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Why Your Local Small Business Feels Burned By The Carbon Tax

Who is picking up the tab? The corner store, your dry cleaner and the small manufacturer.
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If you live in Saskatchewan, Manitoba, Ontario or New Brunswick, you've been hearing a lot about the carbon tax rebate coming your way after filing your 2018 income taxes. You know, the one that is supposed to be larger than the amount you actually pay toward the new federal carbon backstop that kicks in on April 1. While many of us may have a healthy skepticism about whether the rebate will actually cover all of our new direct and indirect costs of the carbon tax, consider the situation facing the half-million small businesses spread across the four provinces.

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If Canadian families get a rebate that is bigger than the amount they pay, guess who is picking up the tab? That's right — the neighbourhood corner store, your dry cleaner and the small manufacturer. In fact, Canadian small- and medium-sized companies, along with municipalities, universities, school boards and hospitals, will pay nearly 50 per cent of the billions in new carbon tax revenues, while they will be eligible for just seven per cent back in grants and rebates over the next five years.

This accounts for a promised $1.5 billion over the next five years, though details on how that will be administered have not yet been released, adding to small business's frustration. What's worse is that while large companies have their own pricing schemes and output-based subsidies, many of them will have a huge portion of their emissions exempted from the carbon tax.

There is only so much that a business can pass to its customers before it prices itself out of its own market.

Households will be paying the other 50 per cent of the tax, but get back 90 per cent of the revenues through rebates. The government has justified the disparity in allocated revenues by saying that small businesses can just pass the extra costs on to their consumers. But any small business owner can tell you that it's seldom a simple matter of raising prices. In fact, in a recent CFIB survey, 80 per cent of firms said they would be able to pass less than a quarter of the cost along to customers, with over half saying they expect to be able to pass on zero in the short to medium-term. Instead, many will be forced to absorb a majority of the new costs, limiting their ability to hire new staff, raise wages or invest in new technology.

The new carbon tax is just one of several cost increases that small businesses are being asked to absorb. They are already dealing with five consecutive years of Canada Pension Plan increases that started in January. Once the rates are fully raised, employers will be paying up to $1,100 more per employee per year and double that for themselves. There is only so much that a business can pass to its customers before it prices itself out of its own market.

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Businesses that export to countries that don't have a carbon tax, for example, will be at an even greater disadvantage. Similarly, our bricks-and-mortar retailers are facing ever-greater competition from large U.S. online retailers who don't have a new carbon tax, such as Amazon or eBay.

To add insult to injury, the federal government has done a poor job of communicating the mess of new rules about exemptions and registrations that the tax has created. Some businesses could face a $2,000 fine if they have not registered with the CRA by April 1, and many may lack the information they need to do so.

Small business owners care about doing their part for the environment. Eighty-four per cent of those CFIB polled have already taken measures, such as recycling, reducing electricity usage, using environmentally friendly products and making their buildings more energy-efficient, to reduce their carbon footprint because they believe that it's the right thing to do. While the government wants to encourage businesses to further reduce their emissions by making investments in clean tech, many SMEs report they cannot afford to make the big investments, like green retrofits or buying a new fleet of vehicles. A new tax makes that more, not less, difficult. And even the small sliver of the new carbon tax revenue that is earmarked for rebates for small business is not in place yet. It appears, once again, small firms are an afterthought when government designs its policies and approaches.

Small business owners feel they are being taken for granted and treated unfairly by the federal backstop plan. If reducing Canada's carbon emissions is everyone's responsibility, why is government exempting much of the emissions from the big guys and rebating individual Canadians more than they actually pay? Wouldn't the fair thing to do be to stop the plan and work with provinces on a less-harmful approach? At minimum, shouldn't small firms be able to get a rebate that is similar to the amount they will pay in the new tax?

It is not too late for the federal government to change directions. Small firms are counting on our political leaders to listen.

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