As federal budget approaches, RSM says businesses want less complexity

07 March 2019 Consulting.ca

Ahead of the Canadian federal budget tabling, which sets yearly key policy imperatives and programs, mid-market accounting and consulting firm RSM Canada hopes the government will plan to reduce regulatory complexity while introducing other business-friendly measures.

The federal government’s election year budget will be unveiled by Finance Minister Bill Morneau on March 19. Some of the key measures expected to be included are a new prescription drug coverage plan to cover gaps in the current system – under which patients spend approximately $3.6 billion annually – as well as housing measures focused on younger buyers.

Slowing growth and reduced rents from slumping oil prices, however, mean Prime Minister Justin Trudeau’s Liberal Party has little room to introduce much new spending.

The government last year announced $14 billion in corporate tax cuts over the next six years, while also projecting a deficit of $76.8 billion over the next five years. Though businesses and fiscal conservatives are attempting to hold the government’s feet to the fire over a campaign promise to balance the budget, Morneau has maintained that there is no rush to balance the budget while the debt-to-GDP ratio stays below a certain level and continues to decline. As federal budget approaches, RSM says businesses want less complexity Ahead of the budget announcement, RSM Canada, speaking on behalf of the middle market businesses it serves, is hoping the government will address three key issues: competitiveness with global markets, regulatory complexity, and fiscal responsibility.

With the external market pressure of US tax reforms and the predicted global economic downturn, RSM Canada has said mid-market firms are feeling the heat. The Business Council of Canada (BCC) echoes these concerns about competitiveness. "Budget 2019 is an important opportunity to introduce measures to help Canada reach its full potential while preparing for the next downturn," Goldy Hyder, BCC president and CEO, wrote in a letter addressed to Morneau.

While the BCC is pleased about last fall’s announced $14 billion in corporate tax cuts, the council wants to see a long-term commitment to “competitiveness." Analysts believe the upcoming budget will focus on skills and training as the effects of automation and other emerging technologies reshape the needs of the Canadian labour market.

RSM also believes the budget should include measures to reduce complexity foster innovation. Digital and e-commerce firms are finding it difficult to grow and navigate through Canada's tax system, which is tailored to traditional brick and mortar companies.

The BCC believes the budget should address what it believes to be a broken regulatory system. A survey the council conducted found that two-thirds of CEOs canceled, postponed, or scaled back projects due to excessive or inefficient regulation. The country’s regulatory framework shouldn’t be impeding new investment, the BCC said.

RSM and the mid-market business with which it works would like to see a recommitment to fiscal responsibility, with a “proper mix of income tax and consumption taxes to prevent further burden on individuals and companies that are already paying higher taxes to cover deficits and spending.”

The firm admits that a balanced budget isn’t realistic in the near future, especially as the looming economic downturn will likely prompt an infusion of stimulus spending, but RSM would prefer to see a tighter timeline than the current forecast for a balanced budget by 2040.

"With rising interest rates and the overall slowing of the economy, Canada's middle market businesses are concerned about growth prospects in 2019,” Maria Severino, national tax leader at RSM Canada, said. “More specifically, the impact of the US tax reform is being felt by Canadian enterprises, while complex tax legislation is making it hard for innovators to thrive and grow here at home. On top of that, it now looks like Canada's Budget won't be balanced for at least a couple decades, so we're really hoping the Finance Minister will address some of these issues in the Budget."