Tea time for tax spiral?

Blake Doyle
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Most small business owners like to keep their head down focused on business while scraping away to try and keep things moving forward. When times are difficult this focus is ever more important, and sensitivities to encumbrances becomes more pronounced. When times are good, it is easy to overlook some irritants.

Today, times are tough. Few business owners focused on the local market would dispute this. In fact, recent economic indicators validate this reality.

From February 2014 to March 2014, the provincial unemployment rate is up, but more importantly there are fewer people participating in the labour market. For employers, this shows a shrinking pool of candidates to hire from and for job seekers it shows that many have given up on the search for work.

Inflation is also on the rise. The inflation rate, or Consumer Price Index (CPI), is up between February and March of the current year and between March 2013 and March 2014, P.E.I.’s inflation rate is double the national average.

In other words, costs are increasing at a rate twice as great as the national average.

Rising CPI is generally a signal of strong economic performance; in this instance it is more a function of higher energy costs (electricity, gas, oil), which are business input costs and result in an increase in retail prices or reduced business profit.

Energy increases can be adapted to. Frustration intensifies when paralleling these economic factors with taxes and fees tied to CPI. Having just opened my property tax bill these CPI-tied increases are presently top of my mind.

There is currently a ‘tax multiplier storm’ of increased input costs, increased taxation and slowing economic conditions. This is a spiral compounded by the collective impacts of the current environment.

Tying CPI to taxation is not a policy without logic. There is no appreciated model to justify tax increases; CPI at least affords policy makers a buffer from the decision process. This I can understand. It can also be argued that taxation is necessary, but expense management must be considered as an alternative to tax increases. Tax spirals cannot be tolerated in perpetuity.

My philosophical opposition to this tax spiral is the timing. The collective impact of HST implementation, significant small business tax increases and taxes/fees tied to inflation are crippling.

In 1773, the citizens of Boston dumped tea into the Boston harbour as a sign of protest over increasing colonial taxation. In recent years movements borne of tax frustration have also started steeping back into our culture. Special interest fragmentation is not warranted, but a general education on the economic consequences of excessive taxation may be needed.

There remains only one ratepayer for taxation. Business can be targeted in the short-run, but tax consequences will always be transferred to the individual citizen. It may be time for citizenry to reconsider our expectations versus what is affordable and achievable, because the tax spiral is not sustainable.

Blake Doyle is The Guardian’s small business columnist. He can be reached at blake@islandrecruiting.com.

Geographic location: Boston

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