Could a Basic Income Guarantee Be Good For Business?

The basic income guarantee (BIG)—sometimes called a basic minimum income, or negative income tax—is hardly a new idea, but it is currently in vogue. National governments in Switzerland and Finland, and the provincial administration in Quebec, are all considering proposals for a minimum income. Most recently, Canada’s federal government invited one of the country’s foremost experts on the subject to discuss it at a pre-budget hearing in Ottawa.

The BIG is one of those rare policy tools that has garnered support from thinkers, activists, and policymakers all across the ideological spectrum—from the late American neoliberal economist Milton Friedman, to Canadian former Conservative senator Hugh Segal, to the centre-right coalition in Finland, to typically centre-left Green parties, feminists, self-identified progressives, even socialists.

Naturally, many people worry about the potential work disincentive, but past studies—including the Mincome experiment in Dauphin, Manitoba in the 1970s—suggest that this disincentive is not as powerful as one might expect, and may be partially offset by human capital gains. (For example, employees might take time to upgrade their skills rather than work menial jobs to make ends meet; new parents might stay home to look after their young children rather than rush off to work.) If designed effectively, a BIG could have beneficial effects on the labour market, the private sector, the overall education level of society, and public health.

It could afford numerous benefits to businesses and aspiring entrepreneurs in particular.

•  Education, skills, and innovation: By providing time for recipients to upgrade their education and cultivate new skills, a BIG could promote both a more dextrous workforce and a better educated society. Visionary individuals would also enjoy more freedom to experiment and hours to invest in long-term projects.

Think of tech pioneers who have spent countless hours tinkering in their garages, refining the latest game-changing breakthrough. A BIG could encourage time-intensive innovation and research, and offer many more creative geniuses the opportunity to engage in it.

•  New commercial opportunities: Pro-business advocates of a BIG tend to emphasize its potential to reduce social program and public health costs, while streamlining administration and bureaucracy. In turn, this could allow the private sector to offer services for which the state had previously assumed responsibility. Many existing businesses could look forward to growth in their customer base, since more people would have disposable income.

•  Easing of downturns: When economic recessions occur, poverty typically rises, and consumers at all income levels tend to cut back on their spending. Businesses watch their revenues drop due to a lack of customers. Managers respond by laying off employees, which exacerbates the problems of poverty and too few customers. A BIG could help to stabilize the situation by dulling the sharp edges of the business cycle, and mitigating various other social ills associated with hard times.

Of course, many practical questions and details warrant policymakers’ attention. How should we finance a BIG? For the purpose of determining who qualifies, how should we define the poverty line? Would it be appropriate to distribute the BIG differently based on cost of living, or could impecunious residents of inner-city Toronto, downtown Vancouver, Dawson City, Iqaluit, Halifax, and rural Quebec all expect an equal supplement? At what age should individuals become eligible? What about new immigrants and asylum seekers? What about people with serious physical disabilities versus those with able bodies—should they receive different income supplements?

Nonetheless, encouraging results from past trials indicate that the BIG is worthy of the serious consideration some governments are giving it.

The Opportunity of a Low Loonie

If you’ve been following Canadian financial news lately, you’ll appreciate that the loonie has been slumping against the greenback. In mid-July, our currency fell to 77 cents U.S., its lowest level since 2009. A number of factors are contributing to this decline, but perhaps the most important is long-term weakness in certain commodities, especially crude oil.

Canada’s economy relies on the extraction of raw materials more than most others in the industrialized world. A slump in commodity prices diminishes the incentive for investment in those sectors from abroad, reducing demand for our currency. The sluggishness of the loonie also explains why we’ve seen a small pick-up in inflation across the country since June, even though Canada is in an economic downturn, the price of oil is still relatively low, and the Harper government has promised to balance its budget despite the slump (all of which tend to put a damper on inflation). A low loonie means that the price of imports into our country, including many food products and manufactures, has risen.

But as you may have inferred from the title of this post, there is good news too: namely, the returns on our exports will also tend to rise, since those exports will become less expensive (and thus more attractive) to foreign customers. Tourism and associated industries may also see fringe benefits, as the prospect of a Canadian vacation becomes more affordable to foreign travelers. In other words, a low loonie translates into business opportunities abroad. If you haven’t done so already, now is a great time to concentrate on online marketing and distribution to foreign markets, particularly the U.S., China, Brazil, Germany, and Australia.

