply chains in order to avoid a border tax would hurt American competitiveness. And if only European, Canadian and Asian competitors keep global supply chains, they’ll one day eat America’s lunch.

Ultimately, border taxes aren’t paid by big multinationals—it’s consumers and the working class that get hit. Imagine their fury when the price of everything at Walmart goes up 20%: baby clothes, shoes, electronics, cans of tuna. Oh, and gasoline prices would increase 30 cents per gallon.

This is the message that we’ll carry to our allies south of the border. Because they have to know it’s not just bad for foreigners, it’s bad for America.

For more information, please contact:

Hendrik Brakel
Senior Director, Economic, Financial & Tax Policy
613.238.4000 (284) | hbrakel@chamber.ca

Share this:

Electricity in Ontario, Part 1: The System

March 7, 2017 | Advocacy, Blog, Provincial Advocacy

Soaring electricity costs in Ontario might be the single greatest threat to business in the province. In the first of a three-part series, we examine how the system works, and what has allowed this to happen.

The cost of electricity in Ontario has been increasing at four times the rate of inflation since 2006. Everyone in Ontario has felt the effects. The rate hikes have been particularly punishing for seniors and people on fixed incomes whose bills have risen far above what they can pay, for residents in rural Ontario who are paying far more than their counterparts in cities, but also for businesses, particularly heavy power users, to whom electricity represents a huge portion of their costs. The Ontario Chamber of Commerce’s Empowering Ontario report found that as many as 1 in 20 Ontario businesses believed they would be forced to close due to electricity costs within five years.

Like the provincial debt, this problem has been growing for a long time, and if the present government is guilty of anything, it is that they have perhaps not dealt with it as well as they might have, not that they caused it. In the first post of this series, we’ll examine the current status of electricity pricing and generation in Ontario.

Ernie Eves’ Progressive Conservative government was plagued by spending scandals and allegations of corruption within his party, much like the current Liberal government. The media regularly ran stories about the alleged mismanagement of Ontario’s electricity generation under the governments of both Eves and his predecessor, Mike Harris, and the blackout of 2003 raised questions about the PCs’ ability to keep the lights on at all. Ironically, the issue was actually a major part of the Liberal election campaign against them.

The sale of Hydro One was first proposed when Mike Harris was Premier, and then pursued by Eves, who changed his mind in the face of rising prices and a consumer revolt. The Liberals opposed the sale in 2003, re-evaluated but ultimately rejected it in 2009, and returned to it in 2015.

When Dalton McGuinty was first elected in 2003, the all-in cost of power was 6.5 cents per kWh, including a 0.7 cent debt-retirement charge. Now, after new increases that took effect on May 1, 2016, rates vary from 8.7 cents per kWh for off-peak usage to as much as 18 cents on-peak. This increase has been far in excess of the rate of inflation.

Some of the increase is due to changes in the way we generate power and our shift away from fossil fuels. Climate change is already harming Niagara farmers and viticulturists, and the world is facing the prospect of greater environmental disasters to come. It is probably no exaggeration to say that abandoning power generation from fossil fuels has become an imperative for our entire civilization.

The Ontario government promised to phase out coal-fired power generation in the province completely, and delivered on that in 2014. Ten years ago, a quarter of the province’s power was generated by coal; today, none is. This corresponds into a 17 per cent reduction in GHG (greenhouse gas) emissions, or 34 megatonnes – the single largest GHG reduction measure anywhere in North America.

Thunder Bay Generating Station, Ontario’s last coal-fired power plant. Photo Credit: Derek Hatfield

As a result, the power grid in Ontario is now 90 per cent renewable, and we have become a leader in renewable energy both in Canada and the world. Alberta and Saskatchewan are looking to phase out the fossil fuel plants on which they currently rely (in 2010, Ontario generated 12,285 GWh from coal, while Saskatchewan generated 12,084 and Alberta a staggering 41,013), and they will probably learn from Ontario’s experience when they do it.

After the coal phase-out, the single biggest source of electricity in Ontario is now nuclear. This has necessitated extending the lifespans of old nuclear plants in Ontario, such as Pickering, which was originally commissioned in 1971 and is now the oldest commercial nuclear plant in the country. We’ll go into more detail about them in Part 2.

Gas has become Ontario’s second-greatest source of electricity, currently generating just under 10,000 MW with capacity planned to increase to almost 11,000 MW by 2020. Gas has become a very popular choice for new generating plants across the world and although it is not completely clean, it is dramatically cleaner than coal, so the trend towards gas has noticeably decreased global CO2 levels.

But when I mentioned Ontario gas plants, that probably wasn’t the first thing that you thought of. An explanation of the scandal properly belongs in Part 2 of this series, in which we’ll get into the causes of high power bills.

