The small business pander: Please pass the zantac

The Telegraph-Journal has clips of the NB political party leaders talking about how they would foster job creation and it is awash in pandering to small business.  They all want to get back to the good old days supporting the hard workin’ small business guys /gals around this province.


For twenty years I have been trying to convince politicians to take a more nuanced and intelligent view of the role of small business, big business, local investment, national and international investment and understand how they come together in a successful business ecosystem.

To no avail.

Despite overwhelming evidence, they revert back to the old tripe of putting the small business owner on a pedestal and demonizing the evil big business.

I realize the 40,000 small businesses in this province are far more active in local politics than the general public and I realize they are big contributors to political parties and I also realize they have a very good reputation among the general public – all reasons why politicians pander to them.

But that doesn’t necessarily make for good public policy.

Dominic Cardy wants to eliminate the small business tax.  When Bernard Lord did that more than a decade ago the number of people employed by small businesses declined (remember correlation doesn’t equal causation).  The only thing we know for sure is that several thousand unincorporated small business owners incorporated to take advantage of the zero tax rate.  There is no evidence it led to any new economic growth.

Now, I’m not against cutting small business tax as a concept but don’t suggest it will lead to economic growth unless you have at least some data to back that up.  Eliminating all small business corporate income taxes will remove something like $40-$50 million from the tax take or about $1,000 on average per small business.  About the cost of a Starbucks coffee per day during the year.   Even the largest small business would only see a tax cut of in the range of $20k-$30k or so.  Certainly not enough to drive a big increase in investment and job creation.

But more importantly, 95% of these small businesses feed off local markets.  If you give them all a tax cut you have done very little to expand the absolute size of their market so how do you expect this to foster economic growth?

Now, if you want them to invest in technology or productivity enhancements.  Fair enough.   Then make your tax cut contingent on this.  If you want them to start exporting.  Fair enough.  Then make your tax cut contingent on exporting.

Or, if you want to grow the size of the economic pie here then focus your efforts on the 5% that export or on fostering new export-oriented entrepreneurs.

I know I can’t win this argument.   When I have written about this 98 times before, at best it gets ignored and at worst I get emails from highly indignant small business owners explaining why they are crumbling under the burden of small business taxes.  They already pay one of the lowest corporate income tax rates in Canada and they don’t pay sales tax (unlike many of their counterparts around the world).

But I’m the villain in this narrative.

Anyway, I have always maintained that if you really want to help the small businesses you need to do things to expand local markets – foster more immigration, attract/develop export-oriented industries, foster more export-based entrepreneurs, attract national and international capital to the province, etc.   If the CFIB thinks there is too much red tape and other business environmental things, fine.  Take steps to address those issues.  Cut their taxes to the bone too if you want but don’t make this the centre of your economic development plan.

New Brunswick’s real GDP grew by an annual average of $684 million between 1997 and 2006.  Between 2007 and 2013 it grew by an annual average of $85 million – an 88% decline.  This is the main reason why we are running substantial provincial government deficits, why we have the weakest employment growth in decades and why our young people continue to leave the province in the thousands.

What we really want to know is what our politicians think they can do to get $85 million back up to $684 million – which by the way was still below the national average.