As with any new market, do your homework first.

Is there a demand for your product or service, or an unfulfilled need that you can help to satisfy? Are prospective customers with disposable income willing to shell out for whatever you have to offer? What do you bring to the table that incumbent firms do not?

Before you embark on a venture into overseas markets, you should be able to answer these questions definitively. Getting there simply requires due diligence. Start with some research on the internet, and identify organizations that can help you glean insight into the target market, including government data on income levels and spending habits. Aim to picture your typical client in the target market, the environment in which s/he lives and works, the amount of free time s/he has, and the recreational activities s/he enjoys.

Connect with foreign customers online.

Although overseas branches are nice to have, they’re also a luxury that most small and medium-sized firms don’t enjoy. This is where a robust online presence, including a website accessible in multiple languages, comes in handy. If you don’t have the budget to invest in a sleek, sophisticated website, there’s also a variety of existing online gateways—including eBay and other auction sites—that allow you to 1) broaden your international reach on a budget and 2) dip your toe into the waters of your target market before your dive in.

As the internet increasingly evolves from a stationary, plugged-in medium to a mobile, wireless one, more and more industries are prioritizing compatibility with mobile devices in their website design strategy. You’d be well advised to follow suit as you strive to reach foreign customers.

Choose distributors and payment processors wisely.

Select the most reputable, reliable distributor and most secure international payments system you can find. (Favour dependability even if the price is slightly higher, and investigate the record of candidate distributors and payments processors well in advance.) If customers know they can count on these aspects of your business, they’ll keep coming back, and recommend your company to their friends and associates. But if something goes wrong, even if a subcontractor is to blame, your business’ reputation could be in jeopardy.

For more on how you can take advantage of a feeble loonie, see this piece in the Globe and Mail’s business section by e-commerce expert Cameron Schmidt.           

Will a PQ Minority Government affect the Economy?

 

There’s a new Premier in Quebec and she’s ready to roll up her sleeves and get to work improving the economy with her party’s plans. The Parti-Quebecois (PQ) squeaked by with victory that landed Pauline Marois in the proverbial magnifying glass. However, that narrow victory (54 seats out of 125) isn’t enough to hold sway. In order for truly sweeping changes, the PQ will have to build a strong coalition among the centrists and right-leaning party members. In many ways, that’s good news because it means a level of stability.

McGill economics professor William Watson put the election results in context during an interview for the Huffington Post. "It's not a bad election result (for business)," Watson said. "I think the program will have to be modified somewhat. I think there will be a push towards the left, but not as far as the program threatened." That’s going to be good news for the small business community who weren’t embracing those policies in the first place.

Marois ran on a platform of promising to pay for services by creating two new income tax brackets that taxed income over $130 000 and $250 000. She also wants to boost royalties and taxes on the various mining firms operating in the region. However, the bigger issue on everyone’s mind is a referendum on breaking away from Canada and becoming a separatist country. The last time the PQ was in control (1980 and 1995) they put forth referendums on the ballot but both times they failed. While that issue might be on the dock in the future, Marois states she wants to focus on the economy.

There is a sense among economists that this PQ victory could put a damper on direct new investment but there is no reason to think that established businesses will suddenly pack up and move off. Part of the reason is that minority governments like this don’t tend to last long. That allows for a “wait and see” type approach among investors. Most experts think that the election results won’t have an impact on housing prices as they are likely to remain flat.

The same is predicted for the Canadian dollar. Thanks to Quebec’s pension fund manager, Caisse de depot and the Bank of Canada there isn’t a chance the Canadian dollar won’t be propped up if it starts to drift downwards. Hours after the election the loonie value didn’t budge from its $1.0142 US. That’s a good sign of confidence.

As the reality of a slowly recovering economy settles in for Marois, some of her platform promises might have to be adjusted or jettisoned all together. Michel Poitevin, an economics professor at the University of Montreal, also commented to the Huffington Post about Marois’ platform promises. “Higher top-tier taxes, for instance, might prompt the early retirement of some of the province's most productive workers,” he warned. “Any party that would have been elected would have had to make tough decisions. I guess for the PQ, maybe it's going to be harder internally because of all the promises that they made."