To assess our prices in Ontario, all we really have to compare with is our previous bills, and compared to them, the increase is huge. The average monthly household bill is $246 in Toronto, $229 in low-density rural Ontario, and $200 in medium-density rural Ontario, based on a consumption of 1,000 kWh per month. These rates are expensive compared to $100 a month in Montreal, $117 in Winnipeg, or $128 in Illinois; comparable to Chicago at $210 or Halifax at $220, and a bargain compared to $383 in Boston, $409 in New York City, or $430 in San Francisco. To keep it in perspective, although Ontario prices have increased enormously, there are still many other jurisdictions in Canada and America that pay far more than we do for power – and the claim that Ontario’s energy costs are the highest in North America is simply false.

There’s a difference between rates and the final electricity bill, and in the former, Ontario costs are also high, but again, not the highest in North America or even close to it. In terms of energy rates, Prince Edward Island, Nova Scotia, Illinois, Michigan, California, New York, and Massachusetts all pay considerably more for power than Ontario. New York pays 28.9 cents per kilowatt-hour (¢/kWh) compared to Ontario’s 14.3, Boston pays a similar amount, and even New England rates look like a bargain compared to 41.4 ¢/kWh in Australia or 42.8 in Germany.

But this is not to say that Ontario’s bills aren’t higher and getting higher than they should be. What’s tacked on to Ontario bills to make them so high is the Global Adjustment (GA). For residential and small business customers, the GA is simply rolled into your overall rate, so you are not being shown what percentage of your bill goes into it. The GA covers:

  • regulated rates to Ontario Power Generation nuclear and baseload hydroelectric generating stations
  • contracts with the Ontario Power Authority such as for new gas-fired facilities, renewable facilities, and nuclear refurbishments
  • contracted rates administered by the Ontario Electricity Financial Corporation paid to existing generators
  • the cost of delivering conservation programs in the province and the payments made to participants under contracts with the Ontario Power Authority for demand response programs

On the generation side, 38 per cent of the GA goes to nuclear energy (although nuclear generates 59 per cent of the electricity), 12 per cent to hydro (in exchange for 23 per cent of the electricity), 17 per cent to gas (which generates 7 per cent), 18 per cent to wind (8 per cent generated), and 15 per cent to solar (only 2 per cent generated). Green energy is a smaller portion of the adjustment, but nuclear and hydro power offer more bang-per-buck, and without emissions.

Ontario Clean Air Alliance chair and former Toronto Hydro commissioner Jack Gibbons claimed that the Wynne government was a captive of the nuclear industry, and had made preserving Power Members’ Union jobs a priority over lower power bills for consumers. Without special insight into the inner workings of the Wynne cabinet and the Ministry of Energy, we can’t tell if this allegation is true or not.

The GA now constitutes the bulk of electricity bills in Ontario, making our fairly competitive kWh rate somewhat irrelevant. In 2013, for instance, the average hourly price was about 2.5¢/kWh, and the GA was about 6¢/kWh. In 2015, it had gone up to an average of 8¢/kWh. For every $100 on your electricity bills that year, $77 went to the GA.

The actual fair market rate for power in Ontario, the Hourly Ontario Energy Price or HOEP, is set by the Independent Electricity System Operator (IESO), which manages Ontario’s electrical system. The IESO is a not-for-profit corporate entity that was established in 1998 by the Electricity Act of Ontario, and is governed by an independent board whose Chair and Directors are appointed by the Government of Ontario. As its name implies, it operates independently of all other actors in the electricity market.

To determine prices, the IESO issues a forecast of the energy it believes will be consumed on that day and up to a month ahead of time including a reserve of 1,400 MW above actual consumption. These forecasts are continually updated when new information becomes available, such as hotter-than-predicted weather (which means a greater demand from air conditioners). The forecast demand is posted online so suppliers can plan their output accordingly. The forecasts are pretty accurate, with actual consumption varying no more than 2 per cent from the forecast. You can see these forecasts and demands yourself in real time on the IESO’s website.

Electricity producers review the forecast and decide how much power they are willing to offer, and at what price. They electronically submit these offers to the IESO. At the same time, a small number of large consumers bid on power, indicating their willingness to buy a certain amount of electricity at a certain price. As with an auction, if the market clearing price rises above their bid price, they decline to buy. Participation in this market is the only way to sell electricity in Ontario.

The IESO then has a figure for the power it needs to supply and a set of offers to sell power. The IESO accepts the lowest bid first, and the proceeds through incrementally higher bids until it has bought enough power to satisfy demand. The price of the last and highest offer the IESO accepts – the offer that puts it over the line to meet forecast demand – is the price paid to all accepted suppliers. The IESO then has to “dispatch,” or send notice of accepted offers. Some additional suppliers are paid “Operating Reserve” payments, which only require them to be “on call” should demand spike for some unforeseen reason. Their generating capacity will not be called upon unless needed. These prices are also determined through the market.

The HOEP is the average of the market clearing prices in the twelve auctions conducted each hour. The HOEP is the rate charged to large consumers and local distribution companies.

