A report written by an Ottawa business professor together with Restaurants Canada and the Canadian Federation for Independent Business (CFIB) is calling on the federal government to temporarily freeze EI premiums as small businesses across the country continue to grapple with rising costs.
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A report written by an Ottawa business professor and commissioned by Restaurants Canada is calling on the federal government to temporarily freeze EI premiums as small businesses across the country continue to grapple with rising costs.
Ian Lee, associate professor at the Sprott School of Business at Carleton University, authored the report, which examines the role of small businesses in the Canadian economy and the impact that recent rises in EI premiums have had on them.
Originally, the report was meant to illustrate “how dependent we are in Canada on small businesses,” said Lee. But in his research, Lee said he saw that insolvencies and bankruptcies among small businesses have increased drastically.
“It started as a way to show that small businesses are not some tiny little niche ecosystem or population, they’re huge. They represent half of the country’s employment in the private sector,” he explained. “But when we look at before, during and after the pandemic, risk has gone up.
“This is partly because of the significant increase of minimum wage, the inflation of goods and food products, but, ultimately, small businesses are being squeezed more so than in the past,” Lee continued. “And the thing is, it’s actually worse now. The trend shows that the situation is worse.”
The report, titled “On the Precipice: Help is Needed,” was published earlier this month and studied empirical trends using data from Statistics Canada; Innovation, Science and Economic Development Canada; the Bank of Canada; and the Business Development Bank of Canada.
Canadian Federation of Independent Business (CFIB) data referenced in the report found that for 71 per cent of respondents, payroll taxes were the most detrimental form of taxation. Sixty-four per cent of respondents named taxation as their most serious concern.
To provide relief, Restaurants Canada and CFIB are calling on the federal government to decrease the EI premium rate to 1.58 per cent for small businesses and their employees, from the current rate of 1.66 per cent. They are not proposing a change in premiums for medium-size or large businesses.
Kelly Higginson, president and CEO of Restaurants Canada, said the report supports “a smart policy decision that can bring profitability and stability back into the industry.”
Because the food service and restaurant industry is so labour-intensive, Higginson said small businesses are “bearing the brunt” of rising costs, with more than 50 per cent of Restaurants Canada members either operating at a loss or “barely breaking even.”
“We can’t ask suppliers to cut costs because they have pressure, too. So what can we do and how can we impact the profitability, viability and stability of this industry?” said Higginson.
“We’ve recommended a study on how to decrease the burden of taxation,” she continued. “But every little bit helps right now, so we’re focusing on smart policy decisions that are doable and make a difference.”
Anish Mehra, owner of the East India Company on Somerset Street West, has been working with Lee and Restaurants Canada on the report. He reiterated Higginson’s statement that “every little bit helps.”
“This is not a big ask of the federal government to do this, but for restaurants and operations of our size, it would mean a lot. It’s a small give from them but a big result for us,” he explained. “This would save anywhere from hundreds to thousands of dollars for most restaurants, and for restaurants on that line, this could save them and take the pressure off.”
Though he said his restaurants are not at the “make or break” point, he sees restaurant owners across the industry – himself included – trying to save costs in any way they can, including shopping themselves or taking on additional hours. Some are also raising prices.
“For most restaurants, including myself, we’re trying to navigate it, we’re raising our prices, but it’s a fine balance of trying to raise prices but not to scare customers away,” Mehra continued.
“As we’ve had costs increasing, it’s all been going up faster than most of us can match or navigate.”
The Tourism Industry Association of Canada has also joined the cause, with CEO Beth Potter arguing that “such financial burden should not fall upon the shoulders of small businesses and fledgling employees who require these earnings to aid in post-pandemic recovery and combat high inflation.”
The last time the government provided similar tax relief to small businesses was in 2020. Now, Lee said barriers to repeating the process are “largely political” as a federal election approaches in 2025.
“It's a trade-off and, in this instance, if you reduce premiums, there’s less money in the EI fund,” explained Lee. “But you’re also reducing claimants because you’ll be mitigating the bankruptcies and insolvencies of small businesses.
“I’m arguing that we cannot risk a very substantial increase in bankruptcy that will throw thousands and thousands out of work,” he said. “I’m arguing for temporary relief on EI premiums to try to mitigate the increasing rates of bankruptcy and insolvencies.”
The report and its findings may have unearthed further issues for Lee.
“The report started with supporting CFIB and Restaurants Canada with advocating for the (EI) tax freeze,” said Lee. “But now, I’m calling for the entire suite of taxation to be re-examined.”
To make small businesses more sustainable in the long run, Lee proposes reducing premiums, then “looking at the larger picture” and “analyzing our taxation system at a federal level.”
Lee said he hopes the report helps to inform and educate people about the state of small businesses and their impact on the economy and what they need to succeed.
“Because of my philosophical outlook, which is that market economies are the future of growth and prosperity and employment, this is me trying to make change in my own tiny way,” said Lee. “Instead of looking at companies as greedy profiteers, we should see them as an engine of growth.
“Instead of asking why they’re charging so much, we should ask, ‘Why are they doing so badly?’” he continued. “I want to flip the narrative.”
