Despite the fact they are often ill-treated by governments, SMEs are an essential component of a dynamic economy and a well-functioning democracy.
It has always been known that running a small business is a risky endeavour, and some recent data confirm that assertion. Federal Industry Department statistics show that Canada suffered a loss of over 131,000 small- and medium-sized businesses (SMEs) during the period from 2019 to 2023. This loss represented about 11 per cent of the SME community. These years encompassed the pandemic, which was the major reason for the loss of so many small firms. Businesses with fewer than five employees were the hardest hit, which is typical in tough times as these enterprises have fewer resources to rely upon than larger entities. Small retail businesses also suffered more than other sectors as consumers shifted to online shopping or only shopping for necessities.
Most businesses of all sizes suffered during the pandemic, but government policy ensured that smaller firms suffered the most. In many provinces, large retailers were permitted to remain in operation while smaller firms were shuttered for no good reason. Once the pandemic was effectively over and economic activity started to slowly return, the federal government piled on tax increases in such areas as payroll levies for CPP and EI, and payroll taxes are especially punitive to smaller firms. The Trudeau government also refused to extend the deadline for the key small business loan program, the Canada Emergency Business Account (CEBA), for an additional nine months as requested by SMEs, creating more financial difficulty for smaller firms.
A focus on so-called climate policies by both federal and provincial governments also conspire against smaller businesses. Ontario is a good example, where large electricity users can access programs to reduce their rates while nothing similar is available to SMEs. In fact, small firms have often been told that they should run their businesses overnight at off-peak times to access cheaper energy costs, which is virtually impossible for the vast majority of small businesses.
The federal government said they would rebate 10 per cent of carbon tax revenues to small businesses in 2019, but nothing was rebated for years until the accumulated rebates amounted to $2.5 billion by 2024. The government had initially promised to make these rebates tax-free but then appeared to renege on that promise as when rebates were finally sent out in late 2024, they were taxed. This matter is still not resolved as the government has once again said they will take the tax off these rebates but can’t make the legislative changes necessary when Parliament is not sitting as is the current situation.
Industrial policy of most governments also discriminates against SMEs. A recent example was the massive subsidies the federal and Ontario governments provided to large and profitable manufacturers of electric vehicle (EV) battery plants. These types of subsidies effectively take the tax dollars from smaller firms and use them to subsidize large corporations. Subsidies to corporations rarely work out to be advantageous economically, as they are typically motivated by partisan considerations, not economic necessity. The EV battery plant subsidies – estimated in total at over $50 billion to date – are beginning to look like an especially large boondoggle as consumer demand for EVs has slowed and the election of Trump has led to the cancellation of many of the Biden climate initiatives that Canada was attempting to copy. The recent bankruptcy of Swedish EV battery manufacturer Northvolt means that plans for its $7 billion Quebec facility are up in the air and does not bode well for the future of this industry.
Considering the way SMEs have been treated in Canada over the last decade or so, you can’t blame them for holding a grudge against governments which rarely take their concerns into account. Although Conservative governments are often accused of being overly generous to large corporations, the opposite is actually true. History shows that Liberal or other left-leaning governments are happy to cozy up to large crony capitalists with subsidies and preferential legislation and neglect smaller firms, while Conservative governments implement better policies for SMEs. Governments that prioritize onerous regulatory regimes, most recently in the name of climate considerations, are also deadly for smaller businesses as the costly red tape created falls disproportionately heavily on them.
Despite the fact they are often ill-treated by governments, SMEs are an essential component of a dynamic economy and a well-functioning democracy. In Canada, SMEs represent roughly half of GDP and employment, and punch above their weight in terms of net job creation. One of the reasons for Canada’s poor economic performance over the last decade relative to other developed countries is that government policies have not been friendly to SMEs. As it looks like we will be having a federal election very soon, it will be interesting to see which political parties prioritize the interests of this important component of our economy and society and propose policies to reverse the damage done in recent years.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