For example, at a particular time, let’s say the IESO has forecast that the province will need 1,000 MW (it needs far more – this is a simplified example). Three power generators make offers: Generator A offers 600MW at 10¢/KWh, B offers 400MW at 8¢/KWh, and C offers 200MW at 11¢/KWh. The IESO accepts B’s offer, as the lowest, which gives it 400MW. It then accepts A’s offer as the next-lowest, and the additional 600MW gives it the total of 1000MW it needs. It does not need C’s capacity and C’s price is higher, so it declines that offer. Both A and B are paid 10¢/KWh, since that was the price of the highest accepted offer. 10¢/KWh becomes one of the twelve market clearing prices that will be averaged over the hour to provide the HOEP. Generator D is a hydroelectric station that can quickly adjust its capacity. It isn’t needed right now, but it is paid an Operating Reserve payment for an additional 200MW in case demand spikes and additional capacity is required very quickly.

This, in short, is how electricity prices in Ontario are determined. This process, plus the Global Adjustment, taxes, and whatever miscellaneous fees may be tacked on, becomes your power bill.

The Adam Beck complex. Photo credit: Ontario Power Generation

One thing that often irritates Niagarans is that we have to pay high electricity costs despite living next-door to a major power source in Niagara Falls. There are two stations at the Falls – Ontario Hydro’s Sir Adam Beck facility, with two plants, and the U.S. Robert Moses Hydro Electric Plant, built directly opposite. Both sides are tied into each other’s grids by high-voltage transmission lines.

By international agreement, the Canadian side draws 56,500 cubic feet of water per second, and the Americans draw 32,500. The Adam Beck stations generate up to 2,000 MW. Together with the Robert Moses plant, these power stations supply about a quarter of all power used in New York State and Ontario. In New York State, the Niagara Preference Power Program (NPPP) provides power to 51 municipally and/or cooperatively-owned rural electric providers in New York State.

This gives you an idea of how our electrical system works and how prices in Ontario are determined. In our next post, we will go into how prices came to be so high.

Share this:

Liberals look at making skilled immigrant loans pilot project permanent

March 7, 2017 | In The News

Qualified professional newcomers face big cost barrier to securing credentials in Canada

A pilot Conservative project to loan money to help skilled immigrants land jobs in their field could be revived as a permanent program under the Liberal government.

One of the biggest barriers for newly arrived doctors, dentists, engineers and high-tech professionals is coming up with the cash to pay for the required licensing fees, exams and training upgrades.

Proponents say micro loans speed up the process and pay off big time for the federal treasury, yet they can’t keep up with a demand that will likely grow with the Liberal government’s plan to welcome more economic immigrants to the country in 2017.

Jean-Bruno Villeneuve, spokesperson for Patty Hajdu, the minister of employment, workforce development and labour, said a three-year pilot that was launched in 2011 under the Conservatives demonstrated that loans sped up the credential recognition process, led to a 47-per-cent increase in full-time employment and eased reliance on government income assistance.

“We were very pleased with the results of the pilot, and we’re working hard on a framework for a more permanent policy,” he told CBC News.

A spokesperson for Finance Minister Bill Morneau would not say if a new foreign credentials loan program would be included in this year’s budget.

“Can’t tip our hand here either way,” the official said. “Stay tuned.”

The Conservative government earmarked $35 million over five years to make the Foreign Credential Recognition Loans program permanent in the 2015 budget, but it was never implemented due to the election. Then-prime minister Stephen Harper had also promised to more than double that figure during the 2015 campaign by adding an extra $40 million over five years.

Herb Emery, a labour market economist at the University of New Brunswick, said loans to help immigrants overcome the up-front financial hurdle have a big net payoff in federal revenue.

‘Huge’ impact on federal treasury

“When these immigrants are taken out of low-skill jobs and converted into high-paying ones, the impact on the federal treasury is huge,” he said. “They recoup any costs they put into it in the first year alone, and from then on it’s basically pure profit for the treasury.”

Emery said immigrants often have no access to credit or bank loans — what he calls a “pervasive market failure.” That leaves newcomers unemployed or working in low-paid jobs just scraping to get by.

Many skilled immigrants wind up unemployed or working in low-paying jobs because of the financial barrier to earning their foreign recognition credentials. (CBC)

“We’re doing a horrible job in that we bring very high human capital individuals to Canada, then we throw away their potential by not letting them work in what they are trained and educated to do,” he said.

There are several programs in Canada offering micro loans between $5,000 and $15,000, with some receiving operating funding contributions from the federal government and the provinces.

One of the programs Emery has reviewed favourably is the Calgary-based Immigrant Access Fund (IAF), which grants loans to immigrants across the country. Dianne Fehr, vice-president of stakeholder relations, said it needs millions more in federal funding to keep up with a growing demand.

“It’s a very clear way to support immigrants toward labour market integration,” she said.