Why Small Businesses are Important for the Canadian Economy

Are you considering starting up or working for a small business? If so, you will be making a strong positive contribution to the Canadian economy. In recent years, small businesses across the country have played a crucial role in stabilizing the often volatile economy in Canada, and there are a variety of reasons why.


Small businesses are job creators. They have helped to create thousands of new jobs in Canada. According to statistics published by Statistics Canada in July 2008, small businesses alone have accounted for 37 percent of new jobs in the private sector between 1997 and 2007. Since 2008, these figures have shown a steady increase.


As of July 2011, 98 percent of all businesses in Canada are now considered as a small business, with 48 percent of the work force being employed by them. According to the July report, there are currently more than 2.4 million small businesses across Canada, a number which will surely increase over the next few years.


Employees of small businesses currently account for more than two thirds of the employment in five major industries:


• Non-institutional health care (89 percent);

• construction (76 percent);

• other varied services (73 percent);

• food and accommodations (67 percent),

• and forestry (67 percent).


These statistics are more than likely to increase, especially if the state of the Canadian economy improves. In addition to contributing to the increase of the country’s employment rates, small businesses are also an integral part of the GDP. Some statistics to consider - in 2006, small businesses made up roughly 23 percent of Canada’s GDP. This figure varied from one province to another, and it peaked at 27 percent in both British Columbia and Prince Edward Island.


Two years later, Saskatchewan’s small businesses accounted for 35 percent of the GDP, while BC placed second with 32 percent. Not far behind in third place was Quebec, with a 30 percent contribution. One of the main reasons why Quebec’s small businesses have made such a significant contribution to the GDP can be attributed to the fact that more than 56 percent of Canada’s small businesses are located in Quebec.


Although small businesses in Canada are important, there is quite a bit of work left to do to make it easy for businesses to succeed. The Canadian Federation of Independent Businesses (CFIB) has released its new report which highlighted four key areas:


• better labor laws,

• reduced taxes to help businesses grow,

• a reduction of red tape,

• and better spending on services for small businesses


Their conclusion is that the government needs to be more involved in order to make it a balanced economic environment for entrepreneurs. With the chaos in financial markets, the strong hand of the government is required to provide a stable platform so that many businesses can succeed. A private/public partnership is required in order to address each of these issues, one that benefits both owners and employees.


Small businesses are currently on the rise, and it is expected that many more will be established across the country in the coming years. Consequently, the more small businesses that exist, the great their contributions to the GDP as a whole will be. So, if you considering starting a small business of your own, there is no better time to do so than now.

Hope on the Horizon for the US and Canada

The news is out – the recession is over! Or is it?

Whatever you read today seems to have a different opinion. Some say that the worst is behind us and we're recovering very nicely, thank you. Others say that we're experiencing a temporary lull before the next storm. Optimists say we can return to our previous standards of living. Pessimists say that we should learn from our mistakes and prepare for the next rainy day.

The truth probably lies somewhere between the two. The fact is that the best of economists will tell you that predicting the future is virtually impossible. Yet, when the figures are checked and re-checked, the recent economic indicators are rather positive. Forget the major "what-if" theories and focus on what's really happening.

Recently released figures for the final quarter of 2009 indicate a growth in the GDP of both Canada and the U.S. In the U.S., the growth is attributed primarily to inventory rebuilding. While some consider that a temporary measure, likely to taper off, others point out that the need for increased inventory is due to resurgence in consumer spending. True, consumers are still spending their money more cautiously but the figures remain positive.

Not just consumers are spending more. Business investments grew by 2.9% in the final quarter, as compared to a nearly 6% drop in the third quarter. Equipment and software investments rose by a whopping 13.3% for the quarter. Also, net exports added to the U.S. GDP, indicating that the Americans are now using their weak currency and high productivity to their benefit in foreign trade.

Back in Canada, economists have re-examined all the figures and are pleasantly surprised that economic growth in the fourth quarter exceeded 4%, well above the forecasts. The Canadian figures continue to rise well, indicating that recovery is progressing.

It's hard to tell but, for the time being, after a treacherous journey, both Canadians and Americans are safely on the way back home.

