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Small Business Tax Cut Won’t Mean More Jobs, Says Analyst

Sector’s role in employment growth smaller than claimed, says Michael Wolfson.

By Jeremy J. Nuttall 18 Oct 2017 | TheTyee.ca

Jeremy J. Nuttall is The Tyee’s reader-funded Parliament Hill reporter in Ottawa. Find his previous stories here.

A reduction in the small business tax rate announced this week won’t help create jobs, says an Ottawa academic and former assistant chief statistician with Statistics Canada.

Michael Wolfson, an adjunct professor at the University of Ottawa, said claims that small business is a major job generator aren’t backed up by the evidence.

Wolfson presented a paper to the Senate committee on finance earlier this month on planned changes to tax rules for personal corporations, increasingly used by doctors, farmers, small businesses and others to reduce the taxes they pay.

Wolfson said his review of Statistics Canada data shows small business is not the “economic engine” its advocates claim.

“The evidence over the last 15 years is sorry, no,” he told The Tyee.

After months of controversy over plans to close tax loopholes for private corporations, the Liberal government announced it would be cutting the small business tax rate to nine per cent by 2019. It is now 10.5 per cent.

Finance Minister Bill Morneau pointed to job creation as a benefit of the cut.

“We will make sure this small business rate is effective in encouraging businesses to grow, buy new equipment and hire more workers,” he said in a news release.

But Wolfson said the evidence shows such tax cuts won’t make much difference in job creation. The cuts will cost the government $2.9 billion in revenue over five years, the finance department says.

Wolfson’s presentation to the Standing Senate Committee on National Finance noted there are more than one million businesses in Canada with no employees.

His research found there are about 1,000 times more firms in Canada with less than 50 employees than firms with 500 or more. But the two groups employ roughly the same amount of people and increase or reduce employment at the same rate.

“Small firms did not create any more jobs than big firms did,” Wolfson said. “Whatever small firms created or lost, big firms created or lost.”

Employment in smaller businesses is much more turbulent as well, he said, and employees rarely get benefits.

Dennis Howlett of Canadians for Tax Fairness said the tax cut is more about politics than the economy.

Howlett said small business have been seeing tax cuts since 2000, “but that has not resulted in any increase in employment.”

He said unless the federal government tweaks the tax cut to apply only to companies employing three or more employees it won’t have much impact on job creation.

A focus on cuts for medium to larger businesses would also have an impact on the quality of jobs created as larger firms tend to offer benefits, he added.  [Tyee]

Read more: Politics

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