’Significant barrier’

Fehr said even a few thousand dollars is a “significant barrier” for many immigrants who are unemployed or working at “survival” jobs like fast food restaurants or taxi and ride-booking services.

In a pre-budget submission to the Commons finance committee, she requested a three-year commitment of $24.8 million that includes loan capital investment, operating costs and infrastructure.

Right now, the program is facing a growing demand for loans with decreased operating funds from the federal and Alberta governments.

She pointed to a high success rate, with 75 per cent of recipients completing their learning plan and more than 97 per cent of the loans repaid with modest interest.

One recipient was Egypt-born Omar Eladl of Calgary, who earned $12 an hour as a security guard while working to get his credentials as a pharmacist to meet Canadian standards. He had to squeeze in 1,000 unpaid hours in the field while supporting his family and faced the considerable costs of travel, materials and exam fees.

Real challenges

“All of these were real challenges for me,” he said.

A micro loan of $5,000 helped him speed up the process. When he was able to work as a pharmacist last year, three years after he arrived in Canada, his salary more than tripled.

The federal, provincial and territorial governments have agreed to a framework aimed at improving the fairness, timeliness, transparency and consistency of qualification recognition in Canada. Several federal departments fund various programs and organizations that help with the foreign credential recognition process and resettlement.

Patrick Snider, the director of skills and immigration policy for the Canadian Chamber of Commerce, said the federal government has taken some good steps to speed up foreign credentials. But he said more must be done, including improved customer service to make the system easier to navigate.

Snider said federal investment should focus on speeding up the process, including loans and expanded work-integrated learning programs.

“Right now Canada is in a unique moment in the last few decades where we are really standing out as a country that’s welcoming to immigrants, and can very much position itself as a country of choice for some very highly skilled people,” he said. “If you look at the impact that highly trained immigrants have had in the past, it can be really transformative to the economy.”

Original article: http://www.cbc.ca/news/politics/skilled-immigrants-loans-credentials-1.4002948

Share this:

Liberals won’t tax health and dental benefits, says Justin Trudeau

February 2, 2017 | Advocacy, Federal Advocacy, In The News

After advocacy from the Chamber network, including the GNCC and our partners at the Canadian Chamber of Commerce, the Trudeau government has backed down on its deliberations over taxing employer-provided dental and health benefits. We are pleased that the government has heard the concerns of businesses and working people, and not opted for a move that would increase expenses for employers and leave thousands without dental and health benefits.

Prime Minister Justin Trudeau said Wednesday that he will not enact a tax on health and dental benefits, after days of refusing to rule out the option.

“We are committed to protecting the middle class from increased taxes and that is why we will not be raising [those] taxes,” he said during question period.

Earlier Wednesday, the Liberals wouldn’t say whether they intended to tax employer-sponsored health and dental benefits as a means to increase revenue while the government runs deficits.

READ MORE: Canadian taxes: Here’s what will be more expensive in 2017

When asked whether Canadians could expect to see that measure in the upcoming budget, Finance Minister Bill Morneau said only that the middle class’s wellbeing and prosperity is top of mind for the government.

Though Trudeau ruled out the option Wednesday in response to a question from interim Conservative Leader Rona Ambrose, similar questions from her earlier in the week were met with much murkier answers.

READ MORE: Liberals not willing to touch $1B tax break that mainly benefits rich households

“People rely on these [benefits] for prescriptions and much-needed health programs,” Ambrose said earlier this week. “This would leave millions of people potentially without insurance and vulnerable. Is he seriously going to put a tax on the health and dental plans of millions of Canadians?”

Trudeau avoided answering the question directly, saying only the 2017 budget will focus on helping families, and waiting until Wednesday to rule out the option.

His denial Wednesday was met with applause after Ambrose said his decision was “good news” for the middle class.

Original article: http://globalnews.ca/news/3220630/health-dental-benefits-tax-justin-trudeau-liberals/

Share this:

Niagara business community favours Clinton

November 7, 2016 | In The News

A Hillary Clinton presidency is being viewed as a more stable outcome by the Niagara business community than a Donald Trump victory Tuesday night.

“I think overall Clinton values partnership, collaboration, and has for many years spoken very highly of the Canadian/U.S. relationship,” said Mishka Balsom, president of the Greater Niagara Chamber of Commerce.

“Trump on the other hand has bashed Canada, including our health care.”

She said Prime Minister Justin Trudeau holds vastly different views than Trump, which would require more time for a positive relationship to be built between the two.

“Between Clinton and Trudeau, and Clinton and Canada, it’s maybe viewed as being more stable, probably a bit more status quo, too, which some people might take a certain way,” said Balsom.

“But probably it would have less impact on the markets immediately, on the currency, and on other things because I think the world is watching this one, and the markets will respond in accordance to it.

“I think they’re not expecting as big of a change on Wednesday morning if it’s Clinton, versus if it’s Trump.”

The GNCC represents about 1,600 businesses in the region, and is the third largest chamber in Ontario.

