![['Erin McGrath-Gaudet, director for P.E.I. and intergovernmental policy, Canadian Federation of Independent Business, says business trends for 2015 are showing some reasons for optimism.']](https://saltwire.imgix.net/erin-mcgrath-gaudet-2856295.jpg?cs=srgb&fit=crop&h=568&w=847&dpr=1&auto=format%2Ccompress%2Cenhance)
BY ERIN MCGRATH-GAUDET
GUEST OPINION
In certain circles, cutting taxes is often scoffed at with derision. In some cases, the reaction is ideological, preferring for government to tax and spend. For others, it is that they see gaps they believe government spending could fix. For small business owners, the news P.E.I. will once again be moving to trim taxes, including another reduction to the small business tax rate, couldn’t be more welcome.
In fact, such cuts will help to offset some of the other increases coming in 2019 such as Canada Pension Plan premium increases and additional fuel taxes coming from the province’s carbon pricing deal with Ottawa.
It is no secret that P.E.I. is considered a high tax jurisdiction. Years of deficit spending meant that discussions around tax competitiveness often played second fiddle to how government could maximize revenues in the short-term. Cutting taxes with the hopes of spurring economic growth was a leap of faith that many were hesitant to make.
Considering how global the marketplace is for many of our key industries, these high taxes have made it hard to compete against companies from lower-taxed jurisdictions. Not only do higher taxes raise prices but they also leave businesses with less to invest in their operations and people. It also does little to encourage businesses to relocate to our Island if they know they can have lower costs elsewhere.
With our economy now doing better than we have seen in quite a few years, and government revenues clearly benefiting from that increased economic activity, it is the perfect time for government to start looking at making our tax system more competitive. In part, it’s a matter of fairness considering that tax increases were often sold as being necessary to slay the deficit.
But more than that, it is an opportunity for us to consider how we can set our economy up to be stronger in the future and a stronger economy means supporting small businesses to invest in their operations and people.
When people think about economic development, government programs and incentives often come to mind. But these programs often don’t connect with the reality of smaller businesses so uptake amongst typical small businesses tends to be low. To make investments in their businesses, small business owners most often rely on their own revenues and profits and tax saving give them more leverage to make those types of investments.
In a recent CFIB survey with Island entrepreneurs, the top two ways business owners said they’d use tax savings were to purchase new equipment and increase employee wages. Both are obviously good for the economy and help set the Island up for future growth. And, of course, that growth further fuels government revenues and prosperity for all Islanders.
Recent history is full of examples of governments that squandered good economic times by ramping up spending that could not easily be rolled back when rainy days hit. If we want fiscal sustainability that will last longer-term rather than just an economic cycle, a competitive tax system that encourages business investment and economic growth is crucial. While these recent changes are not a dramatic overhaul of the tax system, they do represent a good move in the right direction.
- Erin McGrath-Gaudet, director, P.E.I. & Intergovernmental Policy, Canadian Federation of Independent Business (CFIB)
