Policy Matters: How Big Policy on Taxes, Trade and Labour Affects Small Businesses

Given the prevalence of small business in our economy — almost 98% of all firms in Canada have 99 employees or less — it makes sense that any big federal policies related to taxes, trade and labour would ultimately affect the everyday operations and long-term success of small business. The strength of this community in Canada not only impacts the 70% of private sector workers it employs, but every other Canadian too.

So, in honour of October being Small Business Month, here are four ways that government policy on taxes, trade and labour can affect small business in Canada.

Reducing corporate taxes promotes business growth

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According to a 2024 report from the Business Data Lab, taxes and regulations are among the top three input costs that are causing difficulties for small businesses at a time when businesses and Canadians alike are struggling with affordability.

The government’s strategy of relying on tax-and-spend policies has resulted in new corporate taxes and added to the already complex tax system that is undermining business investment and innovation opportunities. Canada needs a simple, fair, and principled tax system that works in the best interests of everyone. A recent article by Wealth Professional reported that businesses would use savings made from a reduced tax burden to compensate employees, pay down business debt and expand the business. 

Offering tax credits incentivizes innovation

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Investment tax credits can lower the cost of investment, encouraging businesses to expand and modernize their operations, leading to more products being made, more technology being adopted, and more jobs being created.

These sorts of tax credits would be especially beneficial in industries such as agriculture (99.3% of all businesses in the sector are small businesses), manufacturing (93.1%), and natural resources (95.3%) that have the potential to contribute even more to our economy, thus improving the standard of living for all Canadians.

Prioritizing trade infrastructure and supply chains keeps goods moving

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In 2021, small- and medium-sized enterprises contributed 42.7% of the total value of exported goods. This goes to show that Canadian small businesses need to be able to reliably import and export goods which requires a) dependable roads, railways, bridges and ports, and b) dependable supply chains.

Trade infrastructure and supply chains work hand in hand. By building and maintaining trade infrastructure that reliably and efficiently transports goods to and from market, government can help create domestic and international trade corridors that solidify supply chains and allow small businesses to contribute to our trade and economic growth. Long-term government investment in a Canada Trade Infrastructure Plan and new dispute resolution tools, including the authority for the federal cabinet to compel binding arbitration in sectors that are critical to Canada’s supply chains, are two policy measures needed for this outcome.

Creating a strategic immigration plan helps keep businesses staffed

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Small businesses especially struggle to recruit qualified and skilled employees. According to the Business Data Lab’s most recent CSBC report, in the next three months, 50% of small businesses with 20-99 employees and 42% of small businesses with 5-19 employees, expect this specific labour challenge — which is well above the national average of 30%.

Sweeping changes to Canada’s immigration strategy, as seen this year, will severely impact the availability of workers for small businesses, particularly in rural communities. Our immigration strategy needs to align with regional and sector-specific demands.

Regional programs characterized by the active involvement of local communities and employers, such as the Atlantic Immigration Program and the Rural and Northern Immigration Pilot, have proven to be an effective way to address local labour gaps and regional mismatches. And issuing more study permits and longer post-graduate work permits for international students enrolled in high-demand programs and fields like healthcare and construction (both with a high percentage of small businesses) would be a significant way to better align skills with labour market needs.

Establishing national credential recognition

In 2023, an estimated 34,000 businesses considered hiring individuals with a professional certification or industry license from another province or territory but didn’t. Why? Because what is considered safe or mandatory in one jurisdiction isn’t always the same in another, which complicates, delays or even stops the hiring process since workers must attain new accreditations or training before they’re able to work.

In the healthcare and social assistance industry, which is made up of mostly small businesses, 36% of firms expect labour challenges in the next three months. Social workers, chiropractors, doctors, massage therapists, occupational therapists, physiotherapists and psychologists are all provincially regulated professions, meaning that if they wanted to work in another province, they would have to go through a lengthy and sometimes expensive application process for a different license.

Putting the onus on governments to say why they refuse to recognize another jurisdiction’s standards will let small businesses recruit qualified workers no matter where in the country the business or potential employee is.

The big policy decisions government makes always filter down to the small business community. Since Canada and Canadians rely on these businesses, it’s critical that this sector is given the tools and programs needed to be successful — resulting in more jobs for Canadians, more and better products and services for customers, and more trade with our international partners.

Coming Up

On October 23, join us for Scaling for Success, a free 90-minute webinar hosted by the Business Data Lab. This event will give entrepreneurs, investors and policymakers insight on the pool of small businesses that are scaling and scalable in Canada. Part presentation, part panel discussion, this event is perfect for entrepreneurs looking to scale their businesses and wanting to learn from those who have already successfully grown their operations.