Balsom said the GNCC has assessed how the outcome of Tuesday night’s U.S. election could impact Canada’s relationship with America on issues such as the North American Free Trade Agreement and the Trans-Pacific Partnership.

“NAFTA was signed originally in 1993 by (former U.S. president) Bill Clinton. Hillary Clinton is saying that it should be adjusted and should be opened up to be reviewed,” said Balsom.

“On our end, that sounds better than ending it. Trump promises to withdraw from it, and in his own words he’s saying the U.S. ‘loses with Canada big league.’ That, I think, would negatively impact commerce and trade greater than opening up and reviewing it.”

She said her colleagues at the U.S. Chamber of Commerce said Trump’s promise to withdraw from NAFTA would lead to a recession.

Balsom said Trump also said he “dislikes” TPP.

Clinton has reversed her position on TPP, at first saying she was in favour of it, but then saying she was reserving judgement.

“Reserving judgement is a bit more favourable to us than saying I’m going to pull out,” said Balsom.

She said the chamber is also concerned about Trump’s border policies, which she said could make travel and the movement of goods between Canada and the U.S. more difficult.

“I think that’s something that trade, in general, is not looking for.”

Blayne Haggart, a political science professor at Brock University, said Clinton would make “principled arguments” about where the United States should be vis-a-vis Canada.

“(With Clinton), you’ll see something along the lines of a reassertion of a national interest in trade, and questioning what are the ways to balance trade with domestic needs of workers,” he said.

“That said, the two countries, Canada and the United States, are very economically integrated. We both depend on each other, so … my take is you’re not going to see anything quite like a trade war between Canada and the United States if Hillary Clinton wins.”

He said Trump’s position of scrapping NAFTA and breaking other trade agreements would put up “protectionist barriers” that would “cause recessions in the United States, but also hurt Canada.

“The key to good Canada-U.S. relations is essentially respect and understanding where the other person is coming from,” said Haggart.

“With Donald Trump, we talk about his positions, but … they’re very expedient, they change at the drop of a hat.

“He, unlike pretty much every other candidate who has ever run for president in the history of the United States of America, really doesn’t know anything about how anything works in politics or in economics, so he works on slogans that people respond to.

“If he were to become president, those slogans would have to become policy in some way. What that policy would look like is anybody’s guess, and there’s a good chance that it would be economically disastrous.”

When it comes to cross-border issues, Haggart said he believes Clinton would find the right balance between security and trade.

“With Trump, he sees the world and everything in kind of an us versus them, and as an issue of dominance. That is very unusual in the Canada-U.S. relationship. It would be incredibly complex and dangerous for Canada, but also for Americans who depend on Canada.”

He said a Trump presidency would lead people around the world to “question the U.S. commitment to the world” when it comes to America’s participation in trade deals, the United Nations and human-rights issues.

“You would have to rethink pretty much every single aspect of our foreign policy and our economic policy.”

rspiteri@postmedia.com

Original article: http://www.niagarafallsreview.ca/2016/11/07/niagara-business-community-favours-clinton

Share this:

Are We Ready for the Next Generation of Small Business Owners?

October 11, 2016 | Network News, NEXTNiagara

Canadian business is about to go through an era of unprecedented upheaval. Is it an economic crisis? A climate calamity? A Trump presidency? It’s much worse: a mass-retirement of business owners!

A staggering 75% of small business owners will retire over the next decade, and $1 trillion in business assets will change hands. Are we ready?

The answer is a resounding no. Less than half of small business owners have succession plans and only 9% have a formal written plan. We often hear that owners don’t like talking about retirement. They’ve been leading their business for decades and it’s part of their identity. Many just assume that they will be able to sell the business or pass it along to kids when the time comes. And because it’s years away, the awkward discussion can always be put off to another day.

There are huge implications. For starters, inadequate planning will lead to a big tax hit. Many family businesses have concerns that they are treated unfairly. If an individual sells a business to an unrelated person, it’s considered a capital gain and subject to a significant exemption. However, when an individual sells a business to a family member, the disposal is taxed as a dividend at the top marginal rate. That’s because the Crown sees the cash remaining within the family unit and wants to avoid creating a costly loophole. It’s a tough issue—there is an issue of discrimination against family business. In fact, NDP Deputy Finance Critic Guy Caron has prepared the private member’s bill C-274 to address the “unfair treatment” of family transfers.

But financial planners tell us that Canada’s tax code is actually quite generous. If you set up a family trust, an estate freeze or other tax strategies, it’s possible to minimize your tax bill substantially. The problem is that this must be done years in advance.

The second big challenge is financing the succession. It can take years to find the right buyer with deep pockets to buy-out the retiring owner. Again, a lack of planning can force owners into a fire sale situation, and potential buyers need time to raise funds.

The Canadian Chamber recently passed a resolution asking that government small business financing programs be expanded so that potential buyers can access the funds to buy-out a retiring owner. It’s a great idea.

