KPMG in Canada says medium-sized business owners need targeted incentives to support post-Covid recovery
As Canada looks to make its way out of the Covid-19 pandemic crisis, all eyes have been on the Bank of Canada. Earlier this month, the country’s central bank officially set off on its rate-hike path; while many say the BoC was behind the curve considering the multi-decade high levels of inflation, others are more concerned that the increase will derail the country from its rocky road to economic recovery.
That’s not the only balancing act federal policymakers have to pull off. According to Dino Infanti, National Leader of Enterprise Tax for KPMG in Canada, the government is also facing a dilemma with respect to fiscal and tax policy.
“Canada has emerged from COVID with an immense amount of debt, so that’s a concern,” Infanti told Wealth Professional. “And to address that debt, government needs to generate a significant amount of revenue and carefully consider further economic stimulus spending.”
Canada’s national debt stood at $1 trillion as of December 2021 compared to $721 billion the year before. That was largely a consequence of the pandemic support programs rolled out to help workers and businesses that were either shut down or had to cut back operations drastically to stay in line with public safety measures.
In a recent survey of 508 medium-sized businesses, which polled business leaders on the measures they would like to see in the upcoming federal budget, KPMG in Canada found that 88% tapped government programs for assistance during the pandemic.
“It depends on the business and sector, but many of them are hoping that relief will continue so that they can continue to survive or rebound fully,” Infanti said. “Whether the government is willing to extend existing deadlines for targeted relief programs is another matter, however.” Seventy-eight per cent said their company needs government relief programs to make it through; even more (86%) agreed that government relief programs targeted at the hardest-hit businesses and people shouldn’t be wound down just yet.
There’s certainly reason for concern. Even as pandemic measures are relaxed, it’s too soon to say that the threat of Covid is behind us; the inflation and supply-chain issues it caused continue to weigh on the global economy.
Beyond that, a 90% majority of business owners expressed concern about how the military conflict in Ukraine will impact the economy, their industry, and their company. Nearly as many (89%) said they need to rapidly shift investment toward digital operations and divest businesses that face digital obsolescence.
“A number of business owners indicated that their industry is going to be turned upside down,” Infanti said. Among the survey respondents, 82% said their industry is headed for a major shakeup, and they will require government support to invest in emerging or disruptive technologies.
Against this backdrop, 91% of business leaders at Canadian medium-sized businesses believe there should be more tax incentives and credits available for businesses to expense investments in innovation, digital transformation, and research and development. Such measures, they argue, will be crucial in migrating toward e-commerce platforms, building or procuring enterprise software, investing in automation, developing patents, and other activities.
However, an equal 91% share of respondents aired concerns that the government will impose higher taxes on businesses to pay down the deficit and national debt. Ninety-two per cent, meanwhile, were concerned that governments will raise personal and business taxes, effectively creating a drag on consumer demand, wealth creation, and economic growth.
“Business owners are mindful that potentially higher taxes will impact their ability to allocate capital to invest in equipment, technology, and people,” Infanti said. “Despite the challenges in the broader economy and their industry, 95% of the business leaders we polled said they were very confident in their business’s growth prospects.”
Shortly after the survey was released, the federal government announced plans to allocate $4 billion over four years to help small and medium-sized businesses to ramp up their efforts at digitalization. Under the Canadian Digital Adoption Program, 160,000 business owners will be given access to loans and grants that would allow them to invest in e-commerce platforms, technologies to increase operational efficiency, and other technological initiatives.
The program could prove to be a valuable lifeline to many businesses. Still, it might be slightly off the mark: in the KPMG survey, the majority of respondents agreed the upcoming budget should feature highly targeted relief programs, prudent stimulus spending, and modern tax policy to support Canada’s growth.
“It's important that Canada continues to be competitive at the global level,” Infanti said. “Business leaders are concerned that upcoming tax changes will inhibit the economy, when what they want is a holistic long-term kind of approach to really boost growth and innovation.”