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Canadian Auto Industry Driving Growth

Cars are a vital part of the Canadian culture, not to mention the economy. The recent recession had a devastating impact on automobile manufacturers and sales in North America. However, with the economy on the rebound, sunnier days are in sight for the Canadian auto industry.

British Columbia and Alberta, the country's westernmost provinces and both with resource – dependent economies, were hit extremely hard when commodity prices took a nosedive during the recession. However, with the demand for natural resources rapidly returning, the economy in the west is improving and car sales will follow suit. Industry experts predict that new car sales in British Columbia will rise by 5% in 2010 and by 10% in Alberta. This is a major recovery following a dismal 2009 ending in sales declines of 15% in B.C. and 21% in Alberta.

Growing consumer confidence in the nation's economy, coupled with global recovery, is expected to fuel positive sales figures across the nation. Projections for the current year anticipate auto sales to climb to 1.53 million units, 10% higher than sales figures for 2009.

Another province expected to contribute to the rise in sales figures is Saskatchewan. Although the province holds the record for the oldest vehicle fleet in the country – average age exceeding 11 years – auto sales are still 12% above the average. In general, growth in the province has exceeded the national average for the last three years.

On the other end of the scale, Quebec is expected to show only a moderate increase in auto sales of no more than 3%. The province currently has more new vehicles per capita than any other province.

Whether the contributing factor is a recovering economy, a relaxation of credit restrictions, or even purchases for the upcoming Winter Olympics, the fact is that Canadians love their new cars and, having weathered the global storm, it's time to go shopping.

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Career Path for an MBA in Canada

It's best to begin with the good news. Overall, on the global level, the Canadian economy is in much stronger shape than the American economy. That having been stated, life is still rather difficult at a grass roots' level, especially if you are a recent graduate of a fine university, clutching the license to a successful career – your MBA.

This is not to say that an MBA degree is unimportant. Just the contrary! It is a degree well worth pursuing, especially if your career vision is targeted in the business or financial sectors. Unfortunately, though, the current employment market is not the most promising for new MBA's. In the finance sector, traditionally the major MBA employment sector, career centres for MBA graduates report a decline in finance jobs ranging from 6% - 16%. In addition, graduate schools have reported a drop of on-campus recruitment of at least 10%. Furthermore, graduates seeking internships have encountered a serious reduction in available placements. Back to the good news, the dip in salaries in Canada was slight, compared to the major drop in 2002. Estimates are that salaries will return to the pre-recession level by late 2010 or 2011. However, if you can't secure a position, the salary is irrelevant.

Recruitment has been on the rise in some sectors, though. More positions requiring MBA's have become available in government, health care, non-profit, and energy. While these sectors comprise a relatively small percentage of all available jobs, it may cause new graduates to begin thinking in different career directions, away from the traditional employment sectors. Also, a growing number of recent grads have turned to entrepreneurial endeavours, as have many Canadians who have been unable to find employment.

Some graduates have begun looking for foreign employment, although the prospects abroad are also not very encouraging. For most, though, they will weather the storm in Canada, hoping for better times down the road because, when all is said and done, there's no place like home.

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Survey: National Salary Increases Less Than 3%

Ever the employee's question, the issue has achieved far more relevance in the current economic climate. No longer is the annual salary increase a matter of form. In fact, many employees were relieved at year's end to learn that they would still be employed for the coming year, let alone expect a raise from the boss.

The truth is that, owing to a negligible inflation rate, even the slightest salary increase will, in reality, contribute to a gain in living standards. Nonetheless, this is not to say that salaries in Canada will not rise this year. The question on many lips is how much?

According to surveys conducted recently across Canada, encompassing a broad spectrum of more than 700,000 employers, Canadians should not expect large increases this year. Estimates average between 2.3 to 2.8 per cent nationally. Although the national average was 2.2 per cent in 2009, caution in the business community is keeping the numbers down, at least for the foreseeable future.

Employees in Saskatchewan are projected to earn 4.1 per cent more this year, due to the province's energy boom. Ontario and British Columbia bring down the national average, as estimates are increases of 2.6 and 2.7 per cent respectively, due to low performance in manufacturing and forestry.