We sometimes focus exclusively on supporting start-ups, but it’s just as important to ensure the continued success of existing businesses. Consider the perspective of an entrepreneur: you could create a new idea from scratch, seek out customers who have never heard of you and hope against the odds to turn a profit. Or, you could take over a company that has been in business for decades, with a loyal customer base and a track record of profitability.

The point is that it takes years to plan, finance and implement a successful exit strategy—on top of the training and mentoring to prepare the business itself for transition.

That is why chambers and business associations must do more to encourage members to start early and create robust succession plans. Financial institutions and government agencies also must help fund the next generation of managers and owners. But it’s a big challenge for business and for the Canadian Chamber. If you have views on succession planning and/or on bill C-274, please email or give me a call.

For more information, please contact:

Hendrik Brakel
Senior Director, Economic, Financial & Tax Policy
613.238.4000 (284) | hbrakel@chamber.ca

Share this:

Greater Niagara and Ontario Chambers of Commerce call for a free market in recreational marijuana

September 18, 2016 | Media Releases

In partnership with the Greater Niagara Chamber of Commerce (GNCC), the Ontario Chamber of Commerce (OCC) has appealed to Premier Wynne to reject an LCBO-based model for the distribution of recreational marijuana, and to open the market to regulated, private-sector distributors and retailers.

The GNCC is spearheading this initiative, and successfully proposed a policy resolution at the OCC’s 2016 Annual General Meeting which led to the issuing of this letter.

On September 18, with the support of the Windsor-Essex and Abbotsford Chambers of Commerce, the Canadian Chamber of Commerce also adopted the GNCC’s policy platform on recreational marijuana, and the national Chamber will make this an advocacy focus for the federal government.

With the Trudeau government’s election platform having included marijuana legalization, and with that government’s working group currently researching legislation to be introduced next spring, the legalization or decriminalization of recreational marijuana is a foregone conclusion.

The GNCC hopes that this multi-billion-dollar market will not be closed to entrepreneurs and innovators.

The GNCC and the OCC have called for limits to points-of-access, reinvestment in addiction prevention and treatment, and other measures designed to safeguard the health of Canadians.

The Chambers also ask that municipal governments be given a voice in licensing, and that the siting of production, distribution or retail facilities for recreational marijuana only be done in municipalities that have consented to it.

However, they do not believe that granting a monopoly on the industry to the LCBO or a similar, government-run organization would be in the best interest of Ontario consumers, the public, or business.

The LCBO functions as a barrier to entry for entrepreneurs and businesses in the alcoholic beverage industry. This out-dated model has hamstrung Niagara’s wineries, breweries and distilleries for nearly a century, slowing job creation and economic growth.

Applying that same model to a brand-new legal industry is poor policy, argues the Ontario Chamber network.

A free-market model has been proven, countless times, to deliver the best in product quality and consumer choice. With sound regulation, consumer health and safety can be preserved while still enjoying these private-sector benefits.

The sudden emergence of a new, legal market will transform what was criminal, black-market activity into jobs, economic growth, tax revenues, and more.

It is important that the governments of Canada and Ontario get this right the first time, and make the most of this opportunity for Canadians and Ontarians.

Quotes:

“Healthy and safety are top-of-mind for us, but we believe that they can be safeguarded within a free-enterprise model that delivers choice and competitive pricing to consumers, and encourages entrepreneurship and innovation.”

— Mishka Balsom, President & CEO, Greater Niagara Chamber of Commerce

“It is not our place to take a position on the legalization question. At the Chamber, we simply hope that when this decision is made, the government will only regulate so far as is necessary for consumer protection, and will not simply award itself another monopoly.”

— Ian Kowalchuck, Chair of the Board, Greater Niagara Chamber of Commerce

-30-

September 14, 2016

Dear Premier Wynne,

In light of recent commitments from the Federal Government, the OCC is calling on the Province to immediately begin a robust consultative process aimed at developing a regulatory framework for the distribution of recreational marijuana. Our membership has expressed interest in this issue and the impact it will have on businesses and communities across the province. Appreciating that issues of jurisdiction remain uncertain, we nonetheless think it important that Ontario be proactive in its policy planning in this area.

As input into the Government’s deliberation on marijuana policy, the OCC would like to stress that social responsibility must be the first and overwhelming priority of any distribution system. Members of the business community will not accept a regulatory framework that puts additional pressures on community health and safety. Nor will the business community accept a system designed to maximize government revenue.

As you have rightly signaled, a true commitment to social responsibility demands an openness to studying and perhaps piloting various distribution models. We believe that a private-sector, licensing-based, and locally-oriented approach is one worth seriously considering. Whether it be the construction and maintenance of universities and hospitals or the delivery of transactional services, the Ontario Government has a long and proud history of working with the private sector to implement programming. A distribution system as complex and sensitive as the one required for recreational marijuana may demand a similar level of partnership. We would encourage government to adhere to the following principles in the process of policy design:

  1. Eliminate the underground economy: Research on the social benefits of moving marijuana production and distribution out of the underground economy and into a regulated market is well established. This is the major benefit of legalization. However, not all market-models are equally effective in eliminating the underground economy and, thus, special attention should be given to the unintended consequences of an overly regulated regime. While not endorsing an entirely free-market model, we caution Government against creating a system that is so onerous that it effectively duplicates the existing ineffective regime thus sustaining illegal channels for production and distribution.
  2. Limit points of access: We believe that critical to achieving the objective of social responsibility is a commitment to limited points of access for recreational marijuana. We do not believe, however, that limiting access is synonymous with a government operated distribution system. A licensing system, whereby a fixed number of access points are auctioned out to both the public and private sectors—including unions—may be a more efficient model of regulated delivery. Creating service delivery competition, structured by best-practice social responsibility standards, may create a virtuous ‘race-to-the-top’ whereby potential delivery agents are incentivized to be innovative in their application of social responsibility principles. This type of innovation will be particularly important in the first phase of marijuana policy implementation and thus Government may want to consider piloting multiple procurement models.
  3. Communities must be empowered: In addition to social responsibility, transparent and representative decision-making should be a key priority for government. With respect to both sites of production and sites of distribution, municipalities should have a voice in the approval process. In the case of a licensing model, for example, licenses should not be issued for communities which have voted against production or distribution facilities. As the province develops its marijuana policy, local government should be engaged so as to design an approvals process that is democratic.
  4. Invest in addiction prevention and treatment: Insofar as the Province generates net revenues from the legalization of marijuana, the entirety of these revenues should be invested in addiction prevention and treatment, with a portion given to the municipal level of government so as to ensure programming is tailored to local need. A process should be established whereby the Government reports annually to Ontario’s Patient Ombudsman on use of marijuana revenue and the impact of investment on addiction prevention and treatment.
  5. Ensure products are subject to best-practice health regulation. The province must work with the federal government to study the health implications of recreational marijuana and develop evidence-based health and safety regulations. Consumer safety, as part of a broader concern for social responsibility, is paramount, especially in the case of Canadian youth.

Though not an exhaustive list, we believe the above principles should form the backbone of any provincial recreational marijuana strategy. We look forward to working with the Government on this issue and encourage the Province to engage a broad group of stakeholders when designing the regulatory framework.

Thank you,

Allan Odette

Allan O’Dette
President & CEO
Ontario Chamber of Commerce

Cc:
Hon. Eric Hoskins, Minister of Health and Long-Term Care
Hon. Charles Sousa, Minister of Finance
Hon. Yasir Naqvi, Attorney General
Hon. Bill Mauro, Minister of Municipal Affairs
Gary McNamara, President, Association of Municipalities of Ontario

 

The Greater Niagara Chamber of Commerce is the champion for the Niagara business community. With almost 1,600 members representing 50,000 employees, it is the largest business organization in Niagara and the third largest Chamber in Ontario. The Chamber Accreditation Council of Canada has recognized the Greater Niagara Chamber of Commerce with its highest level of distinction.

For further information, contact:

Mishka Balsom
President & CEO
Greater Niagara Chamber of Commerce
905-684-2361 ext. 227 or mishka@gncc.ca

Share this:

Speech from the Throne Expands Industrial Conservation Initiative and Provides Relief for Electricity Ratepayers

September 12, 2016 | Network News

Ontario Chamber of Commerce

OCC Rapid Policy Update

Following today’s speech from the Throne, the Ontario Government recommitted to jobs and growth as their top priority. They also confirmed that next year’s budget will be balanced, delivering on the Government’s promise to eliminate the deficit by 2017-18. Previously announced investments in childcare, tuition reduction, skills training, and healthcare, were echoed. As were investments in the Business Growth Initiative, Jobs and Prosperity Fund, and the Climate Change Action Plan.

The most important announcement in today’s speech from the Throne for Ontario’s business community is the expansion of the Industrial Conservation Initiative. As we have learned through the Ontario Energy Report, Class A industrial ratepayers have a relatively competitive rate with jurisdictions where Ontario does business. However, Class B ratepayers are much less competitive and have been falling further and further behind.

One of the reasons Class A rates are so much more competitive is because, since 2011, they have been eligible for the Industrial Conservation Initiative which incentivizes the shifting of power away from peak days.

With this Throne Speech, the government has announced that the Industrial Conservation Initiative will be expanded so that any company that consumes more than 1MW will be eligible. Presently, 300 companies are enrolled in the program which has saved the grid 800MWs through conservation – relatively the size of two gas plants.

After today’s announcement, another 1000 companies will be eligible. By simply enrolling in the program, those 1000 companies could each save 14% on their bill. Depending on their ability to reduce peak electricity consumption, they could save up to 34%.