In actuality, many companies across the country have projected zero salary growth for 2010. While this is not set in stone, many employers are waiting to see how the economy reacts over the next few months before making new financial commitments.

Another factor to be considered is the number of employees pulling double workloads to compensate for reduced workforces. Easing these conditions could also be considered to be a benefit.

In this recession, every little bit will help.

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Stimulus Funds in Canada to Become Permanent?

Much has been written these last few months about the effects if the recession, or whatever term one may wish to call the global economic situation since last year. Some countries have weathered the storm better than others. Certainly, Canada, while by no means having fully recovered, is on much stronger financial footing as compared to our neighbours to the south. Experts have attributed many factors to Canada's relative strength. But, putting aside the past, the questions that still remain unanswered pertain to the future.
 

One factor that is contributing to Canadian recovery is the strength of public confidence. As the belief in the stability of the economy grows stronger, the recession and its effects recede that much more. However, what will be if the global economy takes a nosedive once again. Are we prepared for that?
 

The Canadian government has been a major player in managing the recession and orchestrating the country's recovery. A large factor has been the availability of federal funds available through a variety of programs tailored to the various needs of the business community. While these programs were designed as a temporary stopgap to help weather the storm and keep the business sector liquid, government officials are now asking themselves whether it might be wise to make a basis of liquidity permanently available.
 

On one hand, officials see the inherent benefit of providing funds to facilitate the continuous functioning of core markets. On the other hand, researchers for the Bank of Canada are concerned that these "permanently available" funds might induce investors to take on excess risk, secure in the knowledge that there will always be a bail out plan ready.
 

While the debate continues, the government and the central bank have learned that they must maintain sufficient flexibility and readiness to respond to any future liquidity problems.

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Show Me the Startup Money

You have the idea and the knowledge. The desire, drive and ability are there. You're ready to dive into that new business but, alas, you lack the money to start. Where does an entrepreneur secure the necessary start-up capital for a new venture?
 

By far, the easiest source of funds is from family and friends. Roughly 13% of all Canadian entrepreneurs use this route. Keep in mind, though, that family and funds don't always mesh well. It may be a better idea to have a relative or friend co-sign or guarantee a loan, rather than lend their own money.
 

Certainly, the lender with the most available cash is the bank. Unfortunately, though, banks often pose the most obstacles to borrowers. One solution to satisfying the bank's criteria is to apply for Small Business Financing via your bank. This federal program is backed by Industry Canada and guarantees 85% of the value of bank loans.
 

Angel capital may work for you. "Angels" are investors, generally former business executives or entrepreneurs. In addition to their money, they also can offer expertise and contacts. While they are not seeking control of your company, they do expect a healthy return and may wish to take an active role until their investment is returned.
 

It is well worth investing some time and energy to see if any government programs are applicable to your needs. Generally, these programs offer favourable terms and have flexible payment options.
 

Some 22% of Canadians have used credit cards to fund their start-ups. By checking interest rates, some have found these loans to be to their advantage.  Also, as new credit lines with lower rates become available, older loans can be repaid and interest saved.
 

Consider all your options and best of luck in your new business.


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Half the Canadian Labour Force Employed by Small Business

Thinking of opening your own small business? Many Canadians do. Nearly half the Canadian labour force is employed by small business. The question, though, is what the best business choice is. With a veritable plethora of options, choosing the right business is difficult. Also, the shaky economy gives cause for caution. Consumer spending has been reduced to must-haves. This, though, still leaves many business opportunities. Recent studies have listed some of the best business options for 2009.

Repair businesses still have a place in the economy as people prefer to fix something rather than buy new. Clothing, appliances, and automobiles are but a few of the repair businesses that continue to thrive.

Fast food is a major part of the national diet and is most likely to remain a lucrative business for years to come. Believe it or not, chocolate is also big business, despite the difficult times. Chocolate calls to people like no other confection. Find the right niche in the gourmet or specialized chocolate industry and you're on your way.

The ever-growing demand for senior care provides tremendous opportunities. Businesses range from opening a care facility to providing home services. A related industry that is growing is medical supplies, both for personal and commercial use.

Times are tough but dirt is dirt. Businesses still need to be cleaned and the demand for quality commercial cleaning services is high.

Sports are still important, despite the recession. Sales figures show that sales of sports equipment remain strong and Canadians are willing to shell out good money for sports equipment, even if they have to work a little harder to earn it.

Dollars are scarce. Therefore, discount stores provide a strong retail option for consumers. On the other side of the coin, there are those who have defaulted on payments. Collection agencies are opening across the country to help collect debts.

Finally, perhaps motivational speaking is for you. These speakers appear daily, and are quite popular. More than anything, they offer hope to audiences and hope, these days, is in great demand.
 
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Looking for Startup Money?

Money makes the world go 'round. It also gets your startup business up and running. Many a new business venture has failed due to a lack of cash to get the operation off the ground and get through the initial difficult months until the business starts generating revenue. Unfortunately, there are no guarantees as to where you will find the necessary capital. Many entrepreneurs tend to follow a similar path in seeking funds.
 

The most popular place to look is your own pocketbook. Often, people will mortgage their homes or sell property and possessions. Certainly, there is risk involved but business involves risk and personal commitment to the venture is crucial. Of course, "personal" funds may also extend to family and close friends. Most likely, they will be far more supportive than commercial lenders and their terms are likely to be far more favourable.
 

Next in line is your neighbourhood bank. Assuming that you have a creditworthy relationship, this may be the ideal place to secure a startup loan. Also, a line of credit is most important for your business. You may not need these funds initially but they may come in handy down the line.
 

Do your research well. There are numerous loans and grants available for new small businesses from government agencies and business associations. Your local banker or your accountant may be able to help direct you to sources of funds. Similarly, professional organizations may have helpful information.
 

Investors may be the right answer for you. Although many investors prefer to become involved with established businesses, the right idea at the right time may attract investment funds to you. Your business plan should be designed with investors in mind. Be prepared to change the business plan as necessary in order to interest a potential investor.
 

Finally, don't limit yourself to one source of funds. It may be possible for you to finance your startup form several sources. Decide what is best for your needs and don't be afraid to seek advice from professional advisors. 

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Living Week by Week: Rough Economic Times for Canadians

The results of a new poll released this week by the Canadian Payroll Association revealed some surprising statistics and facts about the average Canadian household. A one week delay in receiving a paycheque would render nearly 60 percent of Canadians unable to pay their regular bills. Moreover, the same majority group has little or no ability to set aside money for retirement funds.

These surprising results have shed new light on the financial condition of many Canadian homes during these rough economic times. Despite common financial advice that people should have an emergency cash reserve for three months of expenses, the majority of households surveyed admitted that they are happy if they can make it to the next paycheque, let alone save for retirement or emergencies.

The younger workforce is in greater distress. 45 percent of workers aged 18 to 34 are feeling the crunch and feel that they are having trouble making ends meet. A delay in being paid would spell disaster. 72 percent of single parents responded in a similar fashion.

Regardless of age, the survey revealed that half of all Canadian workers are unable to save more than five percent of their net income for retirement. Financial planners recommend that ten percent is an advisable amount. However, the recent fluctuations in the stock markets have made saving for retirement far more challenging. Nearly one third of Canadians are trying to save more money but they can't. 42 percent admit that they aren't trying at all to save more.

Despite the variety and wide array of financial products being offered to Canadians by financial institutions nationwide, many Canadians seem pleased if they can pay their bills after payday.

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Joint Canada/B.C. Jobs Program

British Columbia has been seriously affected by the global recession. As a province with many communities heavily reliant on resource-based industries such as mining, agriculture and fishing and manufacturing, the job market is in a severe crisis. Responding to the needs of these western communities, the federal and provincial governments have banded together to create immediate jobs and help workers impacted by the recession.

A $14 million investment has been made recently through the Community Adjustment Fund and the Job Opportunities Program. 45 new projects will be funded, creating more than 470 jobs for laid-off resource workers. The projects are endorsed and supported by local communities. The programs are not stop-gap measures but will hopefully create foundations for long-lasting prosperity.

However, this is but one phase of a much larger program. The Job Opportunities Program was first announced in May 2008 with an initial investment of $25 million. In July 2009, the federal government and the B.C. provincial government, both committed to maintaining financial stability and keeping Canadians working during this recession, each committed an additional $30 million to the program. The Community Adjustment Fund, part of Canada's Economic Action Plan, is a two year, $1 billion nationwide program to support job creating projects and maintain employment in rural communities. Nearly one third of the program's funds, $306 million, are being directed to the four westernmost provinces of Canada. The impact of the recession has been felt much more in the west than other provinces across the nation.

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How Canada Prepared for the Crunch

Looking back just a little, the current recession took hold in 2007 when the inflated U.S. real estate bubble exploded. The speed with which the downfall snowballed surprised many but did provide enough time for legislators to take early action. The Canadian government, under Prime Minister Stephen Harper, was one of the first to prepare for the coming financial challenges.

The first step was introducing legislation in 2007 for permanent tax reductions for Canadian homes and businesses. As the recession hit the U.S. in early 2008, these new tax cuts took effect, helping sustain consumer spending and pumping billions of dollars into the Canadian economy. The lower GST is a blessing for individuals who have more of their hard earned dollars to spend. Canadian businesses now benefit from the lowest corporate tax rate among G7 industrialized countries, providing cash for continued corporate growth and creating new jobs.

During the country's strong economic years in 2005-2006, the government wisely reduced the national debt by $37 billion. By entering this recession period with a low debt burden, the government has had flexibility to run a short term deficit and provide funds for job creating investments and other economic stimulus programs.

Another preventive measure undertaken by the Harper government was regulating the mortgage market. The maximum term was reduced to 35 years and a minimum 5 percent down payment is required for government-backed mortgages.

Finally, responding to a cautious banking sector, the government has enacted programs to provide access to financing for consumers, households, and businesses. The government has not replaced private lending but, rather, is working in a cooperative effort with financial institutions to encourage lending and provide a network of guarantees.
 
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Is Canadian Employment on the Rise?

Statistics are like a cat. Rub its fur one way and it purrs; rub the other way and the results are somewhat less positive.

So it is with employment figures released by Statistics Canada for the month of August 2009. Stephen Harper's Conservative government is giving a positive spin to the 27,100 net jobs gain for the month. The announcement triggered an eight-tenth of a cent rise in the Canadian dollar, although higher crude oil prices may also have influenced the dollar's rise. Some leading economists have announced that this is an indication of the end of the recession. All this sounds rather encouraging.

Critics, though, are quick to note that many Canadians are not feeling quite as positive. Most of the new jobs were part-time only. The number of unemployed rose in August by 21,900, bringing the total number of unemployed Canadians to 486,000 since the global financial crunch of October 2008. The decline in the manufacturing sector has continued, although construction has begun to stabilize. Most of the new part-time jobs were in the lower paying service sector. Higher paying, high productivity work fell by 17,300 positions. Full-time work continues to be in a decline.

Certainly, there is cause to be optimistic. As one economist stated, half a job is better than no job. Economic indicators seem to point in a positive direction. But, one month of net growth may be far too early to establish a positive trend. Canada may well be on its way to economic recovery. Nearly half a million unemployed Canadians certainly hope so.

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Government Financing for Small Business

One of the most difficult results of the financial recession has been the drastically reduced amount of credit available to small businesses. Banks have become highly selective in granting loans – the lifeblood of many a business.

An important program in Canada's Economic Action Plan is the Canada Small Business Financing Program (CSBFP). This program is designed to help small and medium-sized businesses access financing. For-profit enterprises with gross annual revenues of $5 million or less may be eligible for loan amounts up to $350,000 and $500,000 for real property.

The CSBFP is administered by Industry Canada in partnership with private sector lending institutions across all the provinces and territories. In total, more than 1200 service locations have been established to facilitate business owners seeking loans. The government does not participate in the lending process, nor does it make the decisions. The final decision is solely at the discretion of the financial institution. However, in order to encourage lenders to make loans that they otherwise might not, the federal government will cover a portion of losses due to default. A lending institution with a portfolio greater than $500,000 will be eligible for reimbursement of losses up to 12 percent of its portfolio's value.

Loans to small and medium-sized businesses are not guaranteed under the CSBFP. Business owners should discuss their needs with a financial officer at a participating financial institution. Upon approval, the loan will be registered with Industry Canada.

This program is not available for farming businesses, not-for-profit organizations, or charitable and religious organizations.

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Small Business – Less Tax

However you dissect the finances of a business, specifically a small business, cash is the primary component of the bottom line. The more cash in the coffers, the more flexibility the business has.


The current global recession has dealt extremely harshly with Canadian small businesses. Reduced sales and credit restrictions have pummeled the cash flow of many worthy enterprises.

The Canadian government, seeking to ease the plight of this important and large sector of the country's business community, has established several stimulus programs through its Economic Action Plan to provide much needed economic relief. Realizing that continued growth of small business is dependant upon available cash, the federal government has passed legislation that increased the amount of small business income eligible for a reduced federal tax rate of 11 percent. Effective January 1, 2009, the eligibility cap was raised from $400,000 to $500,000. Canadian-controlled private corporations that claim the small business deduction are eligible for this credit. By increasing the eligible income by 25 percent, the federal government is helping small businesses retain more of their hard-earned cash. This, in turn, will help stabilize the business community, create new, much-needed jobs, and promote economic growth throughout the nation. It is estimated that this reduced tax rate will cost the country more than $120 million over the next two years. However, with nearly half a million Canadians out of work, it is a wise investment and money well spent.
Canadian businesses can obtain detailed information from the applicable federal government agencies.

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Bank Of Canada: Strong Canadian Dollar may Reduce Economic Growth

With predictions abound of economic recovery in the third quarter of this year, the Bank of Canada has issued a warning – not its first – that the strong Canadian dollar may pose a serious threat to the nation's financial comeback.

The Deputy Governor of the Bank of Canada, Timothy Lane, recently addressed economists at a meeting of the Canadian Association of Business Economists. Mr. Lane's speech did not veer much from the official viewpoint of the country's central bank. He warned that a strong Canadian dollar will reduce economic growth and will delay the return of inflation to its target. In fact, as the bank has made certain projection in regards to inflation, Mr. Lane feared that the continuing strength of Canada's currency may force a revision of those predictions.

Mr. Lane explained that the Bank of Canada has tools at its disposal to deal with the rise in the dollar's strength. However, the Bank's options are limited, with interest rates at an historic low of 0.25 percent. At this point, the most the Bank can do is issue verbal warnings to speculators to try and steer them away from the Canadian dollar. Most economists agree that Bank intervention in foreign exchange markets is highly unlikely. Another step the Bank could do, and is highly unlikely, is quantitative easing – literally, the printing of money. Mr. Lane did not give any indications, though, that the Bank is considering this unconventional step.

One of the leading factors of the currency's rise in value is attributed to higher commodity prices, in turn leading to a Canadian recovery. Similarly, the weakening of the U.S. dollar is a contributing factor.

While Mr. Lane views global financial recovery as moving forward, and Canadian recovery as one of the leaders, he remains cautious about committing to a complete recovery in the third quarter.

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The Price of Ending the Recession

Government officials and economic analysts are in common agreement that Canada is headed out of the recession. While there are disagreements as to the exact timeframe, there is a fact that is common to all parties – the price tag.

For a country that proudly presented a balanced budget for twelve consecutive years, Canada had to revise its budget projections for the thirteenth year and for several years to come. Canadian Finance Minister Jim Flaherty recently announced his department's projection of a $50.2 billion deficit for the current fiscal year. He was quick to add, though, that this figure is "consistent" with meeting the deficit target. The government projects that it will present deficit budgets for the next four years, adding nearly $100 billion to the national debt. The current deficit is due primarily to several factors: falling tax revenues, both personal and corporate; a massive 47% increase in unemployment insurance premium payouts; and huge bailouts to the auto industry as well as other business subsidies.

While Mr. Flaherty is holding to his optimistic prediction of returning to a balanced budget in 2013-14, Prime Minister Stephen Harper, and several leading economists are somewhat more realistic in their forecasts. However, both the Prime Minister and the Finance Minister are in agreement that tax increases and major spending cuts are not being considered in order to expedite a balanced budget.

Some analysts have suggested that drastic changes to the budget are not advisable. Rather, once the stimulus programs spending has been depleted, the government should adopt a program to control spending growth. This will enable the government to eliminate the deficit over a period of several years.

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