Today’s announcement is the culmination of significant advocacy from the Ontario Chamber of Commerce, including our 2015 report Empowering Ontario. The government is listening and today’s announcement indicates that change is coming. While we are pleased with this policy change, we know that many issues are impacting rising energy bills. That’s why we need to continue to encourage a transparent dialogue around what is impacting the price of electricity in Ontario.

Further details will be announced by the government in the coming days and we will provide you with that information as it becomes available. For further information about this, please contact: Karl Baldauf.

Share this:

President Clinton, Canada, and you

August 15, 2016 | Advocacy, Blog

Last week, we looked at the (unlikely) possibility of Donald Trump winning the presidential race, and what that would mean for Canadian business. If you haven’t read that article, I recommend you do so first – we’re going to reference a lot of policies and statements from that one here.

It’s far more likely that we’ll see the election of Hillary Clinton in November, with Nate Silver’s FiveThirtyEight blog currently showing that, if the election were held today, Clinton has an 89 per cent chance of victory.

Since we’re almost certain to have a President Clinton in 2017, and not a President Trump, what would that mean for Canada and Canadian business?

Bill Clinton originally signed the North American Free Trade Agreement, or NAFTA, in 1993. When taken as a continuation of the Canada-U.S. Free Trade Agreement, it has more than tripled the value of our exports to the United States. Trump, as we noted last week, disagrees with the solid economic evidence that NAFTA has greatly benefited all participants, and argues that the United States has become an economic whipping boy thanks largely to these agreements.

Hillary Clinton has also recently been more skeptical about NAFTA, recently stating that the agreement should be “adjusted,” which is still probably better than Trump’s plan to scrap it altogether. However, while she was First Lady, she supported it as her husband signed it into law. This is not the only issue on which she has reversed her stance.

The Trans-Pacific Partnership, or TPP, is another trade agreement that Clinton has changed positions on. This is a (potential) free trade agreement that would be of enormous net benefit to a dozen countries around the Pacific Ocean, including Canada. As Secretary of State, she praised the agreement as something that would “create new jobs and opportunities” and “set the gold standard in trade agreements” in 2011-12. By 2014, she was “reserving judgement,” and by October of this year, she was “not in favour.”

Clinton has had many reversals and flip-flops. Notable examples include the Iraq war, where Clinton voted in support of the Bush administration’s plan in 2002, but had changed her position to one of opposition by 2006 – although an acknowledgement of error and an explanation did not come until 2015. Between the late 1990s and mid-2000s, she also stated several times that she believed marriage should only be “between a man and a woman” – a position she reversed in 2013, coming out in support of same-sex marriage after more than a decade opposing it.

Political changes of position are not necessarily bad. Her opponents say that they show Clinton as unprincipled and simply a follower of whatever polls and focus groups say is most popular right now, but a politician who is closed-minded, believes they already have all the answers, and is impervious to new information is just as bad. Her policy reversals are certainly nowhere near those of Trump, with his trademark flip-flops of whiplash-inducing speed and severity – and his brazen lies about them after the fact.

Whatever the case, however, it should be clear that Clinton’s rhetoric may not be indicative of her actual policy, and that even now, in her current anti-free-trade mood, her language is still guarded and seems calculated to give her room to climb down once she moves into the White House without losing face.

So what are the odds of a NAFTA “adjustment” or a U.S. failure to sign the TPP actually happening? Probably not strong. NAFTA-bashing is pretty popular for politicians on the campaign trail, but once in office, they usually move on. Chrétien promised to renegotiate it in 1993, but once elected, never got around to it. Obama made quite a few anti-NAFTA statements on the campaign trail in 2008, but in office, he not only left NAFTA alone but supported the TPP. Clinton’s voting record as a senator is strongly in favour of free trade.

Clinton’s turnaround on free trade could be an attempt to appeal to Sanders supporters, who generally oppose free trade, and pick up their votes. If so, the strategy may be working – the Pew Research Centre reports that 90 per cent of Sanders supporters plan on voting for Clinton. Clinton’s changes of heart on these and other issues would give a skilled opponent ample ammunition in debates. It’s becoming increasingly obvious that she doesn’t face one, though, as Trump’s antics veer from erratic to outright criminal.

Unlike Trump, Clinton is opposed to Keystone XL. Previously, she had avoided taking a position, but in 2015, echoing the Obama administration, she came out in opposition. The pipeline would be of economic benefit to Canada, and the Trudeau government backs it, but in Niagara, far away from the oil patch, we’re unlikely to see much difference in the local economy either way. If she is elected President, the pipeline deal will probably not go ahead.

On everything else, Clinton is really a status-quo candidate. Politically, this is a smart choice – when comparing her with the gong show currently being held in the GOP, many voters will opt for the slow-and-steady approach that a prospective Clinton administration offers. What we can probably expect is mostly a continuation of Obama-style governance and policy. On balance, that’s not a bad thing.

Share this: